Yves here. I’m not an expert in the financing of oil projects, but I would assume the loss of insurance cover is a big deal. The questions here are how much market share AIG has in this “product” and how much other insurers will raise prices due to AIG’s exit, and how much more lenders would demand in interest and other preferential terms to fund development without these guarantees.
By Kenny Stancil. Originally published at Common Dreams
Climate justice advocates celebrated Tuesday in response to insurance giant AIG’s announcement that it will no longer invest in or provide insurance coverage for any new Arctic drilling activities nor will it finance or underwrite the construction of any new coal-fired power plants, thermal coal mines, or tar sands projects, effective immediately.
AIG also said that it will immediately stop investing in or underwriting “new operation insurance risks” of coal-fired power plants, thermal coal mines, or tar sands projects owned by corporations that derive 30% or more of their revenue from those industries or generate over 30% of their energy production from coal.
By January 1, 2030 at the latest, AIG said that it will phase out the underwriting of all “existing operation insurance risks” and cease new investments in those clients that still depend on coal or tar sands for 30% or more of their revenue, or coal for over 30% of their electricity generation.
The insurance giant’s moves come in the wake of years of pressure from several environmental groups, some of which offered cautious praise following AIG’s announcement.
“As one of the last major insurers without restrictions on coal insurance, AIG’s new commitments to reduce underwriting for coal, tar sands oil, and Arctic oil and gas are a major step forward for people and the planet,” Hannah Saggau, insurance campaigner with Public Citizen, said in a statement. “AIG has vaulted itself from a laggard in the industry to a leader in the U.S., and we look forward to working with it to meet and improve on these commitments.”
Ellen Montgomery, director of Environment America’s public lands campaign, called Tuesday a “good day for public health, for our climate, and for wildlife.”
“We are thrilled that AIG has made the right decision. Insurers are meant to protect against calamity in our society,” said Montgomery. “The company is living up to that responsibility by not only turning its back on burning coal, which is one of the dirtiest forms of energy, but also by deciding to take specific steps to protect the Arctic.”
“By denying oil companies a safety net for actions that damage a sensitive ecosystem, put the region at risk from spills, and make the climate crisis worse, AIG is both prioritizing a large vital wild space and the health and future of our world,” she added. “Without insurance, you cannot drill for oil, so we hope that other insurance companies will follow the lead of AIG.”
For more than a year, progressive campaigners have used direct actions, petition drives, policy advocacy, and behind-the-scenes pressure targeting AIG and its CEO, Peter Zaffino, to demand an end to the financial institution’s support for fossil fuel expansion amid a worsening climate crisis.
“Organizing works,” tweeted Public Citizen. “Now, all insurers must stop supporting fossil fuel expansion.”
HUGE NEWS: @AIGinsurance will no longer insure and invest in new coal, tar sands, and Arctic projects!
Organizing works.
Now, all insurers must stop supporting fossil fuel expansion.https://t.co/p2YjSYQPAM
— Public Citizen (@Public_Citizen) March 1, 2022
According to Public Citizen, AIG joins nearly 40 companies that have committed to end or restrict insurance for new coal projects, including Travelers, which recently adopted a policy. Among the major U.S. insurance companies examined in Insure Our Future’s 2021 Scorecard on Insurance, Fossil Fuels, and Climate Change, only Berkshire Hathaway and W.R. Berkley have yet to implement restrictions on underwriting coal.
As the Gwich’in Steering Committee—formed in 1988 in response to proposals to drill for oil in the coastal plain of the Arctic National Wildlife Refuge—pointed out, AIG is the first U.S. insurer “to publicly issue a policy ruling out new energy exploration projects in the Arctic,” joining “a growing list of international insurance companies.”
AIG’s announcement “demonstrates continuing momentum towards the recognition of Indigenous peoples’ rights by the global insurance industry,” said the committee.
According to Environment America, AIG is also joining “the six largest banks in the United States and Canada’s five largest banks in declining to help oil and gas companies do business in the Arctic.”
AIG’s commitment includes “any new exploration in the Arctic National Wildlife Refuge, which saw its first lease sale in January 2021, and expands beyond the refuge to include the Western Arctic—much of which has been leased to oil companies,” the group noted.
Dyani Chapman, director of Alaska Environment, a state partner of Environment America, said that “in the Arctic, permafrost is melting and sea swells are getting bigger. When you combine those factors with the long-documented challenges of extracting fossil fuels in the best of conditions, it’s clear the environmental risks of drilling in the Arctic are too high to tolerate. We’re glad to hear AIG agrees.”
The Gwich’in Steering Committee, however, argued that “while this policy provides increased protection for our sacred lands, it does not clarify the geographic coverage of the policy, nor does the company include a fulsome commitment to protect the human rights of Indigenous peoples wherever there are impacts. A more fulsome policy would also include a commitment to operationalizing Indigenous peoples’ right to free, prior, and informed consent.”
AIG’s newly unveiled policies are part of its promise to attain net-zero greenhouse gas emissions across its underwriting and investment portfolios by 2050, or sooner. The insurance giant said that it will use “science-based emissions reduction targets” to meet the Paris agreement’s more ambitious goal of limiting global warming to 1.5°C above preindustrial levels by the end of the century.
Net-zero pledges have come under fire from climate justice advocates, who argue that they are “premised on the notion of canceling out emissions in the atmosphere rather than eliminating their causes.”
If powerful entities are permitted to continue with business-as-usual in some places as long as they fund projects that purportedly slash pollution in other places, there is little to no evidence that overall emissions will be sufficiently reduced, say critics. Recent research shows how the ambiguous term has helped corporate actors embellish their climate progress.
In its press release, AIG vowed to share more details in the coming months about its plan to curtail certain types of fossil fuel extraction and to provide transparent reporting of its progress.
Critics pushed AIG to improve its planned phase-out by curbing every form of fossil fuel extraction, including pumping the brakes on projects that are already underway.
“Ending support for coal expansion projects is strong and necessary—and it should be extended to all fossil fuels,” said Saggau. “The International Energy Agency has made it clear that to avoid climate catastrophe, there is no room for any fossil fuel expansion. AIG’s commitment to science-based climate targets should mean an end to all fossil fuel expansion, but Tuesday’s announcement doesn’t address that question.”
Although AIG “ruled out insurance for the construction of any new oil sands projects,” noted Public Citizen, “it is not clear if this includes tar sands transport projects like the Trans Mountain expansion,” which AIG is underwriting, as the most recently publicly available insurance certificate shows.
The Canadian pipeline is “a major environmental hazard and a violation of First Nations’ rights, and its expansion project consists of an entirely new pipeline that would ship more than 590,000 barrels per day of highly polluting tar sands crude oil to the coast of British Columbia,” Public Citizen explained.
Charlene Aleck, a spokesperson for the Tsleil-Waututh Nation Sacred Trust Initiative, argued that “AIG’s commitment to rule out insurance for some tar sands projects is a first step but not enough.”
“The Trans Mountain pipeline violates Indigenous rights and threatens our land, water, and climate,” said Aleck. “AIG must wake up to the significant financial, reputational, and environmental risks of the highly polluting tar sands sector and explicitly rule out insurance for all new tar sands transport projects.”
The Canadian government has stopped funding the Trans Mountain expansion. The additional funds needed to complete it must be raised by Trans Mountain and not from the government’s coffers.
I assume that oil is headed for China?
Nope. Western refineries in the US and Canada.
Its not my area of expertise, but as a general rule, the stricter the regulatory system, the more important full liability insurance becomes. So in the US its largely irrelevant as so many States couldn’t be bothered regulating producers and exploration companies. It still amazes me at how anyone can let frackers just walk away from unplugged drill sites, but that seems to be the way it goes. But it will certainly kill off much exploration in Europe and probably Canada too.
an aside: all things considered, including geopolitical conflicts, Germany might want to consider restarting nuclear power energy plants. They shut their plants, now their energy supply of nat gas from a foreign country is threatened.
They just need to source fuel from somewhere other than Russia… oops.
Didn’t Sadaam get his “yellowcake from Africa”? /s
Sounds like all the small fry are out of the game and only the big oil companies can play – should force a bunch of consolidation in order to diversify beyond the 30% thresholds.
Sort of like the TBTF banks and their special handling.
I hope this is a net positive change for the planet… I do know that it will be a net positive to AIG bottom line and that any liability incurred buck will be passed onto the American people or whatever nation(s) seem responsible… you know how it works… any corporate liability is to be covered by public money
I am tired as a US citizen of supporting the FIRE and MIC through the tolls, fees, taxes and countless rip-offs and cons.
I still hope this is a positive
????
cease new investments in those clients that still depend on coal or tar sands for 30% or more of their revenue, or coal for over 30% of their electricity generation.
reinforces small players or subsidiaries and maybe spin offs don’t they?
however, the action by AIG is a step forward for constraints on the biggies
Maybe some listened to the IPCC and have Kids and Grands whom they don’t want to hate on them for the future they are going to get.
Frontal assaults get the attention of the public, but restrictions like this are slowly undermining the Industry, and, imo are full spectrum necessary to pry us away from the habit that is driving the climate crises.
Maybe it’s the way I read it… but smaller players are more dependent on single source or silo — so my thinking is – that they would be more likely to have 30% or more of their revenue in a source like tar sands or coal whereas BP, Exxon Mobil, Chevron, Marathon, PetroChina, Phillips and the likes would be more likely to have less than 30% for Coal and Tar Sands.
That is why I am thinking it will lead to more consolidation
Agreed. And how would it stop private equity companies with diverse portfolios?
Dirty Dozen: The Private Equity Firms Driving Fossil Fuel https://pestakeholder.org/wp-content/uploads/2022/02/PESP_LS_PrivateEquityDirtyDozen_Feb2022-Final.pdf
The Blackstone Group, Stephen A. Schwarzman p 6
The Carlyle Group, David M. Rubenstein p 9
KKR & Co., Henry Kravis p 13
ArcLight Capital Partners, Daniel R. Revers, p 16
Apollo Global Management, Marc Rowan & Leon Black p 19
Ares Management, Antony “Tony” Ressler p 22
Global Infrastructure Partners, Adebayo Ogunlesi p 24
Kayne Anderson, Richard “Ric” Kayne p 26
Oaktree Capital, Bruce Karsh and Howard Marks p 28
Warburg Pincus, Chip Kaye & Timothy Geithner p 31
Riverstone Holdings, David M. Leuschen p 33
EnCap Investments, David B. Miller p 36
I read it as companies that are in energy industry in narrow way – they would most likely have a third 30% or more revenue from tar or coal – smaller energy companies more likely. The larger (BP, Exxon, ChinaOil, Valero,Shell) the big guys have the diversity to have Less than 30% derive from coal or tar sands
This weakens small players and subsidiaries and spin offs – if these small players want to play they will need to be bought into a group who’s revenue is not 30% or more derived from “coal or tar sands” – I would have preferred to see the word “and” between coal / tar sands.
Seems like a very targeted set of rules. Why 30%, why not 40%, 60%?
It also is just new coal which pretty much no one in the US is investing in anyway or tar sands.
Arctic drilling? thats super risky anyway.
But it leaves out: Gas production, oil production, LPG, etc.
So good for what it is, but carefully crafted for a reason.
My thoughts exactly. Smells to me like AIG did an optimization exercise to write the criteria so that they get to keep all their big, profitable clients, while only cutting off the folks they didn’t want to service anyway.
I’m assuming that, like so much of the PMC’s actions, it is just performative. How can we look like we are taking action on the climate (or racial justice, or any other topic du juor), without actually changing the way we do business? Heaven forbid we actually take a problem seriously and think about what actions are necessary to address it as if we actually cared about reality.
We are not a serious people.
Yet another corporate virtue seeking exercise designed to deflect attention to someone else.
This is good news if it can stop these “too big to fail” energy companies from getting finance to explore and drill NEW sites.
As for existing sites, that’s another story. There are no requirements for “financial assurance,” whereby a fossil fuel company has to give the government a bond for a certain amount of money for unwanted, or unpredicted contamination.
https://www.greenbiz.com/article/how-address-legacy-fossil-fuel-sites-clean-energy-future
A couple years ago I was volunteering with 350 PDX on fossil fuel resistance. There was and continues to be a focus on banks and insurance companies that are behind fossil fuel infrastructure.
In the Portland Metro, the Zenith Energy and Global Partners Facilities import tar sands dilbit by rail and store these hazardous materials on the banks of the Willamette and Columbia Rivers respectively. They are transloading facililities, accepting fuel products from one mode of transportation and passing them along to another, throughout the U.S.
After a dangerous rail accident in 2016 in Mosier, Oregon (which caused 47,000 gallons of escaped oil, 2,960 tons of oil-drenched soil, contaminated groundwater, and $9 million in cleanup costs), these trains were called bomb trains. Who wants these trains coming into their town, let alone a big city?
Zenith Energy wanted to expand its infrastructure to increase output despite the City of Portland banning new fossil fuel infrastructure in late 2016. They sued Portland.
The private equity company behind Zenith: Warburg Pincus. President and Managing Director: Timothy Geithner. Need I even say more?!
I went to great lengths to obtain public records disclosing the insurance company behind financing these projects. Turned out that the City of Portland doesn’t require them, because (so the logic goes) the bank would require that. And no self respecting corporation like Zenith would disclose that information to worried citizen-activists.
I learned the same frustrating lesson in trying to discern who the insurance company was behind the Jordan Cove Project in Southern Oregon, where Pembina (a Canadian company) got blessings from the residents of Coos Bay to build an LNG export facility. Of course that came with the promise of JOBS!!! and other economic perks–along with massive $ spent against opposition.
That project would have required approval from FERC because Pembina needed to build a 229-mile-long natural gas pipeline that would have run from Malin, Oregon, on the California border, over the Coast Range to Coos Bay. The gas would then have been super-cooled into a liquified form (LNG), loaded onto ships and exported to Asia.
To my dismay, I learned that FERC, PHMSA, and EPA have no insurance requirements in approving the citing of these projects. Because, again, that’s up to the banks to require insurance. And once again, public record requests didn’t yield information on who the insurers were.
The good news is that Pembina officially gave up at FERC in December 2021, because of an inability to obtain the necessary state permits.
And Zenith? They recently lost a land-use ruling in Portland, though they are appealing that decision.
In 2020, Multnomah County Office of Sustainability and the City of Portland Bureau of Emergency Management(link is external) commissioned a study of the Critical Energy Infrastructure Hub in Northwest Portland. The report is devastating as the recent headline in the Oregonian suggests: Portland officials detail potential havoc that would be unleashed on city by earthquake, oil spill
Thank you Kris. Very interesting. It is pretty outrageous that if the big banks do not require liability insurance for these projects they themselves do not incur the debt. They simply pass it on. If we could use the FOIA to find out all the crap regulations and loopholes that allow the socialization of costs it would end the practice forever. It is such a lousy, self-serving, lazy way to keep money circulating. We might as well just cut to the chase and pump all that accidental toxic sludge into the corporate headquarters of every financial institution. To keep it from polluting the rest of us. If only,
But nice to hear that AIG has stepped up. I’m wondering how much their new responsibility has to do with the fact that AIG got bailed out and propped up (literally raised from the dead) in 2008. Maybe it is finally payback time.
what was written appears to only allow the bigger companies to invest in the coal and tar sands – Larger companies are able to have less than 30% of revenues from coal or tar sands – smaller players are less able to diversify their revenue so as to get under that 30% mark —- they will need to be snapped up by players who have greater diversity in revenue stream
“stop investing in or underwriting “new operation insurance risks” of coal-fired power plants, thermal coal mines, or tar sands projects owned by corporations that derive 30% or more of their revenue from those industries or generate over 30% of their energy production from coal.”
With arctic ice melting and the tundra going soft I can imagine that AIG simply decided the risk was not worth it. Good PR though.