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Howden creates warranty and indemnity policy for carbon credits

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carbon credit

(Reuters) — Insurance broker Howden Group said it has helped create the world's first warranty and indemnity policy for carbon credits as part of efforts to improve trust in the market.

Carbon credits, which are generated by projects that remove or avoid carbon emissions, are seen as an important tool for helping companies meet their net-zero commitments and deliver finance to conservation and carbon reduction projects.

Yet growth has been held back by quality concerns, including over whether the claimed environmental benefits of a project actually happened, something Howden's policy aims to fix.

The first buyer of the policy is British company Mere Plantations, which has applied it to 300,000 credits generated from a project in Ghana that aims to restore 10,000 acres of degraded land within the Afram Headquarters Forest Reserve.

The project is expected to remove 2.9 million tons of carbon between 2011 and 2031.

Howden's policy aims to protect against fraudulent activity at project level, giving assurance over the way credits were produced, something that is expected to allow project developers to charge a premium for the credits.

If, for example, a project has sold the same credits twice, so-called double counting, leaving the original buyer unable to claim the full environmental impact, the policy would pay out the loss that the buyer could prove.

“We are using a market-based mechanism to write those bars to quality into legal language,” said Charlie Pool, head of carbon insurance at Howden. “We are using a regulated industry to bring in the governance and regulation the market lacks.”

Pool said Howden's initiative will act as “prevention rather than a cure” because it provides assurance at the level of credit creation, rather than once credits are sold into the market.

Howden already offers a product for buyers of credits that covers them for third-party negligence and fraud, thereby reducing the potential reputational risk for companies of buying carbon credits.

Howden said the warranty and indemnity should allow project developers to charge a premium for the credits covered by the policy.