Artio eyes nature-based removals pipeline as Lloyd’s startup grows project covers

By Rebecca Delaney

Aug 14 - (The Insurer) - Artio co-founder and CEO Bilal Hussain explains why it is important to specialise in underwriting carbon credit insurance policies by project type rather than bifurcating between voluntary and compliance markets.

Artio launched in March as a Lloyd’s startup offering early-stage carbon credit delivery insurance. With Tokio Marine HCC International leading the capacity panel of Markel and Apollo, Artio secured Lloyd’s coverholder status in May.

“When we looked at the market, most of the insurance that was available came in just way too late. It came in when the trees were already planted, the project was already operational, the risk was already internalised, or maybe the investment didn't even happen because they didn't want to take that leap,” Hussain told Sustainable Insurer.

“That's the problem we wanted to fix. We wanted to come super early before the first tree is planted and help the developer get to market. That's our sweet spot in the feasibility stage.”

Having insurance conversations earlier in the process also allows Artio to include methodology risks within its coverage, which provides protection in the event that a carbon registry rejects the project.

“That was quite a key coverage that we brought to market where it wasn't really available before. In a lot of products, there's a little asterisk that says, ‘We don't cover project registration failure.’ We don't have that asterisk,” said Hussain.

Offering an all-risks policy means Artio must balance adequately addressing a project’s risks while ensuring that the product is commercially viable and that the capacity panel is comfortable with the risk modelling.

“It's a new market, you can't have a partnership with a carrier that finishes in two years' time. It's a long-term partnership, so there's no point hiding things. They're not going to go launch their own product yet, they're working with you on this,” said Hussain.

Requests are driven by U.S.-based projects and across the Global South, in particular in India, Kenya and Ghana due to their strong policy environments. Hussain added that Japan is emerging as a key jurisdiction for corporate buyers of carbon credits.

He continued that Artio seeks to specialise in underwriting according to project types, rather than focusing on classifications between the voluntary and compliance markets.

“For us, it's less relevant if it's voluntary or compliance, it's just that we have to be comfortable with the risk itself,” he said.

Artio currently provides coverage for afforestation, reforestation and revegetation projects that establish new forests or restore degraded land by planting trees and implementing soil conservation practices.

It also covers biochar projects, with plans to expand coverage to enhanced rock weathering projects later this year.

Last month, the UK government published the response by the UK ETS Authority to a consultation on the planned integration of greenhouse gas removals into the UK Emissions Trading Scheme (ETS) from 2029, with legislation to be finalised by 2028.

“A lot of the projects we're looking at now won't actually be delivering credits until 2029 or 2030. If a government gives a signal that by 2030 they're partially integrating with compliance, then the investment needs to go in today. Providing the security of the investment is when you really need insurance,” said Hussain.

“The biggest challenge is the type of projects. In the UK, there's a 200-year permanence requirement for storage durability, which limits it to project types such as enhanced rock weathering, direct air capture and biomass energy carbon capture solutions (BECCS).”

The government said it will continue to assess the possible inclusion of high-quality nature-based removals and will provide further updates as evidence and methodologies develop.

“That's quite an important balance to have in the market – how do you prioritise afforestation and woodland creation, but also make sure that they're durable credits? Everyone's trying to put these durability timescales, but what it ends up doing sometimes is excluding short-term removals,” Hussain said.

“Currently, most of the pipeline for us is nature-based removals. There’s a big chunk of biochar projects, but it’s largely afforestation and improved forest management because they're much more scalable. We are seeing a few more requests come in for BECCS; we aren't fully confirmed if that's something that we want to be pursuing, but we try to be led by market.”

He continued that there is currently a prioritisation of large projects across BECCS and other types of carbon capture technologies, as well as a focus on large afforestation projects in the U.S., which is largely driven by regulation.

“I believe a big chunk of the market is being left out of these conversations, which is the smaller developers. To really truly achieve scale, we need much more collective action and a lot more smaller projects coming to market,” Hussain concluded.

“There's a gap in financing small projects and that's an area of focus for us. Insurers are experts in syndication and portfolio coverages, so it could be one of the solutions to aggregate them. It does require them all being on the table at once and then figuring it out, rather than everyone doing their own thing, which can get quite tricky.”