Marsh is urging power and utilities organisations and businesses with significant onsite thermal generation capacities to factor carbon emissions into their risk profiles.
In its newly published report, Marsh also advises firms to reassess their business interruption policies, which can be used to provide insurance cover for variations in carbon emissions arising from plant outages.
Marsh's advice follows the introduction of the European Union's Emission Trading Scheme in 2005, which aims to constrain greenhouse gas emissions, particularly carbon dioxide gases, from member states.
Under the ‘cap and trade' element of the scheme, eligible installations are allocated and then pay for a specific number of permits or allowances. Firms can then balance their emissions with their permit allocations by buying surplus permits from other Scheme participants, invest in emission reduction technology, or generate additional allowances through the Clean Development Mechanism (CDM) and Joint Implementation (JI).
Mark Pollard, co-leader of the Power and Utilities Practice, Europe and Middle East, at Marsh said: “The significance of carbon allowance price in operating rofit, coupled with its behaviour as both potential asset and liability, mans that companies should evaluate whether this new risk needs to be actored into their business interruption insurance.”
Marsh advises firms to place the decision of whether to include carbon missions in the Business Interruption gross profit indemnity coverage in he context of their planned response to an outage at each installation.
In turn, consideration must also be given to how this will affect perating profit, the sum insured at each installation, and additional ncreased costs of working limits.
Paul Bulteel, secretary general of Eurelectric, said: “The Emission Trading Scheme will have a significant effect on the revenue model of power producers. It's vital for them to have the tools to be able to understand the impact on the revenue, and also on their risk profile. The consequences of a forced outage will change under the scheme.”
