Can insurance deal with negative effects arising from climate policy measures?

Articles 4.8 and 4.9 of the United Nations Framework Convention on Climate Change (UNFCCC) and Article 3.14 of the Kyoto Protocol seek to limit adverse effects on developing countries due to the implementation of response measures to climate change, i.e. mitigation and adaptation. In the short term, the availability of renewable energy technology can be affected by mitigation measures. Carbon storage projects can enhance timber supply and reduce revenues from timber sales of other countries. Large-scale technical adaptation programmes can increase prices for commodities used as inputs. Societal adaptation programmes can have negative impacts on neighbouring countries by reducing natural resource availability. However, climate policy measures will not only generate losses but also benefits, often in the same countries that experience losses. Notably, emission reduction measures could reduce import bills (and volatility) for developing countries that import fossil fuels. Losses are unlikely to be insurable due to the characteristics of events with regard to timing, predictability and inseparability of causes. Emitters could be made liable for their emissions, with liability covering direct and indirect effects of the emissions. Market-based financial derivatives allow hedging against fuel price losses, albeit only in the short term. In the long term, the best approach to prevent losses and even reap benefits is an economic diversification. Here the CDM can be used as leverage to mobilize funds, as CER revenues are perfectly negatively correlated with losses from reduced revenues of carbon-rich fuels.