Insurance as a Mitigation Mechanism: Managing International Greenhouse Gas Emissions Through Nationwide Mandatory Climate Change Catastrophe Insurance

Abstract

This paper proposes mandatory climate change catastrophe insurance as a risk-sharing mechanism to distribute future climate change disaster relief costs between major greenhouse gas emitting industries and the government. This article argues that mandatory catastrophe risk insurance for major greenhouse gas emitters will deliver necessary financial coverage for future climate disasters as well as compel timely climate change mitigation on the part of major emitters. The first part of this paper offers mandatory climate change catastrophe insurance as an additional market tool to the existing proposals for emission trading schemes and carbon taxes. This part begins with a summary of the costs of responding to a climate change disaster followed by a description of government involvement in delivering national disaster relief for natural disasters such as earthquakes and flooding. The paper concludes that even if governments ultimately become the insurer of last resort in catastrophic climate change events, that industries should be held accountable for having contributed to the disaster through "business as usual" practices. After reviewing government's existing disaster relief programs, the paper surveys the insurance industry's climate change mitigation efforts. Since there are no ongoing insurance efforts to connect current corporate actions with future, this paper proposes that governments adopt regulations mandating catastrophe risk insurance for major greenhouse gas emitters. The insurance would serve the goals of both corrective and distributive justice. The second part of this article suggests that, in the context of climate change, mandatory insurance fulfills the equity goals of the polluter pays principle by legally allocating responsibility for climate change to industries. To make this argument, the paper argues that the polluter pays principle has evolved from an economic efficiency tool to an equitable principle for restitution and corrective justice.