Carbon capture and storage: Has the insurance market adequately responded to operator needs?

With key climate milestones rapidly approaching, the energy transition is at the forefront of many oil and gas companies’ minds, as they continue investing in carbon capture and storage (CCS) projects to abate their emissions. Between 2022 and 2023, the number of CCS projects in construction and development increased by 57%.

The pace of deployment will continue to increase with over 855 Mtpa of carbon capture capacity to be in operation by 2030 globally, 74.5% of which will be from projects based in the U.K. EU, or U.S. (Source: Global CCS Institute).

The coming years will be crucial in the implementation of this technology as 83% of global CCS projects are still in the development stage. With potential projects ranging from small local solutions to large new international CCS networks, what should CCS stakeholders be conscious of when prioritising regional investment decisions and the associated risks? We will examine how the different regulatory regimes in the key CCS jurisdictions of the U.K., EU, and U.S. incentivise CCS investment and how these regulatory differences alter the risk requirements potential investors should consider.

CCS insurance considerations

For the capture and storage stages of the CCS value chain, the insurance market considers many of the associated risks to be within business-as-usual appetite. Whether this be risks associated with the construction of capture technology, or the transport of CO₂ through pipeline, the market has comfortably understood these risks for several years and provided cover on this basis. One potential coverage gap in this space is the risk associated with the tax incentives claimed for the emitter of CO₂. In the instances where this CO₂ is not captured at the expected rate, or the volume of CO₂ permanently stored does not equal the volumes claimed, there emerges a tax liability that the emitter may be responsible for. Tax insurance markets are emerging to fill this gap but is it a nascent product area given the relatively new changes to the 45Q credits.

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