With the certain arrival of a new administration, cabinet and Congress in early 2009, the likely passage of legislation to cap carbon emissions in the United States will have implications for many, according to the speakers at a conference on climate change hosted by the Cozen O' Connor law firm and the Oklahoma City University School of Law.
One of the most immediate motors for this change in the United States--the largest of the Western powers that has not signed the Koyoto global warming accords--could be S.2191. That's the bipartisan U.S. Senate bill, introduced by Barbara Boxer, D-Calif.; John Warner, R-Va.; and Joe Lieberman, I-Conn., that would create a cap-and-trade system in the United States for the emissions of carbon dioxide.
Under the bill, the U.S. government would create an entity, the Climate Change Credit Corp., which would be responsible for auctioning off credits given by the Environmental Protection Agency to corporations and others for capping their emissions.
Companies who meet and exceed the EPA emissions capping mandates could then sell their extra credits to companies that are having a tougher time capping emissions or couldn't be bothered to do so.
The goal of such a system is that, overall, emissions of carbon dioxide could be reduced to levels last seen in 1990. The bill's authors estimate that, by siphoning off some of the auction money, the United States could enrich its treasury by more than $1 trillion by 2018, in addition to making the atmosphere healthier.
Such entities as the CCCC have already been formed at the state level. The Regional Greenhouse Gas Initiative, a collaborative of 10 Northeastern states, is getting set to start auctioning off carbon credits in 2009.
For now, S.2191 has been given a dose of political Nembutal by its mostly Republican enemies in the Senate: The bill failed to survive a cloture vote on June 6.
But all indications are that it will come back in some form and possibly within the next seven to eight months. That's according to Bob Van Heuvelen, a former federal department prosecutor who specialized in punishing environmental offenders and former chief of staff to Sen. Kent Conrad, D-N.D.
Seven to eight months is certainly a close enough time frame to be paying attention to the bill's precepts.
Van Heuvelen, who now runs his own Washington, D.C.-based consulting business, spoke at the Cozen event in Philadelphia's National Constitution Center with the authority of one who has spent a lot of time, as they say, "inside the beltway."
Van Heuvelen said S. 2191, the little engine that didn't quite make it this time, has "gotten further than any other legislation in this field." That means, according to him, that Senate Majority Leader Harry Reid of Nevada did well to make good on his promise to at least bring the bill to the floor. And one most be patient in these matters, according to the sage Van Heuvelen.
"It takes a long time to bake a cake in Congress for anything that is worth it," Van Heuvelen advises.
Both candidates for president, Sen. Barack Obama of Illinois and Sen. John McCain of Arizona, have indicated that they support a cap-and-trade system. As befits their respective political postures generally, Obama favors an approach to carbon emissions that is more aggressive than McCain's.
So where does insurance come in on all of this? The auction market alone for carbon credits is going to be very, very big--in the billions. And, as in any other aspect of things monetary, if something has tremendous value, risks could impair that value and need to be guarded against.
Companies that buy such credits from other companies will, for example, seek insurance against the risk that the credits are not valid.
Interests, and there are many of them, that are racing to develop energy-producing systems to augment or replace fossil fuels will also need insurance on the value of their new patents and processes.
Overall, the volume of global climate change risk is estimated to approach $300 billion by 2050, according to Rick Hawkinberry, who leads a climate change task force for the insurance brokerage Willis Group.
That's a market for insurance products that is going to expand dramatically when carbon capping becomes federal law in this country, according to one of the hosts of mid-June's event in Philadelphia.
"I think once carbon caps are put in place, we're going to see some fascinating insurance products," said Tom Jones, a Seattle-based vice chair for Cozen O'Connor's insurance practice.
The number of insurance products devoted to global warming is already taking off, according to Hawkinberry. In 2006, there were 192 climate change insurance and risk management products and services. In 2007, there were 422.
CLIMATE CHANGE 101
Are you one of those who doubt that global warming is happening? Perhaps you're not to blame, as there is plenty of data being fired across both sides of the fence that separates the believers from the nonbelievers.
For those who have their doubts, may we introduce John Byrne?
John is a director and distinguished professor of public policy with the Center for Energy and Environmental Policy at the University of Delaware.
John and his co-members of the Intergovernmental Panel on Climate Change are co-Nobel laureates, along with former vice president Albert Gore of Tennessee, for their work on documenting the risks of a warming planet.
Professor Byrne pointed to data that says that the 11 warmest years on record, going back to before the Civil War, have occurred in the past 12 years. Not only is the planet getting warmer, but it is getting warmer at an increasingly rapid pace, he said.
And carbon dioxide and other emissions produced by human activities like chopping down trees and burning fossil fuels, especially in the United States, are almost certainly the culprit, according to Byrne.
"There is a greater than 90 percent probability that human activity is involved," said Byrne-- particularly us red, white and blue humans in the United States.
"We are the largest emitter of carbon in history," said Byrne.
To return our greenhouse gas emissions merely to 1990 levels, according to Byrne, we would have to cut carbon dioxide emissions by more than 60 percent, methane by 8 percent to 20 percent.
MONEY, MONEY, MONEY
Not only can these things be done, but lots of money can be made doing them, which was another major theme of the climate change seminar.
"I want to point out that fortunes are already being made in this field," said Fred Krupp, the president of the Environmental Defense Fund.
Solar energy is taking off by leaps and bounds, even here in the oil-fashioned United States.
Scott Hennessy, of the solar power lobbying group the Solar Energy Industries Association, estimated that the installation of solar energy panels and other technology in the States. is increasing annually at a compounded rate of 45 percent.
Polysilicon, used in both solar panels and semiconductors, is now being used more in the former than in the latter.
"This technology is ready to pop," said Hennessy.
So is so much else apparently.
Wolfgang Friedel, an executive vice president for property and specialty lines for insurer ACE, sees plenty of risks, and along with them plenty of opportunities, for insurers to sell products to customers based on climate change.
ACE customers are buying green building wrap-ups, products that provide for the extra cost of building green should a building go down for whatever reason.
"A lot of real estate customers are taking us up on these opportunities," Friedel said.
Or here's a biggie. What about directors' and officer and errors and omissions for corporate leaders who might not have guided their companies in the right direction as it relates to climate change? After all, according to Hawkinberry, only 50 percent of companies have sustainability policies.
"I think that is a big hurdle to overcome," he said.
And for those directors and officers who haven't ordered such policies be produced?
"I think that is a story that has yet to be written," said Friedel.
DAN REYNOLDS is senior editor of Risk & Insurance®.
July 21, 2008
Copyright 2008© LRP Publications