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Rio+20: Wind Insurance and Unburnable Carbon

Focusing on providing renewable energy in the developing world

Submitted by: Guest Contributor

Posted: Jun 21, 2012 – 12:48 PM EST

Series: Dispatches from Rio+20

Tags: clean technology, environment, renewable alternative energy

 
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By Adam Cooper, Senior Manager, Sustainability Services, Accenture

In the second dispatch of our Rio+20 series, Accenture's Adam Cooper reports on the challenges facing the global adoption of sustainable energy initiatives. Check out the full series of dispatches here. 

Can you insure against the stillness of air?  The uncertain financial returns for renewables could scarcely be better illustrated than by the fear that the sun won’t shine or the wind won’t blow.  Of course, there are more fundamental concerns about the financing of renewable and sustainable energy. And at one of the Rio+20 sessions around the United Nations’ Sustainable Energy for All initiative, Nick Robins, Head of Climate Change Centre of Excellence, HSBC Bank, led a debate that explored how banks, insurance companies, institutional investors, ratings agencies and governments can work together to drive more investment in sustainable energy.  

High on delegates' minds here is the lack of money flowing to the developing world for renewable energy, thanks to the continued economic challenges in mature markets. Rashad Kaldany, Vice President, Global Industries, International Finance Corporation, put it down partly to the unattractive risk profiles and the lack of desire to invest outside of domestic markets.  

Michael Liebreich, Chief Executive of Bloomberg New Energy Finance, raised the concept of un-burnable carbon and the fear that financial markets are mispricing the value of carbon assets held by private investors. Rather than facing peak oil and declining carbon reserves, the world has more identified carbon reserves than it can use, given the emissions and temperature rise limits it hopes to adhere to. Liebriech raised the question as to when ratings agencies would take these stranded carbon assets into account in their ratings decisions. The response was that ratings agencies typically do not go beyond ten years out in their analysis gave some indication about how possibly misaligned timelines can affect credit ratings systems in addition to other areas of the global capital markets.

Market pricing of carbon is one thing.   Market distortion is another.  Delegates here are trying to address the question of the world demanding more incentives for renewable energy on one hand while continuing to subsidize fossil fuels on the other.  The debate has greater intensity in Rio given the emphasis on driving sustainable energy in more vulnerable communities in emerging economies. Chad Holliday, Chairman, Bank of America, and Michael Liebreich both addressed the need for governments to look at their current fossil fuel subsidy structures, and begin to level the playing field so that all energy technologies can compete in a more equitable market environment.

And what about wind insurance? Munich Re’s Peter Hoeppe educated many of us who were perhaps unaware of the range of insurance products available to renewable energy projects that help companies hedge bets and project investments. And, yes, Hoeppe, confirmed, companies can insure against unrealized production potential due to overestimated wind performance.

About the Author: Adam Cooper is a leader in the area of sustainability strategy consulting and has 14 years of experience designing and implementing solutions for commercial and public sector clients. He leads North American Sustainability Performance Management services in Accenture’s management consulting practice. He has a broad range of expertise in program development and management, project management, business process improvement, strategic planning, strategic communications, and change management. He has a deep technical background in sustainability strategy, sustainability stakeholder engagement, carbon management, environmental policy analysis and regulatory interpretation.

Previously:

Corporate Sustainability Leaders Convene at Rio+20

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