sectoral economic costs and benefits of ghg mitigation - IPCC

Oliver Zwirner
3.2.3 Increasing energy efficiency
In order to reduce energy input and reduce the amount of GHG caused by industrial processes,
new technology will have to replace old across the board. Climate change mitigation will
therefore act as a stimulus to innovation and investment. Even simply rehabilitating old plant
reduces risks. Moreover, in the majority of cases, it is reasonable to assume that new technology
will be less likely to cause damage. That means that there will be less damage caused by fire and
other accidents that destroy assets and disrupt production in the company insured. On the other
hand, increased use of complex technology brings with it the risk of technology failure or
malfunction. The risk reduction effect should prevail however.
In order to reduce the CO 2 emissions resulting from energy use for heating, building insulation
will have to be improved and modern windows installed. Both measures reduce damage done by
fire. Insulation also decreases the risk of burst water pipes in frosty weather. Well-insulated roofs
also withstand storms better.
On the whole, greater energy efficiency makes buildings and technical plant more valuable and
that pushes up the premium. However, given that the risk of damage decreases one can not
conclude that the higher value of an energy-efficient building means a higher insurance premium.
Replacing electric light bulbs with fluorescent lamps cuts energy consumption by over 80%. The
fire risk is also decreased because fluorescent lamps generate much less heat than normal light
bulbs. This is just one example of a whole series of technical and organisational measures to
increase energy efficiency and reduce the insurance risk that are being developed at the Ernest
Orlando Berkeley National Laboratory (Vine et. al. 1998).
3.2.4 New Technologies-New Markets
As a result of consistent climate change mitigation, energy sources and fuels that are low in or
free of CO 2 and new energy-efficient technology and plant are set to come into common use,
creating new risks and new markets for insurance. Leading insurance companies have always
provided insurance cover for new technologies and there is no reason to assume that the
introduction of GHG mitigation technologies will be any different.
3.3 The Kyoto Protocol's Flexible Instruments: New business opportunities
The question as to whether the flexible market mechanisms defined by the Kyoto Protocol result
in realistic business opportunities for the insurance industry is still largely unclarified. The status
of discussions concerning the concrete form of the instruments is not yet sufficiently advanced to
allow reliable comment. The most probable are business opportunities via JI and CDM. If
increasingly more projects can be realised using the mechanisms, then the industry will provide
the normal services such as insurance and financing for this. Due to the long-term political risks
involved very few new business areas for insurance companies are likely to result from the
emissions trade, even if the seller liability created under the Kyoto Protocol provides an apparent
starting point (Knoepfel et. al., 1999).
References
BdB (Bundesverband deutscher Banken), 2000: www.bankenverband.de, 28.03.2000
GDV (Gesamtverband der Deutschen Versicherungswirtschaft), 1999: Jahrbuch 1999 – Die
deutsche Versicherungswirtschaft, GDV, Berlin, Germany, 126 pp.
IEA (International Energy Agency), 1999: Key World Energy Statistics, IEA, Paris, France, 75
pp.
Knoepfel, I., J. E. Salt, A. Bode, and W. Jacobi, 1999: The Kyoto Protocol and Beyond:
Potential Implications for the Insurance Industry, UNEP Insurance Industry Initative for
the Environment, Geneva, Switzerland, 25 pp.
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