Zurich Financial sees uptake for CCS insurance

LONDON, July 7 (Reuters) - Zurich Financial Services AG (ZURN.VX) is processing four submissions from companies for carbon capture and storage insurance cover, the insurer said on Tuesday.

The Swiss insurer's chief climate product officer Lindene Patton told Reuters that companies in Europe, United States, Australia, China and Japan were also expressing interest in the cover, a sign companies see potential in the undeployed technology.

Patton would not reveal the companies involved and said it was too early to reveal the cost of any potential policies.

Carbon capture and storage (CCS) allows the harmful greenhouse gas carbon dioxide (CO2) to be captured from power stations and then stored underground to prevent it from entering the atmosphere.

The European Union plans to get 10 to 12 commercial scale CCS demonstration plants up and running by 2015. Low carbon prices and high development costs for the new technology make it difficult for CCS to be developed for full-scale commercial use without government funding.

Zurich Financial Services launched two insurance products in January to cover liabilities during the operational life of CCS facilities and funding for after the plants close.

"So much coal is burnt that in the absence of CCS we will not meet the 2050 reduction goals. Without insurance, even if companies get subsidies, we won't get a deployment of the technology," Patton said.

RISK

A regular 900 megawatt coal power plant in 2020 will cost around 1.5 billion euros. Fitting the plant with CCS would raise the price another 50 percent, with additional transport storage and operational costs, a McKinsey & Company report said in late 2008.

Uncertainty about where to source that capital and the risks of building such plants further slows the technology's deployment.

"Operators need certainty. It is difficult as a business person to make any long-term investment decisions unless you have certainty about the costs of risks," John Scott, head of risk insights at Zurich Global Corporate, said.

Policymakers also have a role to play in ensuring that implementers of new technology like CCS participate in risk sharing, rather than granting them indemnity, ZFS said.

Questions over the operational, technological and transportation risks of CCS also need to be addressed for the technology to succeed.

"There is a 'fog of war' surrounding the actual risks of CCS," Scott said. "Actually, the most challenging thing is what happens beyond 50 years or when a storage site is sealed. Who then bears the risk?" Scott said.

Zurich Financial, together with a Carbon Capture and Storage Association risk group, suggest a safety or permitting authority which would safely site CCS reservoirs and a long-term funding mechanism in the case of CO2 loss from sealed sites.

"No amount of insurance will make a bad site good. But we want to make sure we identify sites which have the greatest compatibility with geo-chemistry so there is the greatest likelihood of success," Patton said.

(Reporting by Nina Chestney; Editing by William Hardy)