Lloyd’s coverholder Kita has secured re/insurer Tokio Marine Kiln as lead capacity provider for the launch of a political risk product aimed at high-growth carbon markets.

Tokio Marine Kiln (TMK) has partnered with Kita, a carbon credit insurance specialist, to provide political risk insurance for developers of, and investors in, carbon credit projects.

James Kench

TMK is among the first to implement this type of policy in the Lloyd’s market, and the new cover Kita is providing aims to enable projects to mitigate the financial risk of political instability to their ability to sell and export credits.

The product insures project developers and their investors against risks of confiscation, nationalisation, forced abandonment, license cancellation and political violence, led by Ed Parker, head of special risks at TMK.

It covers losses for both parties should a project’s host country revoke agreements that enable the credits to count towards external offsetting strategies.

“We are at a critical juncture when it comes to offsetting strategies,” Parker said.

“They could not be more vital as the world tries to move at pace towards net zero, but increasing political instability is impacting projects designed to produce carbon credits,” he added.

Carbon credit projects are at increased risk from geopolitical developments that impact their ability to sell credits, with heightened political volatility in many of the regions where projects are based.

“Political uncertainty in the carbon markets is holding back necessary financing of high-quality projects,” said James Kench (pictured), head of insurance at Kita.

“Political risk insurance has the potential to significantly mitigate the risks associated with correspondingly adjusted credits and protect anyone investing or operating in politically uncertain environments,” he said.

Kench spoke about the new political risk product ahead of its release in the latest episode of The Political Risk Podcast, here.

The new product is intended to mitigate these evolving risks, providing more certainty for investors and engendering confidence in the voluntary carbon market.

The availability of cover aims to add to the viability of new projects, with the assessments provided by Kita and TMK aimed at providing a layer of reassurance to carbon investors.

“In collaboration with TMK, Kita’s new carbon political risk cover provides protection against traditional political risk and contract frustration perils, as well as bespoke coverage for carbon delivery failure,” Kench said.

“For example, should a host country either revoke a project’s Article 6 authorisation or fail to apply a corresponding adjustment as promised, insurance would cover the costs and prevent wider financial impact that may inhibit progression of the project and its success,” he continued.

“Working with TMK to deliver this essential cover will help to unlock more investment into the voluntary carbon market to drive climate action now,” he added.

Parker said: “This issue is even more pertinent now as so many industries are facing increasing regulation around their offsetting and developers simply cannot afford to keep investing in the creation and maintenance of projects if they won’t be able to sell the credits when they are revoked.

“Our partnership with Kita will provide much-needed security against these risks and make the development of carbon projects more sustainable long-term,” he added.

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