Friday, November 28, 2008

Trees to fight warming? Insurers ponder risks

Reuters: Paying landowners to let forests grow is promoted by the United Nations as a viable way to fight global warming, but experts first have to puzzle out how to insure trees against going up in smoke. Under U.N. plans, owners will get carbon credits to slow the destruction of tropical forests. But fires caused by lightning -- along with other hazards such as storms, insects and illegal logging -- are a big risk for insurers and investors.

A new U.N. climate treaty to include granting forest owners tradeable carbon credits will be discussed by about 190 nations in Poznan, Poland, from December 1-12. The credits could be worth billions of dollars for those agreeing not to cut down trees. Burning forests to clear land for farming releases about a fifth of all the greenhouse gases blamed for causing climate change. If trees die, the carbon stored as they grew would be released, rendering carbon credits worthless.

"From a formal point of view insurance shouldn't be a problem," said Wojciech Galinsky, who works on U.N. projects to promote green investment in developing countries. … But there is wide disagreement on how to assess the risks under the new U.N. treaty, due to be agreed by end-2009.

…Demand for insurance to cover such forestry projects is not currently very high, said Joachim Herbold, senior underwriter at Munich Re's department for agricultural insurance: "We expect a rising demand in future," he added. The market could be huge. About 7.3 million hectares (18.04 million acres) of forest -- an area the size of Panama -- vanishes every year, according to U.N. data.

…Risks that forests will not be standing in a few decades mean that forest carbn credits trade for just $2 to $3 a tonne on voluntary markets, said to Phil Cottle, head of London-based ForestRe which specializes in forestry insurance.

…Insurance companies have long offered forestry cover -- more easily calculated than carbon insurance because it is based on the value of wood, for instance as a building material, rather than the value of trees left to grow.

In Hangzhou, China, Mywood took this photo labeled "Nine Greeks Meandering Through a Misty Forest"(九溪烟树), Wikimedia Commons

No comments: