Climate Change Losses and Liability: Insurance in International Pollution Regimes

1. Climate Change Losses and Liability: Insurance in International Pollution Regimes M.J.Mace Climate Change and Energy Programme FIELD www.field.org.uk Insuring the Uninsurable Climate Change and Insurance Munich, Germany May 10, 2004

2. AOSIS International Insurance Pool • Collective loss sharing - fund to compensate victims of sea-level rise • Mandatory contributions from industrialized countries based on GNP and CO2 emissions • Trigger for claims: • rate and absolute level of global mean SLR reaches previously agreed figures; • relative mean SLR of insured area in vulnerable country reaches agreed level • Trigger levels and insured values subject to negotiation with Authority • Claims for retreat and accommodation measures

3. Joint State Funds (Int’l solidarity pool) EU Cope Fund (EU cargo interests) Installation State (public funds top-up) IOPC Fund (int’l cargo interests) Operator Ins. (installation operator - national ins pools) Operator Ins. (tanker owner - P & I Clubs) Oil Spill and Nuclear Regimeslayers of coverage

4. EU Cope Fund (EU cargo interests) IOPC Fund (int’l cargo interests) Operator Ins. (tanker owner - P & I Clubs) Oil Spill Regime: CLC and IOPC Conventions 2nd Supplemental Layer up to US$203 million c 1st Supplemental layer of cover up to US$175 million nn c Mandatory insurance LL based on capacity of oil tanker Coverage/strict liability up to US$82 million

5. Who bears the major costs of oil spill damage? 1,000 million Euro EU Beneficiaries Additional levy imposed on entities w/i EU receiving oil - contingent fund EU Fund Beneficiaries of shipments Per ton levy imposed on Companies receiving oil (Consumption/Demand ) (Protocol increases ceiling for claims ) CO2 ANALOGY: HEAVY INDUSTRY, UTILITY COMPANIES $203 million Fund Protocol $175 million IOPC Fund (Supplemental) Tanker owners, shipping interests (primary financial interest from shipment; control risk reduction) (Production/Supply) CO2 ANALOGY: OIL PRODUCERS $82 million Convention on Civil Liability

6. Oil Spill Regimecoverage and purpose • Covers 91% of world’s shipping oil tonnage • Governments redistribute and manage risk • Parties’ domestic legislation imposes per ton levy on oil receivers of a certain size • responsibility for costs of spill cleanup shifted from government and private citizens, more directly to those engaged in or benefiting from risky behavior • addresses situations where no individual entity is clearly responsible for a spill • recognizes complexity of oil shipping industry (flagged vessels, diverse nationalities of crews, owners, shared responsibilities, old vessels, difficult jurisdictional issues, proof problems)

7. Doesn’t matter who is at fault, recourse is provided to those injured, through a fund/pool constituted from those contributing to risk • Owners/operators avoid unlimited liability; accept mandatory insurance coverage, in exchange for a known limit of liability, graduated based on tonnage • With a known limit of liability, insurance can be obtained, because insurance industry can assess risk exposure and price coverage • Public and government exchange potential claim for recovery of clean up costs against a potentially responsible party (which may entail proof problems, bankrupt entities) empty pocket problems, for the ability to recover clean up costs directly from fund constituted under the IOPC.

8. Joint State Funds (Int’l solidarity pool) Installation State (Public funds) Operator Ins. (operators of nuclear installations) Nuclear Regimegovernments retain substantial responsibility 2nd Supplemental Layer up to total of 300 million SDRs, (50% GNP, 50% State’s thermal power ratio c 1st Supplemental layer of cover up to a total of 175 million SDR; state pays if operator cannot nn c Minimum operator liability, of 5million SDR to be guaranteed by financial security -States may allow higher

9. Other Convention Processes use insurance mechanisms to manage risk • Basel Protocol on Liability and Compensation • Transboundary transport of hazardous substances • Handlers required to obtain insurance, bonds or other financial guarantees with exposure tied to amount shipped • CRTD Convention • Carriers of dangerous goods by road, rail, vessel • Required to obtain insurance or financial security to cover damage during transport • amount tied to type of carrier, type of injury potentially suffered • Watercourses and Industrial Accidents Protocol • Impacts of industrial facilities on international watercourses • Financial security required at a fixed ratio relative to liability limits • HNS Convention • Similar to CLC and Fund Convention for oil spill regime

10. End www.field.org.uk mj.mace@field.org.uk