Multilateral parametric climate risk insurance: a tool to facilitate agreement about deployment of solar geoengineering?

ABSTRACT

States will disagree about deployment of solar geoengineering, technologies that would reflect a small portion of incoming sunlight to reduce risks of climate change, and most disagreements will be grounded in conflicting interests. States that object to deployment will have many options to oppose it, so states favouring deployment will have a powerful incentive to meet their objections. Objections rooted in opposition to the anticipated unequal consequences of deployment may be met through compensation, yet climate policy is inhospitable to compensation via liability. We propose that multilateral parametric climate risk insurance might be a useful tool to facilitate agreement on solar geoengineering deployment. With parametric insurance, predetermined payouts are triggered when climate indices deviate from set ranges. We suggest that states favouring deployment could underwrite reduced-rate parametric climate insurance. This mechanism would be particularly suited to resolving disagreements based on divergent judgments about the outcomes of proposed implementation. This would be especially relevant in cases where disagreements are rooted in varying levels of trust in climate model predictions of solar geoengineering effectiveness and risks. Negotiations over the pricing and terms of a parametric risk pool would make divergent judgments explicit and quantitative. Reduced-rate insurance would provide a way for states that favour implementation to demonstrate their confidence in solar geoengineering by underwriting risk transfer and ensuring compensation without the need for attribution. This would offer a powerful incentive for states opposing implementation to moderate their opposition.

Key policy insights

• States favouring deployment of solar geoengineering will need to address other states’ objections—unilateralism is implausible in practice

• This might be partially achieved using parametric climate risk insurance based on objective indicators

• A sovereign risk pool offering reduced-rate parametric insurance underwritten by states backing deployment could facilitate cooperation on solar geoengineering deployment

• States favouring deployment would demonstrate their confidence in solar geoengineering by supporting the risk pool

• Opposing states would be insured against solar geoengineering risks and proposing states would be incentivized to guard against overconfidence

KEYWORDS:

• Solar geoengineering
• insurance and risk
• policy interactions / integration

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 We use the term ‘solar geoengineering’ rather than ‘solar radiation management’ or ‘solar radiation modification’ (the latter is now preferred by the Intergovernmental Panel on Climate Change) so as to acknowledge widespread use of the term ‘geoengineering’ while restricting its application to solar radiation (as opposed to large-scale carbon dioxide removal).

2 As with climate change itself, some losses associated with solar geoengineering cannot be effectively compensated by any financial mechanism, and hence fall outside the scheme we propose.

3 CCRIF SPC, Annual Report: 2016-17, vii (CCRIF SPC 2017).