The UN hopes to also advance the Bali Action Plan, agreed at COP (Conference of Parties) 13 in 2007, and the Cancun Agreements, reached at COP 16 last December.

COP 17 kicked off on Monday this week in Durban and will continue until 9 December.

Formally the UN is of course not as pessimistic about the prospects of COP 17 as the reinsurers appear to be.

UNFCCC Executive Secretary Christiana Figueres said during an interview published on its own website (UNFCCC.int) before the conference started that the convention was set up to tackle ‘the defining challenge of our time’.

She pointed out that the Convention has ‘near universal’ membership, with 194 signatory countries plus the European Union as a signatory in its own right.

“The ultimate goal of the Convention is to stabilise the level of greenhouse gas emissions in the world’s atmosphere at a level which would prevent dangerous climate change. But the UN Climate Convention also deals with the central issue of enabling people to adapt to the inevitable effects of climate change, along with a host of other issues,” she explained.

Ms Figueres said that it is important to remember that the problem will ‘not be solved in a day’ and that all countries need to ‘continuously raise the collective global level of ambition’ to deal with it, ‘step by inexorable step’.

But this should not allow complacency to set in, said Ms Figueres.

“On the other hand, we are also confronted with the hard physics of climate change, and the international scientific community has very clearly indicated that there is a window of opportunity the world must use now if it is to prevent the worst ravages of climate change. Fortunately, there is a sense amongst governments that the speed and scale of action to respond to the challenge must be rapidly increased. So governments need to take the next big step in Durban,” she added.

According to Ms Figueres, the two main tasks that the conference can accomplish is to help build the institutions that will help support the developing countries’ response to climate change and answer the question of how they will move forward together to achieve their agreed goal to limit the average global temperature rise to 2 degrees Celsius.

Further it must be agreed how to review progress towards that goal between 2013 and 2015, she said.

“In Cancun, governments agreed to make this review as a reality check both on their progress to cut emissions and on whether an even lower global temperature rise target would have to be considered in light of emerging science,” she explained.

Ms Figueres said that a decision on the future of the Kyoto Protocol will be a central part of the Durban ‘outcome’.

“The Kyoto Protocol is the only legally binding treaty the world presently has to combat climate change, and it is important that governments safeguard what they had worked on so long to agree and develop, and what has proven effective,” she said.

Ms Figueres said that this effort would include the rules that guarantee transparency of efforts to reduce greenhouse gases and market mechanisms that allow industrialised countries to partly achieve their emission reduction goals by investing in clean technology in developing countries.

“At the same time, a global climate change framework under the broader Convention—which includes all signatories—is evolving but needs more time before it can be fully operational. Resolving this involves creating robust and transparent accounting and reporting of national efforts but the decision at a policy level of when and how to participate is a political decision and that requires clear leadership from a high level. I believe that common ground can be found and the right political decisions can be made,” said Ms Figueres, hinting at some of the big political challenges that will be met in Durban, particularly as governments the world over struggle to meet the threats of global recession.

Despite the difficult economic and financial environment though Ms Figueres said that she is ‘confident’ that the world can make ‘enormous strides’ to reduce greenhouse gas emissions over the coming years.

She said that most of the technology needed already exists, the private sector is ‘increasingly engaged’ and needs to take on a key role in applying those technologies.

“The renewable energy sectors of almost all countries have seen rapid growth, and there is a major trend towards energy efficiency. There is a growing understanding that going green is a motor for new jobs and that whoever invests in clean technology now will have a competitive advantage over others,” said Ms Figueres.

“It isn’t exaggerated to say that the world is at the beginning of a new industrial revolution and poised to shift dramatically towards a low-carbon economy. But that revolution will go faster if governments and the private sector work hand-in-hand to build climate policies that support environmentally sound business goals, and vice-versa. Because of this, I am looking forward to showcasing successful public-private partnerships in Durban, many of which have benefited the urban poor, not least in Africa,” she concluded.

But the big reinsurers do not seem to be as hopeful as Ms Figueres and believe that there is a strong chance that interest and investment in renewable energies will wane at exactly the time that it needs to be stepped up.

Munich Re described the UN-backed climate change initiative to tackle global warming as ‘stalled’ and said that a ‘core group’ of countries need to take the lead and concentrate all their efforts on the promotion of renewable energy.

"Switching from fossil fuels to renewable energy is the prime task this century faces and offers substantial financial opportunities," said Torsten Jeworrek, CEO of reinsurance operations at Munich Re.

Mr Jeworrek said that he believes that hopes of a successful conclusion to the world climate summit in Durban are ‘extremely slim’.

He did say that progress could be achieved in the second negotiating track, that focuses upon aid for the countries worst hit by climate change.

But he added that mankind's global warming issue would appear, under the United Nations' process, to be ‘doomed to further failure’ in Durban.

This would mean that the Kyoto Protocol would expire with no follow-up agreement.

This would be bad news because the evidence is mounting rather than declining about the global climate situation despite considerable international efforts to date, pointed out Munich Re.

“Based on the latest scientific findings, little doubt remains about anthropogenic climate change and its impacts. With rising global CO2 emissions, the 2°C target that scientists consider the maximum for containing global warming within manageable limits is virtually no longer attainable,” stated the German reinsurance group.

Munich Re said that it has been analysing climate change for nearly forty years and set up the largest database that documents natural catastrophes worldwide, which now contains over 30,000 events.

The reinsurer said that the database shows that the number of registered loss occurrences from extreme weather throughout the world has almost tripled since 1980.

Further, the number of flood loss events has risen by a factor of more than three and the number of windstorm natural catastrophes has more than doubled over the same period.

Munich Re concedes that the rising economic and insured losses caused by the catastrophes are primarily because of socio-economic developments such as population growth, rising values and settlement patterns.

But it added that the ‘strong rise’ in the number of weather-related catastrophes can ‘probably not be fully explained without climate change’, especially as the number of earthquakes, volcanic eruptions and other geophysical events has only increased ‘slightly’.

Professor Peter Höppe, Head of Munich Re’s Geo Risks Research, said: “It’s as if the weather machine has shifted up a gear. We believe that we can already see this in retrospect in our last 30 years’ data for some regions, although the most severe impacts of global warming are still to come."

Munich Re also said that strong evidence of a link between global warming and increasing weather extremes was provided by the IPCC special report published last Friday (see analysis in last week’s CRE newsletter).

The reinsurer pointed out that this report emphasised that risk transfer mechanisms such as natural hazard insurance and reinsurance are ‘key factors’ in the resilience of social systems to changing weather hazards.

For this reason Munich Re said that an ‘increasingly prominent role’ is likely to be played by projects, such as its Munich Climate Insurance Initiative (MCII) that is aimed at the creation of risk transfer systems in those countries worst hit by climate change.

Munich Re said that it does not believe a further failure at the Durban summit would necessarily spell the end of climate protection.

This is because it believes that a number of countries and companies increasingly believe that the switch from fossil fuels to renewable energy is the ‘prime task’ faced by mankind this century faces.

“Many countries are pursuing ambitious goals and this has given rise to a new industry. The changeover to renewables will be given strong backing in the next few years by the market and technical progress. But this massive challenge can only be overcome if a core group of nations that have already set their climate goals now take the lead and concentrate their efforts on promoting renewable energy,” stated the reinsurance group.

Munich Re said that, beyond politics, further ‘obstacles’ need to be removed from the path of renewable energy and the insurance industry can help to facilitate the rise of such technology by assuming specific investment risks and giving investors greater security.

The reinsurer said that it is a ‘pioneer’ in this field and has brought a number of innovative solutions onto the market in recent years such as performance guarantee covers for photovoltaic modules and exploration risks cover for geothermal drilling projects.

It added that it is also making a commitment on the investments side and will invest up to €2.5bn directly in renewable energy in the next few years.

Meanwhile, Swiss Re announced last week that the renewable energy sector faces ‘significant’ operational, regulatory and financial risks caused mainly by cuts in government financial support in some countries and growing risks in renewable energy are driving future demand for insurance.

The Zurich-based reinsurance group said that the renewable energy sector needs to improve risk management and access alternative sources of capital because of these challenges.

It added that a new report by the Economist Intelligence Unit (EIU) based on a survey of 284 senior-level renewable energy executives and sponsored by Swiss Re, canvassed the risks in the finance, construction and operation of renewable energy projects plus the risk management challenges that the renewable energy industry must confront.

Swiss Re said that the EIU report shows that the renewable energy sector may face an even more uncertain future if it fails to manage the growing risks associated with larger and more complex projects.

Cuts in government spend for the sector ‘call into question’ the sustainability of public financial support for renewable energy developments, especially in Europe, it added.

According to the report, cuts in solar feed-in tariffs range from 15% in Germany to 70% in the UK and investors in renewable energy are reportedly worried that some of the other 100 or so governments that support clean-energy investments will cut this support as part of austerity measures.

"Additional investments into renewable energy are needed to achieve the transition to a low-carbon economy," said Agostino Galvagni, Chief Executive Officer Swiss Re Corporate Solutions. "Risk management measures such as insurance will be key to encourage further private sector investment," he added.

Respondents to the survey said that a major problem for renewable energy projects is the high cost in the early stages.

The projects are often capital-intensive and highly leveraged, with up to 70-80% financed through debt. As companies seek to scale up investments, overcoming financial risks is one of the biggest challenges, according to 76% of the survey respondents, stressed Swiss Re.

Another big concern for plant investors, owners and operators is political and regulatory risk (62%) while weather-related volume risk ranked third for wind power producers (66%).

Swiss Re said that these risks increase further as projects grow in scale and complexity.

But, only 50% of respondents said they are successful at transferring risks, for example through insurance.

Many respondents said that they retain the risks related to renewable energy assets on their balance sheets, such as weather-related volume risk, because of the limited availability of ‘suitable’ risk transfer mechanisms.

"New technologies and innovation in renewable energy will be the only possibilities left should a global policy regime to reduce carbon emission not materialise," said Andreas Spiegel, Swiss Re's Senior Climate Change Advisor.

"This is why Swiss Re is investing a great deal of research to better understand how insurance can mobilise financing for renewable energy projects and identify the most cost-effective ways to reduce risks, such as construction and operational risks as well as risks related to the intermittent nature of renewable energy production," he added.

Some 60% of respondents to the survey already use insurance to transfer risks. And, according to Swiss Re, as the demand for insurance grows, new products, including alternative risk transfer solutions, are starting to appear on the market.

The use of solutions such as weather-based financial derivatives have been around for a while now and demand is slowly picking up. But still only 4% of wind power producers use them to hedge the risks within their projects, stated the reinsurer.

Swiss Re said that many solutions on the market today are ‘unsuitable’ for small-scale projects. “Executives say they would transfer more risk if suitable risk transfer products become more widely available in the future, particularly more standardised and cost-effective products,” added the reinsurer.

Meanwhile according to news agency Associated Press the Durban conference got off to a tricky start as delegates were reportedly at odds on how to raise billions of dollars to help poor countries cope with global warming.

One of the aims of COP 17 is to finalise plans on the management of climate finances, planned to rise to up to $100bn annually by 2020.

According to AP, delegates in Durban disagreed about how independent the fund will be, who will manage it and whether the bulk of the money will come from public funds and government aid or from private sources and investments.

CRE will report more detailed news from Durban in next week’s newsletter.

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