UNEP Finance Initiative
Members Underline Industry Role in Renewables
to Current and Future Forest Carbon Projects
Poznan, 10 December
2008 - Weather-related natural disasters
are now outstripping ones linked with earthquakes
by an ever widening factor, the UN Environment
Programme (UNEP) and insurers said today.
Thomas Loster, chair
of Munich Re Foundation and a member of
UNEP’s Finance Initiative, said: “Since
the 1980s, earthquakes have risen by around
50 per cent but weather-related hazards
such major floods have increased by as much
as 350 per cent and those from wind storms
have doubled”.
The rise, in the line
with the kinds of forecasts by the Intergovernmental
Panel on Climate Change (IPCC), are increasing
risks for vulnerable communities and countries
while putting strain on the global re-insurance
and insurance markets.
A preliminary assessment
of the costs and impacts of some key natural
disasters, compiled by Munich Re’s NatCat
Service, shows that the most costly event
of 2008 was the earthquake in China in May.
However the largest numbers
of significant disasters were weather-related
by nine to ten with Cyclone Nargis, which
hit Myanmar in May, claiming an estimated
84,500 lives.
It was thus the most
deadly event of 2008 but also costly for
the country triggering uninsured economic
losses of $4 billion.
China suffered two major
weather-related events too the worst of
which was in January when extreme winter
weather triggered losses of an estimated
$20 billion followed by the May-June period
when huge floods left a $2 billion loss
tag.
Other significant events,
the full details of which will come in Munich
Re’s full report in 2009, included severe
weather ones including typhoons in the United
States.
In many ways 2008 proved
to be a record-breaking year despite sea
surface temperatures in places like the
Caribbean being lower than in the previous
years when, for example Hurricane Katrina
struck the Louisiana coast in 2005.
Hurricane Fay set records
by hitting the state of Florida a total
of four times dumping almost 30 inches of
rain on some parts of the state.
“Meanwhile Cuba suffered
three hits this year and in total six hurricanes
in a row all made landfall. Taken together
these are really unusual, and record-breaking
events,” said Mr Loster.
Achim Steiner, UN Under-Secretary
General and UNEP Executive Director, said:”
The re-insurance and insurance industry
has for many years been on the front line
in terms of climate change. UNEP has been
working with the industry since 1992”.
“The industry is not
only vulnerable to rising weather-related
disasters however. It is also has an important
role in the profitability and viability
of many of the solutions- from creative
insurance policies and products that can
assist home-owners and businesses in at-risk
areas up to new and innovative ones that
cover operators of wind farms against unusually
calm and economically challenging weather
conditions,” he added.
Insuring a Renewable
Future
UNEP for example has
been working with Paris Re, a European company,
to develop a cost-effective and tailored
weather derivative in Mexico.
The wind resource, even
in very windy areas, can vary as much as
10 to 20 per cent between years.
The policy, based on
one developed for farmers in Mexico and
in Ethiopia, triggers a payout to a renewable
energy generator when wind levels drop below
a certain predetermined level.
Eric Usher, Head of
UNEP’s Renewable Energy Finance Unit, said:
“Previous attempts at such instruments have
often proven too be expensive to be utilized,
costing operators as much as 16 per cent
of their monthly revenues. In contrast the
derivative developed for the market in Mexico
is likely to be a in the range of 3 per
cent making it much more attractive”.
UNEP is now working
with a consortium of MunichRe, RSA Insurance
Group, CarbonRe, and insurance companies
from a number of developing countries to
develop a Global Renewable Energy Insurance
Facility.
The Facility, which
is expected to be launched next month, aims
to bring a wider range of innovative insurance
and risk management products to assist the
growth of renewables and clean energy in
developing economies.
“Perhaps the biggest
challenge to the industry’s creativity is
now emerging - how to underwrite the profitability
of carbon markets and carbon funding as
it relates to forests,” said Mr Steiner.
Insuring Future Forests
Under the Clean Development
Mechanism (CDM) of the Kyoto Protocol developed
countries can offset some of their domestic
emissions by funding projects such a renewable
energy and certain types of forestry ones
in developing countries.
But of the roughly 4,000
projects registered or in the pipeline of
the Clean Development Mechanism, only 27
or 0.7 per cent are for “afforestation and
refforestation” says a report issued today
by UNEP FI.
The value of forestry
credits or “Certified Emission Reductions”
have been trading on forward markets at
2-3 Euros per equivalent tonne of C02, it
says.
Credits for other kinds
of CDM projects such as wind power and fuel-switching
trade between 65 per cent and 80 per cent
higher.
The report outlines
a variety of challenges that need to be
overcome, challenges that will become ever
more pressing if Reduced Emissions from
Deforestation and Forest Degradation (REDD)
emerge as part of a new post-2012 global
climate deal at next year’s UN climate convention
meeting in Copenhagen.
Up to 20 per cent of
current greenhouse gas emissions are as
a result of deforestation and nations are
mid-way through negotiations that could
see developing countries paid to keep their
forests intact.
However a wide variety
of issues remain to be resolved not least
how to ensure that a forest involved in
such a scheme does not disappear overnight
and release its carbon into the atmosphere
as a result of say fire, floods or win storms.
Experts believe the
insurance industry could play a key role
in realizing the success of REDD.
A survey of 18 leading
insurance and re-insurance companies in
Canada, Europe and Japan underline the challenges
and opportunities.
Currently, 40 per cent
of those questioned said they were involved
in forest insurance at some level and in
some countries covering perils ranging from
fire to damage from snow, hail, pests, wind
storms and earthquakes.
However the vast majority
are cover private, commercial or industrial
forests rather than the public or natural
ones which would be part of a REDD regime.
This is because privately
held forests tend to have sophisticated
risk management systems in place such as
fire-fighting personnel and equipment.
The survey also found
that unlimited or catastrophic losses are
a key concern for the industry in terms
of the forest sector but that firms are
now increasing the development of new kinds
of products.
Long standing, state-run
forest insurance schemes do operate in countries
such as Norway which could provide a key
to the kind of public-private insurance
partnerships that might unlock the potential
of any future REDD regime.
Paul Clements-Hunt,
Head of UNEP FI, said: “Forests have so
far made a totally insignificant contribution
to the overall CDM projects despite the
enormous potential to contribute to not
only combating climate change, but triggering
significant financial flows to developing
economies”.
“Our new report and
survey indicates that hybrid, public-private
insurance solutions may well be needed to
kick-start the forest carbon market and
to support the multi-trillion dollar potential
of the reduced emissions from deforestation
agenda that may emerge in 2009”.
For More Information Please Contact Nick
Nuttall, UNEP Spokesperson/Head of Media
