Facilitating permanent carbon storage through risk transfers? Analyzing the insurability of the carbon leakage liability

Geological storage of CO 2 is expected to play a role in mitigating climate change, especially for carbon capture and storage (CCS) in hard-to-electrify sectors, and for carbon dioxide removal (CDR) under net-zero targets. One challenge of geological CO 2 storage is the risk that CO 2 later returns to the atmosphere. Policymakers aim to address this risk by imposing CO 2 leakage liabilities on storage operators, potentially also mandating insurance cover. However, whether such liabilities are insurable is still open given the undeveloped state of the insurance market for this risk. Here, we adapt the Berliner (1982) framework from insurance economics to this question, to consider actuarial, market, and social factors that might constitute barriers to insurability. Due to the lack of a loss history, we systematically use the upstream oil & gas industry as an analogy. Combining expert workshops and techno-economic estimates, we find two barriers: the possibility of correlated material failures across the industry and gradual leakages, which will likely have to remain uninsured initially (though increased experience will likely improve the situation). We also find three general preconditions for insurability: appropriate care in site selection, robust regulations for information sharing and risk mitigation, and limited coverage periods to exclude CO 2 price volatility. Overall, the insurability of CO 2 leakage does not appear to be a roadblock for the deployment of CCS and CDR. The future price of CO 2 emissions and removals, however, remains an important uncertainty. ‘In-kind’ insurances (based on reserve CO 2 units) are a possible way out.