Swiss Re, Climeworks sign world’s 1st & largest 10-year carbon removal purchase agreement

The summer of 2021 is nearly over and with it came a vast variety of extreme weather events around the world giving a peek on climate crisis consequences – Hurricane Ida’s record-breaking damage and flooding impact from New Orleans to New York, record high temperatures in Moscow, the heat dome and wildfires in North America’s Pacific Northwest, record flooding in Germany and China, wildfires in Greece, Turkey and Italy. Swiss Re and Climeworks see this as a call to action and are partnering up by signing the world’s first and largest 10-year carbon removal purchase agreement with direct air capture and storage worth $10 million to help limit global warming.

In today’s Digest, what the Swiss Re and Climeworks partnership entails, how Climeworks direct air-captured CO2 tech works, how it can help climate change, and more.

The 10 year $10 million deal

Swiss Re and Climeworks, a leading specialist in carbon dioxide air capture technology, are partnering to combat climate change. The partners signed the world’s first long-term purchase agreement for direct air capture and storage of carbon dioxide, worth USD $10 million over ten years.

For Swiss Re, the collaboration marks a milestone towards its goal of reaching net-zero emissions in its own operations by 2030. The partnership is also a sign of Swiss Re’s support for the carbon removal industry and gives the Group early access to the new carbon removal risk pools and asset classes.

Both the length of the term of ten years and the total value of USD $10 million are so far unmatched in the voluntary market for this type of high-quality carbon removal, sending an important demand signal to developers, investors and other buyers. The companies also agreed to collaborate on developing risk management knowledge and risk transfer solutions, as well as to explore future investment and project finance opportunities.

The Climeworks tech

Climeworks says their “carbon dioxide removal via direct air capture technology is the only solution that can reduce atmospheric concentration of CO₂ in a scalable manner by capturing CO₂ from the air today and storing it permanently underground.”

The technological carbon removal solution offered by Climeworks in Iceland filters carbon dioxide from ambient air using geothermal energy. The captured CO2 is then sent for permanent storage in nearby rock layers. It is dissolved in water and pumped deep underground, where it reacts naturally with the surrounding basalt rock to form stable carbonate minerals – the CO2 literally turns into stone. This is considered the safest, most durable form of all carbon removal solutions that are commercially available today, according to Climeworks.

This September, Climeworks is going to launch its new large-scale direct air capture and storage plant “Orca” in Iceland, bringing large-scale direct air capture technology to reality.

At a price point of several hundred dollars per ton of CO2 removed, it is at present also one of the costliest options. Larger, more economical air-capture and storage facilities can only be realized if customers are committed to long-term purchasing agreements. They guarantee a future revenue stream to the developers, making new projects fundable.

Carbon removal projects can use nature-based solutions like afforestation, which comes with many co-benefits, such as improved biodiversity. They are, however, limited by other types of land use and are vulnerable to the re-release of the stored carbon, eg through wildfires. This is why technological carbon removal solutions like direct air capture and storage are necessary to limit global warming over the long run, said Swiss Re.

Swiss Re’s role

Bringing climate solutions to scale not only requires the right demand signals, but also de-risking and financing. The insurance sector is uniquely positioned to offer support on all three fronts: through long-term purchase agreements, providing insurance capacity for evolving risk pools, and investments in new asset classes, as described in the recent Swiss Re Institute report on the insurance rationale for carbon removal solutions.

Swiss Re has committed to achieve net-zero emissions in its insurance and investment business by 2050, and in its own operations already by 2030, following its ’Do our best, remove the rest’ approach that aims to first of all reduce emissions as much as possible before balancing any residual emissions through carbon removal.

Swiss Re committed in 2019 to reach net-zero operational emissions by 2030 by reducing their carbon footprint and removing any residual emissions. They are walking the talk by committing to a unique long-term partnership with Climeworks.

The partnership with Swiss Re is of integral importance to Climeworks: the re/insurance industry is at the forefront of assessing complex risk structures including those of climate change. Re/insurers are capable of structuring those risks and allocating them in an efficient way. Swiss Re’s unique long-term commitment sends once again a strong signal emphasizing that a pure and unfiltered climate solution like Climeworks’ technology is important to reach the Paris Agreement climate targets.

Supporting the rapid scale up

This commitment is by its nature providing a structure for interested buyers to enter into similar purchase agreements with Climeworks. Swiss Re is sending a key demand signal to carbon removal solution providers and investors. Pioneering customers like Swiss Re and their long-term commitment prove that a market for measurable and permanent carbon dioxide removals already exists today and will grow significantly in the future. Bringing climate solutions to scale not only requires the right demand signals, but also de-risking and financing. This is why the partnership between Swiss Re and Climeworks goes beyond the pioneering 10-year carbon removal purchase agreement with further joint activities being assessed together.

Reactions from the stakeholders

Christoph Gebald, co-CEO and co-founder of Climeworks said, “We are very proud to have established the basis for a unique long-term partnership with the leading risk knowledge company Swiss Re. This is a decisive milestone for the scale-up of Climeworks and the direct air capture industry.”

Christian Mumenthaler, Swiss Re’s Group CEO and Co-Chair of the World Economic Forum’s Alliance of CEO Climate Leaders said, “To mitigate the risks of climate change, the world needs to scale-up carbon removal on top of, not instead of emission reductions. By partnering with Climeworks we can play to our strengths in this endeavour, as a risk taker, investor, and forward-looking buyer of climate solutions.”

Bottom Line

Climate change solutions are not a one size fits all concept and this world’s first and largest partnership on carbon removal is an interesting one to see not just how it goes but how it may spur other investments and other partnerships to further move the needle on climate solutions.