Buffer pools: Why the carbon market needs a new approach to permanence and how insurance can help

Renoster has collaborated with CarbonPool on a new white paper, "Buffer pools: Why the carbon market needs a new approach to permanence and how insurance can help.”

Permanence is a critical concern for carbon credit buyers and developers. Ensuring that removed carbon stays sequestered is essential for slowing global warming, achieving net zero, and maintaining the integrity of climate claims. We need to ensure the carbon we remove remains permanently stored.

The reality is that carbon sequestration is rarely permanent. Forests fires, insects infesting biomass, and leaking carbon storage facilities are examples of permanence risk. To mitigate these risks, current mechanisms rely on ‘buffer pools,’ where a percentage of issued credits from each project are aggregated into a central pool to compensate for any reversals—instances when sequestered carbon is released back into the atmosphere. Registries claim buffer pools guarantee permanence, but this is not the case.

Our analysis reveals that:

• Buffer pools are likely inadequate, potentially too small to cover possible losses as they fail to assess relative risks of each project effectively or account for natural variability.
• Reversals may go undetected and uncompensated since monitoring usually ends when a project stops issuing credits, leaving decades of promised ‘permanence’ unmonitored.
• Lack of transparency in buffer pool operations makes it difficult to evaluate their effectiveness, though transparency and auditability are crucial for the voluntary carbon market (VCM) to function efficiently.

A proven solution lies in insurance. Specifically, in-kind insurance can address the limitations of buffer pools by covering losses even in extreme scenarios, calculating premiums based on real project risks, and ensuring compensation for 100 years in a transparent, auditable manner.

This white paper details the functionality and shortcomings of buffer pools and proposes how in-kind insurance can resolve these challenges. We outline how carbon credit registries can transition from buffer pools to insurance, securing the permanence sought by developers and buyers, and aiding the maturation of the carbon market.

Download and read the paper here.