As developer interest in carbon capture and storage technology grows, an insurance market that specifically covers and assesses related risks is growing right alongside it.
Federal incentives related to carbon capture and sequestration [CCS] found in the 2022 Inflation Reduction Act and funding from the U.S. Department of Energy's [DOE] Office of Clean Energy Demonstrations have spurred development of a number of projects across the country, including in McLean County — although those plans are currently on pause.
In December, the DOE announced around $890 million in funding could be distributed to three projects in North Dakota, Texas and California, depending on how award negotiations with project applicants go. The projects are part of an ongoing push from the Biden administration to get the U.S. closer to net-zero carbon emissions by 2050.
CSS technology works by capturing emitted carbon dioxide — usually from a large industrial operation, like a power plant or an ethanol-producing facility — compressing it, then transporting to underground wells for indefinite, monitored storage.
Gibson City-based ethanol producer One Earth Energy had its eye on sites in rural McLean County for such projects, although a December county board vote put a temporary halt on that project. Under the LLC One Earth Sequestration, the company applied for a special use permit to place three storage wells in eastern areas near Saybrook. [The wells were in addition to a separate pipeline proposal submitted to the state; the plan was to pipe captured CO2 from the Gibson City plant to the wells in McLean County.]
In a series of public hearings that concluded in December, the county's Zoning Board of Appeals heard hours of testimony from both project proponents and opponents, many of whom were affiliated with Bloomington justice group Illinois People's Action.
Some, however, had questions about liability.
Who would be responsible if something went wrong?
John Minier told ZBA members a lawyer advised him against contracting to allow a well on his land, a revelation that "hurt" to hear, given the possibility of a lucrative deal.
Sally Lasser, the owner of a certified organic farm outside of Gibson City, also had concerns about liability — concerns specific to her unique, 160-acre operation. Testifying before the ZBA members and in a subsequent interview with WGLT, Lasser said she learned her insurance coverage would be revoked if she allowed a well onto her property.
"I was like, 'Are you kidding me?' It was like someone dropped a bomb in my lap," Lasser said in an interview. Someone "made a remark to me [that] I must have a bad insurance company. It's like, no, that's just what an underwriter brought to an agent that day, and they might take a different position on it later, or come to the same conclusion."
Lasser attempted to submit a letter from her insurance agent to the ZBA, but procedural rules during the hearings barred her from entering it into evidence. Later, Lasser shared the letter with WGLT, which said the decision had been made by an underwriting team "based upon all the information at this time."
The company Lasser is currently with does not comment to the media on individual insurance policy matters. Neither did Bloomington-based insurance giant State Farm, which when contacted said it would not be a "resource" on the topic or answer related questions. The Illinois Farm Bureau, which has taken stances on CCS and related eminent domain issues also said it does not advise members on issues related to CCS and insurance.
That said, some multinational insurance groups see the burgeoning CCS industry as an opportunity for new risk management and protection services as developers seek to get projects off the ground.
For storage wells in particular, which require what's called a Class VI Well Permit from the EPA, a permit applicant must prove their ability to pay for anything that could go wrong.
That's where insurance could come in.
"In this space, while many of the associated risks are not new, some are, and they are best managed by insurance," said Everett Hansen, an assistant vice president for Marsh, a leading, multinational insurance broker and risk advisor firm.
"Insurance markets will certainly need to adapt to address carbon-specific risks, but the good news is we're not starting with a blank slate," he said.
While CCS is still, in large part, seeking to get off the ground in the U.S., there are similar practices in other industries that can provide data that informs risk assessments specific to CCS. Hansen pointed to enhanced oil recovery in particular.
"The purpose of that process is to extract otherwise unobtainable oil, but the end result is geologically sequestered carbon dioxide. And that provides an analogous risk profile that can be used to identify, assess and manage some of the risks associated with commercial carbon capture and sequestration operations," Hansen said.
Earlier this week, another global insurance provider announced what it called a "first-of-its-kind" insurance facility — or coverage options — for CCS.
The firm's new insurance facility "provides for environmental damage and loss of revenue arising from the sudden or gradual leak of CO2 from CCS projects not the air, land and water," according to a trade publication.
It's a direct response to growing decarbonization efforts across the planet, which one market research firm noted in 2023 is gaining momentum in North America especially, with funding initiatives from the U.S. driving that growth.
Those funding initiatives, which are commonly tax credits to companies pursuing carbon management projects, also provide an opportunity for insurance firms to offer new services.
"The risk that's a primary concern to those that are attempting to enter this space is the financial risk associated with the potential loss of tax credits that drive the bankability of these projects," said Marsh's Hansen. "We see that financing parties are likely to require what's called 'tax credit insurance' as a condition to their investment. This type of insurance can be structured to cover the events that would threaten the loss of... a tax credit."
Those events include not qualifying for tax credits after all, leakage of CO2, or other "business interruption risks," Hansen added.
A Chicago-based management consulting firm, McKinsey & Company, wrote in 2022 that insurers could play a pivotal role in a global, clean energy transition since they have a once-in-a-generation opportunity to address these new forms of volatility — and help catalyze an orderly transition to net-zero emissions — through product and solution innovation."
When asked, Hansen added the extent to which this kind of coverage becomes a common offering among other, non-multinational companies, such as the one that insures Lasser, is "a possibility."
One market research firm projects the gloabl CCS market will reach a value of nearly $8 billion by 2030, signaling an opportunity for massive growth — industry-wise and profit-wise — for both the CCS market and the insurance market seeking to cover any fallout from it.
"Within maybe the next 2-3 years, we expect a large number of these projects to begin construction and probably anywhere from a year to two after that, depending on the size, enter operations," Hansen said. "We'll really get an idea at that point of just how much investment is coming into this space — and what opportunity exists to really decarbonize a majority of the energy and power sectors."
