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Why the risks posed by CCS demand an adapted approach from insurers

With the regulatory framework in any given geography underpinning the economic viability of projects, there is a heightened importance in understanding the financial impact of any release of the CO2 across the removal chain.

Q&A: Understanding the insurance implications of CCS

As the drive for decarbonization accelerates, carbon capture and storage (CCS) will be a vital tool in supporting the transition to a lower-carbon economy.

By capturing CO₂ emissions before they reach the atmosphere and securely storing them underground, CCS is enabling a broad range of hard to abate sectors to reduce their carbon footprint. Candidates include cement manufacturers, grey hydrogen facilities, iron and steel works, power plants, and ammonia production. But all opportunities come hand-in-hand with risk.

As the CCS market expands, business leaders must navigate evolving regulations and new contractual frameworks to map and quantify their potential liabilities. Understanding these risks — and how to mitigate them — is increasingly important. To help map this emerging landscape, our Head of Climate and Sustainability Strategy, Amy Barnes, sat down with Global Lead for CSS Hannah Jennings.

AB: Before diving into insurance and risk, can you explain the commercial model for CCS, and what that means for businesses in the value chain?

HJ: Sure. Traditionally, industries have been able to vent the CO₂ associated with their products without directly incurring an economic cost. Now with countries formalizing commitments to achieve net-zero, there are an increasing number of incentives and subsidies in place to create a business model to capture and store that CO₂.

Increasingly, there's a real economic case for businesses to invest in CCS and therefore a risk to protect.

In response, and to leverage the economies of scale across the chain, what we're seeing is a kind of hub or cluster model emerge with numerous emitters across industries looking to capture their CO₂, then pay a tariff to a third party who will aggregate those various CO₂ streams within their transportation infrastructure (e.g. pipeline, compression, temporary storage, vessels), and potentially another entity again providing the final geological storage.

AB: So in simple terms, in this new model, there are three core stages in the CCS value chain: emission capture (and necessary liquefaction), transportation, and storage. Can you talk us through the risk issues and the operational issues associated with each of them?

HJ: Off-spec CO₂ — that is, concentrations of impurities present in a carbon dioxide stream that don’t meet the agreed specification of the shipper (or transporter) — can pose a risk for any player involved in the CCS chain. This is an area of focus where the purity of the source CO₂ hasn’t previously needed to be considered, whereas blue hydrogen and ammonia already produce food grade CO₂.

In the past, many CO₂ emitters weren’t concerned with the purity of the CO₂ they produced, because it was a by-product they vented. Now it's going to be piped (or shipped) and stored, the consistent quality of the CO₂ across each removal chain is really important — the infrastructure is designed around it.

Added to that, owing to the diverse sources of CO₂ captured from emitters, commingling these streams at shared infrastructure (e.g. the onshore storage terminal) makes this consistency a challenge that each player in the chain will need to manage.

AB: Can you explain why off-spec CO₂ poses such a risk?

HJ: To give just a few examples, if you have too much water content in CO₂, it forms carbonic acid, which is corrosive and hence has the potential to damage the CO₂ pipelines. Also, carbon dioxide contains oxygen. If there are contaminants, CO₂ vessels can incur a boiling liquid expanding vapour explosion (BLEVE), releasing the energy trapped in the equipment or infrastructure.

Another important consideration is that anything that results in its release to atmosphere in high concentrations could impact human health and the immediate environment. Although CO₂ is not very reactive or flammable, it poses a toxicity and asphyxiation hazard at certain concentrations.

Alongside some of the physical risks, there is a serious economic impact even in the event the CO₂hasn’t caused physical damage: once revealed to be off-spec, the entire system may need to be vented — it can’t be sent up the chain to be stored unless it meets pre-defined criteria. Depending on the geography of the project, this could result in a cost of acquiring ETS allowances, the return of upfront tax credits, as well as a drop in the emitter’s product value (e.g. cement or power value) when it's no longer zero-carbon emission. Due to the comingling of CO₂ from many different sources, this could have implications for everyone in the removal chain, depending on the point at which the issue is identified.

Of course, the importance of monitoring is well understood by all parties in the removal chain, with commitments made to ensuring the quality standards will be complied with and mitigating the risk of exporting off-spec CO₂ to the network. For that reason, there are clear metering specifications that must be adhered to, including how such metering is operated and maintained.

AB: Is the insurance industry ready to assess these risks?

HJ: The good news is that there is already a huge amount of expertise in handling CO₂, including measurement and controlling its specification. To date, that experience is largely via carbon utilization: CO₂ has been used for decades in the energy space to enhance oil recovery, as well as the food and beverage industry where a much higher purity is required.

This experience gives the insurance sector confidence that the associated risks are well understood and can be successfully managed, albeit this is a new scale and application. Having the proper controls in place means that the likelihood of major incidents is very low, and these fortuitous events can therefore be underwritten and transferred to the insurance market.

Generally, in the CCS space, the main insurance challenge is not the physical risk posed by CO₂ but rather understanding both the regulatory and contractual landscape across the removal chain and each party’s associated liability. Often when we're trying to map the risk profile for a specific entity within that value chain, the contracts aren't matured enough yet to quantify the totality of their liability. This needs to be considered both upstream and downstream given how interdependent the players are within the removal chain.

AB: What are the potential gaps that companies might need to look out for when considering insurance for CCS?

For the most part, existing insurance does a great job at meeting the risks posed throughout the CCS chain. I think what is new as a theme is the demand for a non-damage trigger. Conventionally, from an insurance standpoint, you need to have a damage trigger of some kind. Insurers have historically rarely provided insurance for non-damage events because they can often fall outside the parameters of a fortuity (unexpected and unintended event) and are therefore generally considered a business risk. But in the case of CCS, because the non-damage events that can cause a financial loss are supported by engineering to evidence their low probability, Marsh has been able to negotiate coverage on this enhanced basis.

Outside of triggers, the new element of insurance cover is protecting the financial incentive that underpins the CCS business model but is lost should a leak occur anywhere in the system, for example the cost of an ETS credit in Europe or forfeiting the 45Q tax credit in the US.

AB: How is Marsh able to understand and define this risk?

HJ: The way we hope to do it is by repurposing existing insurance rather than trying to build something completely new, and clients are helping us crystallize the risk and their associated financial security requirements. That's ultimately what insurers need. They need to be able to get their hands around the ask: what is the exposure that you're asking me to cover? Where does it begin and end? What data do we have to back it up and demonstrate the low probabilities of that loss occurring? The amount of collaboration that has happened between stakeholders within this full CCS value chain has been crucial to developing an economic model that supports its development. These partnerships and the broad engagement behind them have helped to define the buckets of risk that exist for each of our clients in any single part of the full value chain and in turn, supported our creation of new products to transfer these risks.

AB: With CCS partnerships and the chain often span geographical borders. Can you tell us more about how Marsh navigates insurance and regulation across borders?

HJ: A number of geological storage sites are being developed on an open-source basis, providing access to emitters from across countries rather than limiting user demand to the domestic supply of CO₂. This adds a new dimension to the value chain, since users of the store (emitters) could be subject to completely different economic regimes and, incentives in their country. So, the same loss at a shared third-party storage site could have different implications for an emitter based in France, than one based in the Netherlands. In developing new solutions, it has been crucial to understand first, what are your incentives in your country, and therefore your potential downside if this doesn't go to plan? And second, what are the liabilities apportioned to you within the contractual framework? What are you passing down the chain, what is getting passed on to you, what risk are you retaining? The work we have undertaken for governments and regulators in addition to the CCS infrastructure owners has been crucial to building our understanding of the complete picture.

AB: To summarize, there are different kinds of risks playing out through every part of the process, and you need insurance that understands that complex ecosystem and can model it to ensure you’re fully covered throughout this developing supply chain.

HJ: What we would say is, by identifying all the risks via a thorough risk mapping process, you can unlock more valuable, laser-focused solutions. At Marsh, we want to avoid piecemeal solutions and the key to that is understanding and presenting the full picture, then quantifying the elements for which you’re seeking risk transfer solutions. Clients often tell us, “Look, I have an exposure of X. Whether my CO₂ leaks from my own premises or that of a third party I'm sending it to, I want one insurance policy to indemnify me for my resultant losses.” If we can get our arms around the totality of our clients’ risk early on, it means that instead of a siloed approach, we’re well equipped to put in place an all-encompassing competitive solution that does exactly what a client needs, nothing more, nothing less.

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Article

Why the risks posed by CCS demand an adapted approach from insurers

Q&A: Understanding the insurance implications of CCS

Meet the authors

Amy Barnes

Hannah Jennings

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Why the risks posed by CCS demand an adapted approach from insurers

Q&A: Understanding the insurance implications of CCS

Meet the authors

Amy Barnes

Hannah Jennings

Related insights

Designing resilience and celebrating impact: Davos 2025

P&I club’s: Sustainability report overview summary

Preparing your business for winter weather

Climate change and workforce sustainability