Magazine article Risk Management

Sea Change vs. Hot Air

Magazine article Risk Management

Sea Change vs. Hot Air

Article excerpt

What You Need to Know About Climate Change

Given all of the climate change discussion over the past decade, it can be difficult to decipher the significant developments from the background noise. But with the Obama administration bringing a reversal of environmental policy to Washington at least in rhetorical terms, the future will likely see all managers-and risk managers more than most-affected by climate changerelated developments. So now is the time to familiarize yourself with the past before you become overwhelmed by what is yet to come. To this end, Risk Management highlights the most pertinent legislative and regulatory frameworks that have been established since climate change became a global agenda item and outlines the insurance industry's response sotar.

There is a general consensus among the scientific community that global warming is the cause of bodi the increased prevalence and heightened severity of natural disasters. What has followed is a public push for legislative responses to the climate problems and the adoption of social responsibility policies by major corporations. Because climate change regulation is in its nascent stages and insurers remain exposed on several fronts as risk bearers, property owners and investors, they are uniquely positioned to help shape these policies.

International Platforms

In 1988, the United Nations created the Intergovernmental Panel on Climate Change (IPCC) to provide public policymakers with objective, scientific information about the realities of climate change. Although subject to some dispute, die panel has become die de facto clearing house for all related matters, and its periodic assessment reports provide die basis for meaningful discussion.

In addition, the latest round of United Nations climate change negotiations took place last August in Accra, Ghana. The talks advanced work on the international climate change deal under the United Nations Framework Convention on Climate Change (UNFCCC), as well as work on emission reduction rules and tools under the Kyoto Protocol. These talks are part of a negotiating process that will be concluded in Copenhagen at die end of 2009. More than 1,600 participants attended the Accra meeting, which was the third major UNFCCC gathering in 2008.

Another platform for reducing greenhouse gases (GHGs) is carbon trading market. There are currently several active markets including the European Union Emissions Trading Scheme (EU ETS) created under the Kyoto framework, the Asian Carbon Exchange and the Chicago Climate Exchange. These frameworks are based on market trading of carbon dioxide "credits." Within diis trading scheme, companies that have emissions below the permitted level are allowed to save or trade excess carbon credits or units with odier companies, whereas companies above the permitted level are required to buy carbon credits to offset excess emissions.

This tradable asset scheme not only promotes environmentally friendly business operations, but also creates an economic incentive for both countries and companies to engage in green business operations. In essence, these initiatives have been an attempt to monetize die cost of carbon dioxide emissions and either reward or punish the wallets of those companies with die largest carbon footprint.

United States

Essentially, these two international fronts-legislation versus carbon trading-have been the same forces driving climate change regulation in the United States as well. There are several states already participating in regional initiatives such as the Regional Greenhouse Gas Initiative, the Western Climate Initiative and the Midwestern Regional Greenhouse Gas Reduction Accord. States and municipalities also have implemented dieir own laws to address global warming

In July 2008, the Pennsylvania General Assembly adopted its first legislation designed to deal with global warming. The Pennsylvania Climate Change Act requires the state to charge the Department of Environmental Protection (DEP) with developing a state plan to reduce GHGs. …

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