As carbon offset strategies become more integral to meeting emissions targets and environmental disclosures, insurers are stepping into a growing risk space.
Gallagher has launched a carbon credit insurance offering in Australia, targeting exposures across the lifecycle of Australian Carbon Credit Units (ACCUs) for both project developers and credit buyers.
Carbon credits allow companies to offset emissions by funding or purchasing credits generated by activities that avoid, reduce, or remove carbon dioxide equivalents from the atmosphere.
In Australia, ACCUs are issued under the Emissions Reduction Fund (ERF) and are primarily used within the federal government’s Safeguard Mechanism, which applies to major industrial emitters.
Under this regime, facilities emitting more than 100,000 tonnes of CO₂-equivalent annually must either reduce emissions or procure ACCUs to offset the excess.
Outside the compliance system, many organisations are also engaging in the voluntary carbon market (VCM), purchasing credits to meet corporate sustainability goals, demonstrate climate leadership, or pursue carbon neutrality.
Gallagher said both compliance and voluntary markets present risks for participants.
Buyers may face shortfalls if a project fails to deliver the expected volume of credits (non-delivery) or if credits are invalidated after issuance – commonly referred to as reversal risk.
Nature-based solutions like reforestation are particularly susceptible, as events such as bushfires can negate stored carbon benefits. In these cases, businesses may need to replace credits at short notice and at greater cost.
For project owners, safeguarding the integrity of emissions reduction or sequestration activities is critical. Unforeseen regulatory changes, shifts in land tenure, or interruptions due to natural catastrophes can all threaten a project's ability to deliver credits.
Additionally, evolving carbon accounting methodologies or standard updates may disqualify issued credits or reduce their market value.
Gallagher highlighted that its carbon credit insurance is designed to address these exposures, offering coverage against delivery failures, price volatility, catastrophic damage, counterparty default, and regulatory disruptions. These insurance mechanisms aim to improve market confidence and financial predictability for both credit issuers and corporate buyers.
In parallel with developments in carbon markets, renewable energy project investments are expanding – but not without financial and operational hurdles.
FM Global’s latest research into the sector found that most solar and wind developers are planning to scale output, while nearly three-quarters of investors intend to boost infrastructure spending.
However, 64% of lenders and over half of investors surveyed reported that demand for financing outpaces available capital. A project’s ability to withstand disruptions – whether from extreme weather, supply chain challenges, or mechanical breakdown – was cited as a key consideration in funding decisions.
Construction-phase risks include rising equipment costs, permitting delays, and logistical constraints. Once operational, projects face additional vulnerabilities from natural hazards, equipment failures, and limited availability of replacement components.
FM Global’s findings also pointed to ongoing uncertainty in the sector. Respondents highlighted limited transparency from technology manufacturers, challenges in understanding local environmental conditions, and the rapid pace of innovation as barriers to more resilient development. These issues have led to higher insurance premiums, increased construction costs, and difficulties securing full coverage.
