INSURANCE:

An underwriter takes on carbon dioxide storage risks

NEW YORK -- One of the top global commercial insurance providers announced Monday that it will immediately begin offering liability insurance and financial assurance coverage for carbon capture and sequestration (CCS) projects in certain jurisdictions throughout the world. The move could provide a boon to coal-fired utilities and to the emerging CCS industry as it seeks government support to finally become mainstream.

Zurich Financial Services Group, the giant property and casualty insurance company based in Switzerland, has added two new comprehensive insurance products designed specifically to facilitate the development and application of CCS technology, a likely first in the insurance industry.

The company's two new climate-related insurance offerings, carbon capture and sequestration liability insurance and geologic sequestration financial assurance, were devised "to meet the unique insurance needs of CCS projects from design over operational phases through to closure and post closure events at the geologic storage sites," Zurich says in a release.

In an interview, Lindene Patton, a climate product officer at Zurich, said the coverage is available now for energy producers and retail utility companies in the United States, the United Kingdom, Australia and others to take advantage of. Coverage in other jurisdictions, including the European Union, is possible on a case-by-case basis.

"We believe that these are the first comprehensive policies which have been offered," said Patton. "There may be other competitors offering other coverages, and I can't speak for those competitors, but I am unaware of anything at this point."

A year in the making, the two new insurance products were developed in conjunction with the oil and gas industry, the oilfield services industry, major public utility companies and energy industry regulators to determine the risk management issues that had to be addressed before even CCS pilot projects could come online.

"We spent the better part of a year evaluating these kinds of risks and working with our customers and public policymakers to try to define a set of coverages that would be most useful to all of the parties," Patton said. "Obviously, there are some pilot projects which are in process at this point, and it became very clear in discussions that we had with a variety of parties that if the risk management issues could not be appropriately addressed, then these projects were going to have a very difficult time moving forward."

Coverage against leaks into groundwater and the atmosphere

Among many charges, critics of CCS technology worry that sequestering carbon emissions into the ground could threaten groundwater supplies. Opponents of so-called "clean coal" technology like CCS also contend that large amounts of sequestered carbon could leak back into the atmosphere, resulting in no net benefit toward tackling the climate change problem and a potential health hazard if the gas is concentrated.

These two new insurance coverage products were created from the industry standpoint. Aside from the opposition it faces from many climate activists, CCS technology must overcome stiff regulatory and financial hurdles before it can ever become mainstream. The technology has proven very expensive to develop, and developers worry that a flood of lawsuits may be in store should the technology evolve beyond pilot-phase projects to full-scale dissemination.

Patton said that Zurich's new geologic sequestration financial assurance product is up for grabs to developers that face regulations mandating that they prove that a project is financially viable before permits are awarded. The company's CCS liability insurance covers companies in the event that they face risk from lawsuits or penalties over pollution, business interruption, well control and "geomechanical liability."

The company says the coverage can be applied not only to clean coal operations but also toward a variety of on- and off-shore energy industry processes. Many oil companies operating marginal wells already inject carbon into the ground to facilitate enhanced oil extraction.

Patton said her firm has already received submissions from companies seeking to purchase coverage. Several other customers have also given indications that they are interested. Zurich's estimated 60,000 employees help companies in 170 countries with their insurance needs.

Patton said that interest in CCS is growing in the industry as greenhouse gas emissions legislation expands. Developers are also eyeing the potential to benefit from tax credits or portions of government stimulus spending packages that could be aimed at the industry in favor of clean coal technology.

"There are clearly funds being set aside not just for pilots but for ongoing projects, and there's a desire on the part of public policymakers to move forward," she said. "We wanted to make sure that, again, the risk management issues could be properly managed, and that we could help eliminate one barrier."

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