Swiss Re launches Kyoto-related insurance

Swiss Re has partnered with RNK Capital LLC (RNK), a New York-based private investment firm specializing in the U.S. and international environmental markets, to provide the carbon markets’ first insurance product for managing Kyoto Protocol-related risk in carbon credit transactions.
“The insurance product enables RNK to mitigate a key risk factor in carbon credit transactions and enhance the value of RNK’s carbon credits portfolio,” Swiss Re announced in a press release.
The insurance product covers Kyoto-related risk in connection with RNK’s carbon credit purchases. The policy, issued by Swiss Re subsidiary European International Reinsurance Ltd., provides coverage for the risks related to Clean Development Mechanism (CDM) project registration and the issuance of Certified Emission Reductions (CERs) under the Kyoto Protocol’s CDM.
The risks include the failure or delay in the approval, certification and/or issuance of CERs from CDM projects by United Nation Framework Convention on Climate Change (UNFCCC).
“RNK Capital invests in CDM and joint implementation projects that other investors will not consider due to project and system risks that cannot be efficiently spread to the market,” Robert Koltun, portfolio manager and managing member, said.
“Swiss Re’s coverage of project registration and issuance risks complements RNK Capital’s ability to assess, value and invest in climate change projects. Kyoto-related risk is the only part of the risk equation we were previously unable to mitigate or manage. This insurance policy allows RNK to invest in carbon emissions reduction projects at an even earlier stage of the process, and to commit a greater share of fund resources.”
Industrialized countries that have commitments under the Kyoto Protocol to reduce emissions causing greenhouse gases may use the CDM to invest in projects in developing nations that reduce global emissions and provide economic and social benefits to the host country.
In order to receive carbon credits that can be used by regulated entities for compliance with national and regional programs in Europe, Japan and Canada, project investors must submit their projects to a rigorous review and certification process.
The UNFCCC administers an executive body to certify these emissions reduction project activities, which creates a tradable commodity that can then be used in the international emissions trading scheme.
Participants in the early stage of project development face the uncertainty that potential emission reduction credit from CDM projects may not be certified for use under the Kyoto Protocol a risk that the carbon insurance policy will remedy.
“With this product, investors and carbon off-takers are enabled to transfer well-defined risks to Swiss Re, thereby fostering investments and confidence in the carbon market,” according to Ben Lashkari, head of emissions at Swiss Re’s Environmental and Commodity Markets group.