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Climate Action 2012-2013


POLICY, GOVERNANCE AND FINANCE Doha, Qatar Bangkok, Thailand countries to take advantage of a new mechanism, as well as the CDM, based on their own context and preferences. Furthermore, different countries may put in place different crediting schemes that they wish to be used within the framework of the new market mechanism. This might be an energy efficiency crediting programme, for example, or a renewables certificates initiative – schemes that generate credits measured under different metrics than emissions reduced. IETA has put forward the idea of a credit conversion mechanism at the international level to manage the process of transferring credits into a common ‘currency’ of reduced emissions. Using these innovative methods, the top-down assurance of a commonly held credit can be mixed alongside the room for governments to utilise their preferred policies, and still create an internationally accessible trading scheme. While it would be much easier to implement a market mechanism that puts a global price on carbon if there were one simple framework, the complexity and great diversity of the world’s economic systems and its existing carbon sinks simply do not provide a clear pathway for such a scenario. In the absence of a simplified global framework for emissions trading, a carbon tax may be viewed by some as a viable alternative. However, IETA maintains that the market place remains the correct actor to determine the price of emissions reductions, and government’s role is deciding upon target emission reductions. This produces the most efficient market signal to achieve an environmental goal, rather than imposing a rigid taxation system with no guarantee of achieving sufficient reductions. Furthermore, there is no reason to believe that a global framework based on carbon taxation would be any more realistic to achieve than alternatives. HOPES AT DOHA Parties have come to Doha eager to address the modalities and procedures of a new market © Bruno befreetv © Jarcje mechanism, to put meat on the bones. From the last negotiating session in Bangkok in September, there is work still to do. A clear vision on what a new market mechanism will look like has yet to emerge, and will be a critical part of the discussions under the Ad-Hoc Working Group on Long-Term Cooperative Action (AWG-LCA). We see businesses engaged on creating an efficient market mechanism with sufficient scale to drive investment where it is needed to fulfil emissions goals. The capacity and expertise exists to make a new market mechanism a success, but without the impetus of a reliable price signal the necessary investments will not be made. The private sector is looking to a new market mechanism to help guide cost-effective emissions reductions on a wider scale than is currently possible. Doha has the opportunity to take a great stride forward in achieving just that. Dirk Forrister is President and CEO of the International Emissions Trading Association (IETA). Previously, he was Principal and Founder of Forrister Advisory, an independent consultancy specialising in climate change, clean air and clean energy policy and markets. Until late 2010, he was Managing Director at Natsource LLC, the manager of one of the world's largest carbon funds. Previously, Mr. Forrister served as Chairman of the White House Climate Change Task Force in the Clinton Administration. The International Emissions Trading Association (IETA) has been the leading voice of the business community on the subject of carbon markets since 2000. IETA’s 155 member companies include some of the world’s leading corporations, including global leaders in oil, electricity, cement, aluminium, chemical, paper and other industrial sectors; as well as leading firms in the data verification and certification, brokering and trading, legal, finance, and consulting industries. 48

POLICY, GOVERNANCE AND FINANCE ADAPTATION AND THE INSURANCE INDUSTRY By Mike Kreidler, Washington State Insurance Commissioner Much of the world’s economy relies heavily on insurance to manage risk, and climate change poses formidable challenges to the risk modelling and prediction that underlie the insurance industry. At the same time, however, insurers are uniquely positioned to help address these issues. The worldwide insurance industry, for whom forecasting, modelling and managing risk are critical, faces an unprecedented challenge from climate change. Changes in the climate will affect the risks that insurers take on, the premiums they charge, where they offer coverage, and how they manage the investments that help pay claims. But climate change also brings new opportunities for insurers to offer innovative products that support mitigation of the effects of climate change. Moreover, insurers are also wellpositioned to encourage broader solutions, much as they helped push successfully for auto safety improvements. For example, I believe the industry needs to be a strong advocate for landuse practices, improved building codes and other property risk mitigation related to climate change. As the insurance regulator in the State of Washington, USA, I focus on the solvency of insurance companies, access to the coverage people need, and doing as much as I can to make insurance affordable. The insurance industry must step up and adapt to the challenges of climate change. I and like-minded regulators in other states are taking steps to encourage insurers to move in that direction. RISKS TO THE INSURER’S FINANCIAL STABILITY The financial stability of an insurer is also heavily dependent on its investment portfolio. Insurers invest in real estate either directly or through the purchase of mortgage-backed securities. A changing climate could increase the risk to those investments from weather-related perils such as hurricanes, flooding and fire. Insurers also face risk from investments in sectors of the economy that have heavy exposure to the effects of climate change. Insurer investments in bonds, preferred stocks and equities of businesses with substantial exposure to the impacts of 49