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Insurance Industry Lobbying For £3 Billion Climate Fund

The UK would be better off creating a green insurance agency rather than a Green Investment Bank (GIB), according to a specialist in climate change risks.

An insurance agency that underwrites regulatory risks in climate projects would attract more capital to the sector than a GIB, said Julian Richardson, CEO of Parhelion Underwriting, speaking at Environmental Finance Publications’ Climate Finance 2011 conference in London on Tuesday.

The UK’s GIB aims to mobilise private sector capital into green infrastructure projects, such as offshore wind farms. The bank will receive £3 billion ($4.7bn) in government funding up to 2015 in order to mitigate risks, reduce transaction costs and provide capital to projects.

“I actually don’t think we need a green investment bank at all, but I think we need a green insurance agency,” Richardson said.

He added that the “fundamental challenge” of a green investment bank is that there is not a lack of capital available for renewable energy or climate finance, but that there are barriers to investment.

“We get a lot of investors coming to us as insurers, and what they tend to ask is: Can we underwrite their regulatory risk? Can we insure that their project will get registered within the Clean Development Mechanism [CDM] and insure that feed in tariffs will not get changed? Can we insure them against the fact that China doesn’t put an export embargo on [CDM credits]? Those are pretty interesting questions, and all about regulation.”

Richardson also emphasised that a green insurance agency would attract more insurance capital to the sector.

“The insurance market is inherently exposed to the dangers of climate change but not engaged in this sector significantly,” he said.

Insurance policies also give you a “better bang for your buck” than guarantees or trying to supplement someone else’s investment, he said.

He argued that the UK could pave the way for a green insurance agency on an EU or global level.

“It gives the chance for the UK to enhance its regulatory attractiveness compared to all other regulatory environments by giving that clear signal that investors are so often asking about,” he said.

Environmental Finance, 18 November 2011