In the Australian carbon credit market, especially under the Australian Carbon Credit Units (ACCU) scheme, Gallagher now offers carbon insurance solutions that address risks across the carbon credit lifecycle for both issuers/project developers and buyers of ACCUs.
Companies utilise carbon credits as an essential tool to mitigate emissions to help meet regulatory requirements and stakeholder expectations, as carbon reduction through direct actions can be challenging.
With greater emphasis on transparency, accountability and reporting around achieving climate goals, the strategic purchase of carbon credits may be pivotal to a company's environmental, social and governance (ESG) strategy.
How the carbon credit markets operate
Carbon credits are a tradeable financial product and represent the avoidance, reduction or removal of one tonne of carbon dioxide equivalent (CO₂-e) units from the atmosphere. They incentivise carbon abatement activities that:
- reduce emissions: projects that lower the amount of greenhouse gases released into the atmosphere such as technology that improve energy efficiency
- remove emissions: projects that physically remove carbon dioxide from the atmosphere, often referred to as carbon sequestration. E.g. reforestation and soil carbon capture in agriculture
- avoid emissions: projects that prevent future emissions that would otherwise occur such as forest conservation projects.
Carbon credits can be traded in two key markets: the compliance carbon market (CCM) and the voluntary carbon market (VCM).
In Australia the compliance carbon market is regulated under the Safeguard Mechanism, which applies to facilities emitting more than 100,000 tonnes of CO₂-e annually. These facilities are required to stay below their emissions baseline or offset the excess using ACCUs, issued under the Emissions Reduction Fund (ERF). This regulated system targets large emitters and is designed to help meet Australia's legislated emissions reduction targets.
The voluntary carbon market operates outside regulatory mandates. It enables organisations to voluntarily purchase and retire carbon credits — such as ACCUs or international offsets — to meet corporate sustainability commitments, achieve carbon neutrality or support climate-positive initiatives. These credits are typically certified by standards such as Verra (VCS), Gold Standard or the Australian Clean Energy Regulator (CER) through the ERF framework.
Businesses intending to use voluntarily purchased carbon credits should be aware that some conditions and exclusions apply. While Australia's compliance carbon market predominantly uses ACCUs, certain international voluntary carbon credits are also permissible under specific schemes, such as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).
However, international credits are not accepted for compliance under Australia's domestic Safeguard Mechanism, which mandates the use of domestic units like ACCUs and Safeguard Mechanism Credits (SMCs).
Although smaller in volume, the voluntary market in Australia is growing rapidly, with projections the VCM could reach over US$40 billion globally by 2030, driven by investor pressure, ESG obligations and net-zero commitments. Voluntary buyers play a vital role in funding innovative carbon abatement projects that may not qualify for government funding or compliance markets.
Australian companies and investors may also have international operations or interests which bring exposure to either the VCM or other national or regional CCMs.
Australian buyers can acquire carbon credits through direct purchases from project developers, carbon brokers, retail trading platforms, and exchanges. While the Clean Energy Regulator's ERF auctions have historically been a primary source for ACCUs, the secondary market has grown significantly, offering diverse avenues for procurement.
What are the risks for businesses trading in carbon credits?
There are a range of risks associated with carbon projects and the carbon markets.
From a buyer's perspective, non-delivery and reversal risks are particularly significant. Non-delivery occurs when a project fails to generate the expected volume of carbon credits, leaving buyers short of the credits they need. Reversal risk arises when previously issued credits — especially from nature-based projects like reforestation — are invalidated due to events such as wildfires or non-compliance, potentially even after the credits have been retired. In such cases, businesses may be forced to seek replacement credits at short notice and higher cost in order to maintain their environmental claims or meet regulatory requirements.
For sellers of carbon credits, protecting the integrity of the underlying carbon sequestration or abatement project is essential. Key risks include natural catastrophes — such as bushfires, which can compromise carbon storage and lead to credit reversals. Additionally, political and regulatory risks — such as changes in land tenure, carbon market rules or government intervention — can disrupt project delivery or affect credit validity. Non-delivery and invalidation of credits can significantly impact both the financial and reputational outcomes of organisations relying on these instruments for compliance or sustainability goals.
How carbon credit insurance can help businesses de-risk losses
Carbon credit insurance can help carbon credit buyers and sellers de-risk their transactions and ensure greater confidence in the market by targeting some key risks.
Over-forecasting
Projects may overstate emissions reductions due to flawed baselines, assumptions, or methodologies — leading to shortfalls in credit issuance or delivery.
Market price volatility
Credit price swings can expose parties to financial risk, especially when non-delivery forces last-minute, higher-cost replacements.
Natural catastrophes
Events like bushfires or floods can damage sequestration projects, reversing stored carbon and resulting in invalidation or non-delivery.
Counterparty risk
Default, fraud or non-performance by developers or intermediaries can disrupt transactions — especially in unregulated, over-the-counter deals.
Changes to carbon standards
Methodology updates or policy shifts by registries can trigger disqualification or invalidation, even post-issuance.
Political and regulatory risk
Legal or policy changes — such as nationalisation, revocation or cancellation of key licences or project authorisations or credit export bans — can jeopardise project outcomes or market access, which can be a particular concern in the case of projects located in or credits otherwise originating from emerging markets where, for example, recourse to robust, independent legal or regulatory protections may be limited if available at all.
How Gallagher can help with de-risking carbon credit transactions
Navigating the complex landscape of carbon credits requires expertise and a nuanced understanding of both risks and opportunities.
Leveraging a global knowledge base and strategic partnerships, our Climate and Sustainability team ensures that clients are equipped to tailor their pathway through the transition to a low-carbon economy, with our experts available to support you every step of the way.
Contact us today to ensure your carbon credit strategies are robust, compliant and aligned with your sustainability goals.
