By Fiona Nanna, ForeMedia News

4 minutes read. Updated 5:00PM GMT Fri, June 21, 2024

Carbon credits, essential for aiding companies in achieving their net-zero commitments, are generated by projects that either remove or avoid carbon emissions. These credits also channel vital funding to conservation and carbon reduction projects globally. However, the market’s growth has been hindered by concerns over the quality and authenticity of these credits. Howden’s innovative policy aims to address these concerns by ensuring the environmental benefits claimed by projects are genuinely achieved.

Enhancing Market Trust

The first adopter of Howden’s policy is the British company Mere Plantations. The policy has been applied to 300,000 credits generated from a significant project in Ghana. This project, focused on restoring 10,000 acres of degraded land within the Afram Headquarters Forest Reserve, is expected to sequester 2.9 million tonnes of carbon between 2011 and 2031.

Howden’s policy provides protection against fraudulent activities at the project level, offering assurances regarding the integrity of the credits produced. This is anticipated to enable project developers to command a premium price for these verified credits. For instance, if a project were to sell the same credits more than once—a malpractice known as double counting—resulting in the original buyer being unable to claim the full environmental impact, the policy would compensate for the provable loss.

Market-Based Quality Assurance

Charlie Pool, head of carbon insurance at Howden, explained, “We are using a market-based mechanism to write those bars to quality into legal language. We are using a regulated industry to bring in the governance and regulation the market lacks.” This approach ensures that quality assurance is embedded at the stage of credit creation rather than post-sale, acting as “prevention rather than a cure.”

Howden already offers products for buyers of carbon credits, covering them against third-party negligence and fraud. This new policy further reduces the reputational risks for companies investing in carbon credits, thereby enhancing market confidence.

The introduction of Howden’s warranty and indemnity policy is expected to allow project developers to charge a premium for covered credits. According to Renoster, a Texas-based company that rates the quality of carbon projects, other afforestation, reforestation, and revegetation projects generate credits with a median price of $17, ranging from $0 to $35. The assurance provided by Howden’s policy could potentially push these prices higher by guaranteeing the authenticity and integrity of the credits.

Howden’s pioneering effort to introduce a warranty and indemnity policy for carbon credits marks a significant step toward improving the credibility and reliability of the carbon credit market. This development is poised to enhance trust among investors and buyers, driving further investment into vital conservation and carbon reduction projects worldwide.

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