Red Year was ultimately caused by the Ministry of Truth resuming its original course and landing smack dab on Vivec City, which inadvertently triggered Red Mountains eruption. The Nerevarine was partially responsible, since Lie Rock was only being held up by Vivec, who lost his powers when the Heart of Lorkhan was finally unbound during the course of Morrowinds main quest. The events that lead to its fall is a part of the plot in the novels.
As to the Nerevarine being able to stop it...it was sort of out of his/her scope, though you could make it so he/she helped Dunmeri people to safety on their exodus to Solstheim/Skyrim. Mine was killed during the whole sordid affair, along with the CoC.