For the environmentally conscientious consumer who has it all, South African insurer BGL Group has unveiled another climate-friendly offering - carbon neutral car insurance.

Its subsidiary ibuyeco has launched what it claims is Australia's first climate-friendly car insurance policy. The new product incorporates the cost of offsetting the annual carbon emissions of the vehicle into the premium. The additional cost is invested into forestry projects, water quality improvement, salinity abatement and habitat restoration. BGL Group also sells car insurance in Australia through Budget Direct.

Ibuyeco has partnered with Greening Australia, which will oversee investment in environmental projects.

Greening Australia calculates the cost of emissions based on the type of vehicle, the make and model, and the number of kilometres driven each year.

IAG and Suncorp are reportedly watching how well the BGL product is received before launching competing green policies.

IAG has announced it will go carbon neutral by 2012, and it offers advice to customers on reducing their emissions. Subsidiary company NRMA Insurance is trialling carbon offsets on new comprehensive car insurance policies until February.

Carbon offsetting has become the favoured method for business to achieve "carbon neutral" status.

However, the market is still emerging and largely self-regulated. It has faced criticism over its effectiveness in tackling climate change, and a lack of transparency over how and where dollars are invested.

Critics say one big deficiency is the unstable price of carbon which, depending on the project, can be anywhere between $9 and $40 a tonne.

Ibuyeco's car insurance policies are underwritten by Auto & General Insurance Company Limited.