by William Addison

Created on: June 06, 2009

Auto insurance is a contractual promise that an insurance company will pay a policyholder or someone on behalf of a policyholder in the event that an accident occurs. How could this possibly be converted to an environmentally friendly business transaction? This can be done through the concept of carbon credits. This is a new potential medium of exchange that has yet to be thoroughly tested with consumers but which is now being applied by some insurance companies largely as a marketing strategy to lure eco-friendly customers.

The general idea is that your vehicle produces CO2 emissions, and that those emissions can be offset by doing environmentally friendly things such as planting trees. Trees absorb CO2, which can offset the CO2 created by your vehicle. The plan is for the insurer to evaluate your vehicle and calculate the amount of CO2 it produces during the policy period. It will then calculate the number of trees that need to be planted to offset this amount of CO2, and the cost associated with that. This cost is then added to your premium and you are then taking part in saving our planet.

The implications of such a program have good and bad points. The good is obvious, as it is a way for people to cut down on damage to our planet. The bad is the potential for misuse or misdirection of funds.

When you shop for a green insurance company, it will be important to verify exactly what the extra charges will be, and exactly how those funds will be used. Does the carrier maintain a specific forestry site? If so, is it wholly owned by the insurer or are there other parties involved? Make sure that there is full disclosure on the project. You will also want to ask whether you have full access rights to the forest being planted. These things are important to ensure that trees will actually be planted on your behalf. The details could confuse this entire process. For example, not all trees planted will survive due to the wrath of Mother Nature. How do those trees affect your credits? What kind of trees will be planted? Do oak trees absorb more CO2 than Pine trees, Elm trees or Coconut trees?

Beware of companies who claim that there are no extra costs associated with this. Common sense tells us that machinery, labor, and technology goes into planting trees, all of which costs money, but it is difficult to really calculate the cost of one tree. Make sure the company is able to support with real numbers the way in which your premium dollars will be used to help the environment.

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