6 October 2022
Deep diving into buffer pools
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Risk buffers are designed to mitigate the risk of reversals in carbon projects. However, in our view, they fall short of providing adequate system-wide insurance of the risks posed. We highlight three key factors where more work is required to provide broader insurance products to help scale the market:
Project-specific risk assessments vary considerably across registries, meaning buffer pool contributions may not always match the risk profile of the project.
How the risk buffer is practically used in the case of reversals varies across registries and is not always clear from public disclosures.
Market participants need more sophisticated tools that better model risks and match the payouts to the losses in case of any reversal events.
Authors include Katelyn Gwin, Amnique Sidhu, Ana Karla Nobre Dias and Dr Kirti Ramesh.