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By BILL STEWART, who litigates insurance coverage issues in jurisdictions throughout the United States and co-chairs the Climate Change Practice for law firm Cozen O'Connor

In early December 2008, negotiators from 192 nations gathered in Poznan, Poland, to participate in the United Nations' 14th Annual Conference on Climate Change. Although progress came frustratingly slow, some advancement was achieved--including a breakthrough regarding the role of insurance in combating the effects of global warming. Specifically, negotiators showed great enthusiasm for a proposal promoting the use of new insurance products to assist developing nations in adapting to climate change.

On December 4, negotiators received presentations and comments on potential insurance solutions from multiple sources, including the Munich Climate Insurance Industry. The MCII proposal to the United Nations piggybacked off existing understanding (memorialized in the Bali Action Plan) that industrialized nations will financially assist developing nations in adapting to climate change.

Specifically, the MCII proposed that some portion of the UN adaptation fund be used to purchase drought insurance, microinsurance and weather index products in developing nations. These products, provided either free or at a discount, would permit local farmers to survive droughts and floods. In turn, the newfound stability would permit farmers to expand crop yields, negotiate long-term agreements and obtain loans.

The MCII estimates that a pilot program, in which insurance is utilized as an adaptation mechanism, could be funded for $10 billion. Such a program would not only create a growing new market for insurers, but it would also permit participating insurers to gain a foothold in new, increasingly stable geographic locations.

THE POLITICS OF IT

Poznan represented the crucial halfway point in climate change discussions on the Bali roadmap to Copenhagen.In 1992, the UN created a framework for international negotiations on emission reductions. Pursuant to that framework, negotiators and diplomats convene each year at an international Conference of Parties to discuss greenhouse gas restrictions.

The third UN Conference, held in Kyoto, Japan, resulted in the world's first legally binding international agreement to reduce greenhouse gas emissions (commonly called the Kyoto Protocol). Because the Kyoto Protocol expires in 2012, and because no successor agreement has been ratified, there is a growing sense of urgency in the international community. At the 13th conference, held in Bali in 2007, world leaders agreed to conclude negotiations on a post-2012 treaty by the Copenhagen in December 2009.

Despite high expectations as the halfway point between Bali and Copenhagen, however, Poznan yielded as much retreat as advance.

At Bali, the developing nations agreed to initiate negotiations to reduce their own emissions. These broader negotiations between industrialized and developing nations, referred to as "shared vision," were scheduled to commence in Poznan.

On the opening day in Poznan, though, Algeria, Saudi Arabia, China and other developing nations rocked the conference by insisting that any discussion of shared vision was premature. These delegations expressed the view that, until those nations with "historical responsibility" and "high per-capita emissions" get their own houses in order, there is little to talk about.

As the conference proceeded, these nations made it clear that any discussion of emission limits in developing nations must also include negotiations about how much technology transfer, infrastructure financing and funding of adaptation projects the industrialized nations are prepared to provide.

Whether this unexpected exchange represents a serious step backward or merely pre-Copenhagen posturing is unclear. What is clear, however, is that, with developing nations now accounting for 45 percent of world emissions, a solution without a shared vision is not possible.

At it stands now under Kyoto, the participation of the 153 developing nations (like China, India, Brazil and Mexico) is limited to receiving investments and technology transfer. In other words, more than 75 percent of the treaty's participants are beneficiaries with no obligation to make any sacrifice.

THE COMING YEAR

Successful implementation of any post-2012 climate treaty will fundamentally alter international economics--and in so doing will create a broad range of hardship and opportunity. The coming year will be critical, both domestically and internationally, with regard to climate legislation and agreements.

Realistically, any successor agreement to the Kyoto Protocol is likely to involve:

1. Significant emission cuts by the United States and other industrialized nations (probably in the range of 20 percent by 2020)

2. Continuing increases in emissions by developing nations over the next two decades

3. Significant investment by industrialized nations in the energy infrastructure of developing nations

4. Mandatory funding of adaptation projects in developing nations by industrialized nations to confront the physical manifestations of climate change

5. A massive transfer of technology-based intellectual property from the industrialized nations to the developing nations.

This means that, for a deal to get done, technology, jobs and money will have to flow from nations like the United States to countries like China and India.

The confluence of the current financial crisis, existing concerns over the loss of U.S. manufacturing jobs, a populace still relatively split on the issue of climate change and a uniquely energy-driven suburban society all will serve as obstacles to American participation in such a global deal.

To add to this quandary, international expectations concerning concessions by the new U.S. administration to a post-Kyoto treaty are extremely high. In effect, U.S. climate change negotiators in 2009 will be faced with the perfect storm.

December 1, 2008

Copyright 2008© LRP Publications