As investment in energy-saving technologies and renewable power sources increases, the demand for improved risk management and insurance will also increase, according to a report from Swiss Re.
The reinsurance firm released Monday a report, titled Building a Sustainable Energy Future, which includes an economic analysis of six different scenarios, and how each could affect the world's power supply mix and climate by 2050.
It discussed the effect of carbon emissions on climate change and the impact of low-carbon energy sources, including wind, solar and biomass, plus coal and coal and gas-fired plants with carbon capture and storage (CCS) technologies. It also cited technologies designed to reduce energy consumption, such as retrofitting building envelopes, energy-efficient lighting, electric vehicles and increased efficiency in manufacturing.
Swiss Re says annual losses across these technologies were about US$19.5 billion in 2010 and about US$900 million was attributable to renewable energy. That figure is expected to increase by 2050.
Engineering risks affecting the energy sector and included in the SCC analysis include property, liability and business interruption.
"In insurance terms, these risks translate into a potential economic loss of assets, such as physical damage to property caused by natural or man-made catastrophes, liabilities for negligent acts, missed profits due to production downtimes or damage incurred by society at large," according to the report.
Annual losses in 2030, depending on scenario, could be US$25.6 billion and increase to US$41.7 billion by 2050 in the "greenest" scenario examined in the SCC.
"Much of this increase is due to higher investments in newer and less mature technologies, including renewables," according to the report.
However, Swiss re noted the risks "are relatively small" compared to the total investment forecast in green energy of up to US$3.1 trillion.
"This makes a strong case for investments in renewable energy sources.”
One of the scenarios analyzed was one in which climate change is no longer a priority and investment in clean fuel slows.
“Adaptation becomes the main response strategy once the physical effects of global warming become apparent, perhaps by 2025-2035,” according to the report.
The second scenario, dubbed “late and disruptive climate policy action,” is one in which some weather-related events “or other clearly observable physical effects lead to the widespread conviction that global warming is a reality and mitigation is essential.” In this scenario, “little new fossil fuel-based infrastructure is built, and CCS technology is deployed to reduce emissions from existing installations.”
In a third scenario, there is a “gradual shift to a greener economy, but at too slow a pace compared to what climate scientists say is needed to avoid dangerous climate change.”
The fourth scenario is one in which “high levels of research and design, innovation and improvements in clean technology allow alternative energy sources to compete with fossil fuels by 2020” but there is still a “substantial” investment in fossil fuels.
In the fifth scenario, there is a drive to cleaner alternatives due to high fossil fuel technologies while in the sixth scenario, there is a strong international greenhouse gas policy agreement that comes into effect by 2020.