Emissions trading
The European Emissions Trading Scheme has given climate change a measurable economic component. Emissions have become factors of production and must not exceed defined upper limits if the emission targets set out in the Kyoto Protocol are to be met. The Clean Development Mechanism (CDM) was established in order to involve developing and emerging countries in global climate protection endeavours, principally by promoting the transfer of clean technologies between industrial nations and emerging countries. Thanks to CDM, significant investment is now flowing into developing and emerging countries, first and foremost in renewable energies, technologies to reduce greenhouse gases, and measures to increase energy efficiency.
Insurance cover for CDM projects has been available only to a limited extent until now. Munich Re has come up with a new, tailored coverage – the Kyoto Multi Risk Policy. The new tool will be developed in conjunction with policyholders. Its particular appeal lies in the fact that it combines elements from traditional property covers such as fire, CAR, EAR, credit and bond insurance and the insurance of political risks with the coverage of certified emission reductions (or carbon credits). Besides the property values and income produced by the underlying activity (e.g. power generation), it also covers the revenue from carbon credits.
Multi-year policies are issued for the entire duration of the project. The new policies are aimed at compliance buyers (companies planning CDM projects to achieve emission reductions), professional project developers wishing to earn carbon credits, CO2 funds and financial market players. Initially, Munich Re will concentrate on the types of project in which it has extensive underwriting and claims experience. These include renewable energies such as wind power, biomass, solar energy and hydroelectric power; projects designed to increase energy efficiency, such as waste heat recovery; switching to low-emission fuels (gas instead of coal); and finally curbing methane emissions, for example by extracting gas from landfills.
CDM projects are currently underway in rapidly growing Asian economies such as China and India as well as in Latin America. As a global reinsurer, we can offer solutions specifically tailored to such projects.
The Munich Re Group is also supporting the principle of emissions trading by introducing innovative insurance products. After prior risk assessment, Victoria offers publicly appointed, certified experts cover against pecuniary loss resulting from the verification of emission reports and allocation applications in accordance with the European Emissions Trading Scheme. The company also offers tailor-made professional liability cover for energy consultants. This includes the issue of energy certificates and reports, the provision of technical advice and recommendations and price comparisons.