ERS and Kita to operationalise innovative insurance for ERS’s carbon buffer pool

ERS and Kita have signed a Letter of Intent (LOI) related to their shared objective of increasing confidence in the voluntary carbon market (VCM) and driving financing to scale high quality carbon projects.  

This LOI is indicative of the next evolution of carbon buffer pools, linking them with insurance to enable (i) increased resilience in the face of unexpected loss; (ii) efficiencies of scale around risk modelling, data analysis and MRV; (iii) increased liquidity by providing insurance policies that could feasibly reduce risk-assessed buffer contributions; and (iv) a financial backstop, helping build confidence with both sellers and buyers of carbon alike. 

A buffer is a central pool of carbon credits to which each project developer is required to individually contribute, and these credits are not allowed to be sold. Carbon standards created buffers as an inbuilt insurance mechanism, to ensure integrity of the carbon scheme regarding permanence. Buffers are designed to protect the buyers of carbon credits, primarily against reversal risk. 

Kita and ERS will work collaboratively, with other partners as needed, to determine the best mechanisms via which Kita can provide insurance to ERS’s buffer with the aim of covering its early-stage delivery risk, thus providing resilience until the buffer achieves critical mass. Kita’s Carbon Purchase Protection Cover is well placed to help manage this early-stage delivery risk, building crucial market trust by providing financial security for buyers and sellers taking a risk on a new buffer, as well as providing financial security for the buffer itself as it builds to scale. 

The Ecosystem Restoration Standard certifies ecosystem restoration projects in the VCM. Through its leading-edge certification, ERS enables market access for ecosystem restoration projects, which have historically been under-certified. Currently, only 3% of carbon credits are issued from reforestation efforts.   

Kita is the carbon insurance specialist. Kita’s purpose is accelerating investment in high-quality carbon projects in line with the urgency of the climate crisis. With insurance products that reduce transaction risk and safeguard the performance of carbon purchases, Kita removes barriers to action by giving investors the stamp of confidence to engage in the market now. 

By working together, ERS and Kita offer a new vision for carbon market buffer frameworks. Moving forward, the two organisations are keen to test if insurance-backed buffers can increase liquidity by reducing risk-assessed buffer contributions and better assess fungibility between types of credits. 

Natalia Dorfman, CEO and co-founder, Kita said: “Buffers are continuing to evolve to meet emerging market needs, with carbon standards updating buffer requirements and risk modelling to take into account scientific developments and ever more sophisticated MRV techniques. At Kita, we believe that incorporating insurance is part of the next stage of buffer evolution and we are delighted to be working with ERS to provide innovative new solutions that will channel financing towards high quality carbon projects.” 

Thibault Sorret, CEO, Ecosystem Restoration Standard said: “After a successful Public Consultation phase, we recognise that integrating insurance is a crucial part of the next stage of buffer evolution. Our partnership with Kita is a significant step forward in strengthening our permanence and risk profile of nature-based carbon projects. We strongly believe strengthening buffer pools safeguards in the face of increasing climate-related reversal risks is not only prudent but necessary.” 

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