Billions of dollars of carbon credits to be given to save forests
A new U.N. climate treaty to include granting forest owners tradeable carbon credits will be discussed by about 190 nations in Poznan, Poland, from December 1-12. The new U.N. treaty is due to be agreed by the end of 2009.
The credits could be worth billions of dollars for those agreeing not to cut down trees. But fires are a risk for insurers and investors.
"From a formal point of view insurance shouldn't be a problem," said Wojciech Galinsky, who works on U.N. projects to promote green investment in developing countries. "If Tina Turner's legs can be insured, why not forests?"
But there is wide disagreement on how to assess the risks under the new U.N. treaty. Forest owners want full access to credits as fast as possible. But insurers suggest that half be retained in buffer funds in case forests vanish in a few decades. If a forest disappeared, the credits in the funds would go to them.
"How much land-managers will see of the price is what the excitement is about," said Frances Seymour, head of the Center for International Forestry Research in Indonesia, as quoted by Reuters.
Placing a value on forests could give developing nations in Africa, Latin America and Asia a big incentive to do more to slow rising greenhouse gas emissions. But the economic slowdown may make rich nations reluctant to take part.
One difficulty is that protecting a forest in one area of the Amazon or the Congo can lead to more logging or burning of forests to clear farmland elsewhere.
Demand for insurance to cover such forestry projects is not currently very high, said Joachim Herbold, senior underwriter at Munich Re's department for agricultural insurance: "We expect a rising demand in future," he added.
The market could be huge. About 7.3 million hectares (18.04 million acres) of forest -- an area the size of Panama -- vanishes every year, according to U.N. data.
A European Union report last month said it would cost 15-25 billion euros a year from now to halve deforestation rates by 2020, mainly by paying people to safeguard existing trees.
Risks that forests will not be standing in a few decades mean that forest carbon credits trade for just $2 to $3 a tonne on voluntary markets, said to Phil Cottle, head of London-based ForestRe which specialises in forestry insurance. That is a fraction of European Union market prices of about 16 euros ($20.20) a tonne for industrial emissions.
"If you can get insurance in place, it will help break down the boundaries that make investors wary of forest carbon compared with other credits," Cottle said. He also suggested Europe could set up a fund of 100 million pounds ($150.5 million) to back up private-sector insurers.
Forest fires can be caused by lightning, storms, insects and illegal logging. Burning forests to clear land for farming is reckoned to cause a fifth of all the greenhouse gases blamed for causing climate change.