Insurance broker Atlantic Global Risk LLC, an expert in transactional risk solutions, has successfully placed the inaugural tax liability insurance policy for a major transaction in the carbon capture and sequestration (CCS) sector. This milestone highlights Atlantic’s dedication to delivering innovative insurance products and supporting the energy transition.
Following the implementation of the Inflation Reduction Act, an Atlantic client in the Midwest saw an opportunity to leverage Section 45Q’s financial incentives to meet environmental goals and enhance economic performance. The CCS project aims to sequester millions of tons of carbon dioxide in a secure underground formation via a Class VI well over a 12-year period.
To fund the significant investment required for the CCS project, the client engaged in a tax equity “partnership-flip” structure for part of the 12-year Section 45Q credit period. Future financing is anticipated through additional tax equity transactions or tax credit transfers, depending on which structures offer the best outcomes.
Recognizing the central role of 45Q tax credits in the project’s economics, the client understood the risk of losing the credits, which could jeopardize indemnification and guarantee obligations. Despite the tax equity investor not requiring tax insurance due to the client’s strong credit rating, the client saw value in a tax insurance policy from A-rated insurers to protect against the loss of tax credits.
Atlantic collaborated with nearly all tax insurance underwriters in North America to create and place the first-ever 45Q tax insurance policy. The policy protects the client against potential issues with facility qualification for the credits, transferability, and recapture.
The policy has a 10-year coverage period with an aggregate liability limit of $785 million, offering comprehensive protection against potential losses and safeguarding the client’s investment and sustainability efforts.
Brown & Brown Insurance’s energy practice in Minneapolis served as the broker for the casualty lines of insurance for the client.
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