EXPERT GUIDANCE FOR THE PATH AHEAD
Renewable Energy Credits & Carbon Off-Sets Liability Insurance: Put a Sock on It!
Chemical substances – CO2, CH4, N2O, and SF6 – have a lot to answer for as greenhouse gases that permeate the air contribute to global warming. Although there is still no grand plan in place to reduce global emissions, some important steps in the right direction have been made. The European Emissions Trading Scheme is up and running and working well. The transfer of efficient “Green” technologies to Emerging Countries is booming. The insurance industry is being pushed to step-up and look at developing insurance products that will support and encourage further investment in renewable energy projects. An example of this is a specially tailored cover called Carbon Off-Sets Liability.
What are Renewable Energy Credits (RECs)?
For every kilowatt hour of electricity, a renewable generator generates, it also generates one kilowatt hour renewable energy credit. The generator can sell both commodities together as “renewable electricity” or sell the electricity as “generic” electricity to one buyer and the RECs to other buyers. Legally, it’s all about who owns the RECs. When you buy solar power from your utility, you get electricity from the mix of all sources feeding the grid, and “credit” for having had the electricity you use replaced with solar power. That “credit” is the core of renewable energy credits, or RECs. When you buy solar power from your utility, you’re just buying ordinary electricity and RECs in the same transaction from the same supplier. In fact, your utility may or may not buy solar power on your behalf – they may simply buy solar RECs for you. Either way it’s the same.
What are Carbon Offsets?
Offset – n. 1. Something that counterbalances; a compensating equivalent. Carbon offsets are a valuable, short-term tool to help us transform to a low or no-carbon economy in which carbon offsets are no longer needed. Carbon offsets are a mechanism to accommodate the fact that for now, there are practical limits to how much each of us can reduce our own energy use. To make up for the CO2 emissions we can’t avoid, we can instead help someone or something else reduce other CO2 emissions. Basically, carbon offsetting involves helping someone to do something that they wouldn’t otherwise have done, that results in less CO2 emissions that would have happened had you not helped them to do it. Offsets can be created by renewable energy projects, energy efficiency, and land use and agriculture-based projects.
Carbon Off-Sets Liability Insurance
Risk Consulting Partners (RCP) Practice is partnering with a major international energy insurance company to develop in the United States and Canada an insurance product to help renewable energy projects overcome these obstacles. Our purpose is the development of new insurance products that support the carbon market – for example, against the failure of a project to generate tradable carbon reductions. Effectively, we will provide insurance coverage to support the viability of value for long-term offsets particular to a renewable energy project allowing the investor’s the acceptance of risk braced by insurance remuneration for financial loss. This insurance coverage will focus on providing protection of carbon credits valuation rather than insurance on the project physical substance itself or its primary functions. Additionally, RCP is establishing customization, “bundling” and/or targeted marketing of existence insurance for developers of renewable energy (e.g. wind, biomass, solar) and other technologies and projects that generate carbon credits within the emissions trading systems.
THIS MATERIAL IS FOR INFORMATIONAL PURPOSES ONLY AND NOT FOR THE PURPOSE OF PROVIDING LEGAL OR INSURANCE ADVICE. INSURANCE COVERAGE, AND THE TERMS AND CONDITIONS RELATING TO SUCH COVERAGE, WILL VARY. NO REPRESENTATIONS OR PROMISES ARE MADE THAT ANY PARTICULAR INSURANCE COVERAGE WILL BE AVAILABLE TO ANY INDIVIDUAL OR ENTITY SEEKING SUCH COVERAGE. RISK CONSULTING PARTNERS IS NOT A LAW FIRM AND DOES NOT PROVIDE LEGAL ADVICE. IF SUCH ADVICE IS NEEDED, CONSULT WITH A QUALIFIED ADVISER.