Why Insurance Providers Demand Carbon Storage Risk Assurance

Jason Eleson

Principal, Decarbonization

Why Carbon Storage Insurance Has Become Critical for CSS Projects?

The rapid growth of carbon capture and storage (CCS) projects in the United States is being driven largely by one mechanism: the federal 45Q tax credit. Strengthened by recent legislation, it has become the economic foundation for many U.S. CCS developments, underpinning investment decisions across industrial, power, and energy sectors.

Yet as CCS projects move from concept to execution, regulatory approval alone is not enough to ensure project viability. A new gatekeeper has emerged: Insurers. Specifically, insurance products designed to protect against the financial consequences of 45Q tax credit recapture are becoming increasingly important, particularly as new investors enter the CCS space.

For many operators, this has revealed a critical disconnect; regulatory compliance does not guarantee insurability. Understanding what insurers need and why they need to see more than an approved CCS injection program is now essential for insurance coverage for CCS projects.

Why Regulatory Compliance Alone Does Not Guarantee CCS Insurance Coverage?

U.S. CCS projects are regulated through a well‑defined framework, including EPA Class VI injection permits and state‑level oversight. These regulatory processes are designed to ensure environmental protection and public safety by establishing minimum technical and operational standards for CO₂ injection and storage.

Insurance companies, however, operate under a different mandate.

While insurers may reference regulatory approvals as a baseline, their primary concern is financial exposure. For 45Q‑eligible projects, this exposure is tied directly to the risk that injected CO₂ could escape from the subsurface to the atmosphere during the 15‑year monitoring period, triggering recapture of previously claimed tax credits.

As a result, insurers apply their own independent evaluation criteria. They often require additional technical analysis, scenario planning, and risk quantification beyond typical regulatory requirements. Operators who approach insurers expecting a permit‑driven process are frequently surprised to learn that further work may be required before coverage can be attained.

Why 45Q Recapture Insurance Has Become a Financing Requirement?

The growing importance of insurance in CCS development is closely linked to changes in project financing. As CCS projects scale, they increasingly attract new classes of investors, including infrastructure funds and institutional capital, that have low tolerance for unbounded downside risk.

For these investors, the possibility of having to repay tens or hundreds of millions of dollars in tax credits due to CO₂ leakage represents an unacceptable risk. As a result, 45Q recapture insurance coverage has become a prerequisite for investment in many projects.

Projects that cannot demonstrate insurability may face:

• Delays in financial close
• Reduced access to capital
• Additional unplanned technical work
• In some cases, stalled or canceled development

In this environment, insurance readiness is no longer a secondary consideration. It is becoming a core component of CCS project planning.

How Legacy Wells Influence Carbon Storage Insurance Risk?

One of the most consistent and significant concerns for insurers relates to wells that penetrate the injection or confining interval, particularly older legacy wells.

Many CCS sites are located in regions with long histories of subsurface activity. Older wells may have been drilled, plugged and abandoned decades ago under standards that differ significantly from today’s requirements. Common challenges include incomplete well documentation, inadequate plugging and abandonment practices or potential for degradation of the plugged wellbore from original conditions.

From an insurer’s perspective, these wells represent credible potential leakage pathways. As a result, insurers want detailed answers to questions such as:

• What wells exist within the area of review (the region that could be impacted by the CO2 plume and associated increase in formation pressure)?
• When were they drilled, and to what standards?
• Were they properly plugged and abandoned?
• What is their current condition?
• How will they be monitored over time?

In some cases, insurers may require operators to evaluate whether legacy wells need to be re‑entered, remediated, or re‑abandoned to reduce leakage risk.

While regulatory frameworks address many of these issues at a high level, insurance underwriting typically demands a deeper, more granular assessment, particularly where uncertainty remains.

Why Insurers Require Quantitative CO₂ Leakage Risk Assessment?

A second major point of divergence between regulatory and insurance perspectives lies in quantification.

Regulators often focus on whether leakage is likely and how it would be detected. Insurers, by contrast, need to understand how much CO₂ could leak and at what rate under a range of plausible scenarios.

For insurance underwriting, qualitative statements are not sufficient. Insurers are asking:

• If leakage occurs, is it expected to be kilograms per day, tonnes per day, or orders of magnitude higher?
• How long could leakage persist before detection and intervention?
• How do leakage rates vary depending on failure mechanism (e.g., well integrity, seal failure, faults or fractures)?

These questions are fundamental to pricing risk and defining policy limits. As a result, insurers often require quantitative modeling, severity‑versus‑likelihood assessments, and benchmarking against analogous CCS projects and historical leakage incidents worldwide.

Why Mitigation Planning Matters for Carbon Storage Insurance?

Preventing leakage is only part of the insurer’s concern. Equally important is understanding what happens if something goes wrong.

Insurance providers want clear, credible answers to questions such as:

• What specific actions would be taken if CO₂ leakage were detected?
• Who would be responsible for intervention?
• What equipment and resources would be required?
• How long would remediation realistically take?

Time matters. From an insurance perspective, the duration of leakage can be just as important as the total volume released. Longer response times translate directly into greater financial exposure.

Insurers expect operators to plan for a range of outcomes, not a single outcome where everything goes to plan.

Why Alternative Scenario Planning Strengthens CCS Insurability?

Across all three risk areas, a common theme emerges: alternative scenario planning.
Insurers are not evaluating CCS projects based solely on their most optimistic case. Instead, they are interested in understanding:

• What could happen under less favorable conditions. Example: more CO2 is leaked from legacy wells than previously modeled.
• How risks change over time Example: how does risk change during vs. after injection?
• Whether mitigation strategies have been stress-tested. Example: what happens if a relief well must be drilled at the same time a hurricane comes onshore?

Projects that focus only on best-case operational performance may struggle to meet insurance requirements. By contrast, projects that proactively explore a range of operational and containment scenarios are better positioned to demonstrate bounded risk and secure coverage.

How Sproule ERCE Supports Carbon Storage Risk Assurance

As insurance products for 45Q recapture continue to evolve, best practices are not yet fully standardized. They are being developed in real time, informed by active projects and real underwriting decisions.

Sproule ERCE brings a hands-on perspective to this process, with direct experience supporting 45Q recapture insurance policies for major US CCS projects. This work includes technical diligence conducted on behalf of primary and excess insurance markets, often under tight timelines and with large policy limits at stake.

Beyond insurance, Sproule ERCE works across the broader CCS lifecycle, collaborating with operators and regulators to address subsurface risk holistically. This cross-stakeholder engagement provides insight into how regulatory expectations, technical realities, and insurance requirements intersect, and where they diverge.

Why Early Insurance Planning Improves CCS Project Bankability?

A key lesson emerging from recent CCS projects is that timing matters.

Projects that integrate insurance considerations early, during site selection, well evaluation, and MRV/MMV design are better positioned to secure 45Q recapture insurance quickly and without major technical diligence or updates to operational plans.

As CCS continues to scale, insurance is becoming a defining factor in project viability. The ability to demonstrate regulatory compliance is no longer sufficient on its own.

Projects that can answer these questions with confidence are far more likely to secure 45Q recapture insurance and, in turn, attract investment.

Ultimately, insurance readiness is not an administrative hurdle. It is a reflection of how thoroughly a CCS project understands and manages subsurface risk. For operators, investors, and insurers alike, addressing that reality early is becoming essential to long-term success.

🔗 Click here to explore our featured case study on how independent carbon storage risk assessment supported the placement of a large 45Q recapture insurance policy for a U.S. CCS project.