Introduction
Carbon Capture and Storage (CCS) provides a possible method of mitigating manmade climate change. It entails capturing the carbon dioxide (CO2) that is released in fossil-fuel burning power generation and storing it – underground storage is currently considered the best option. It is a new emerging technology and as such brings both challenges and opportunities to the insurance industry.
On 23 January 2008 the European Commission proposed a Directive on the geological storage of carbon dioxide as part of a major legislative package called the "Climate action and renewable energy package". The package is aimed at ensuring the EU will achieve its climate targets by 2020.
The main scope of the CCS Directive is the regulation of CO2 storage and the removal of barriers in existing legislation to CO2 storage. The CCS Directive contains a regulatory framework addressing site selection, exploration permits, storage permits, operation, closure and post-closure obligations and third party access to CCS infrastructure.
Key Issues
According to Article 19 (1) of the proposed CCS Directive each Member State has to create a rule on compulsory risk coverage to ensure adequate provisions by way of financial security are in place.
The text adopted by the European Parliament on 17 December amended article 19 to take into account the fact that the risks are unknown, also, limitations have been included on when the provision will be ‘activated’.
The advent of CCS will ask new questions of the insurance industry. Part of the challenge lies in whether and how insurers will be able to develop and offer adequate risk transfer instruments to deal with the emergence of this new and unproved liability risk, especially when the risks associated with the various CCS technologies available are of a “long-tail” character. To discuss the role of insurance, Lloyd’s in partnership with the Association of British Insurers, participated in a meeting between underwriters and brokers and the Carbon Capture Storage Association (CCSA) in November 2008.
Implementation
The European Parliament adopted the energy package on 17 December 2008 at its plenary session in Strasbourg. Adoption by the Council took place on 6 April 2009.
The Directive is due to be transposed into national law by 25 June 2011.
Further information
More information on the Carbon Capture and Storage Directive is available on the Commission’s website:
http://ec.europa.eu/environment/climat/ccs/index_en.htm
