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Home > Publications > Research Papers > > Introduction
Nuclear Liability: A Key Component of the Public Policy Decision to Deploy Nuclear Energy in Southeast Asia

Introduction

Many years ago, the nuclear industry accepted the practice of channeling all the liability for a nuclear accident to the operator, which has the duty to ensure that the products and services being supplied are free from defect.2 Consequently, no international or domestic law placed any significant liability on the supplier. The only two internationally acceptable situations in which a right of recourse could be claimed by an operator against a supplier were (1) if a nuclear incident arose from an act of omission or commission by the supplier with intent to cause damage; and (2) a contractual right of recourse (e.g., a private contract to apportion liability freely entered into by operator and supplier).

This principle of nuclear liability went unchallenged for many years and was codified in the Convention on Third Party Liability in the Field of Nuclear Energy (1960), the Vienna Convention on Civil Liability for Nuclear Damage (1997, as amended), and the Convention on Supplementary Compensation for Nuclear Damages (1997). The principle of excluding supplier liability in favor of channeling all liability to the operator of a nuclear power plant has for years been taken as a given, an undisputed principle of international nuclear liability law jurisprudence. Nations pursuing nuclear energy have almost always complied with this principle, and over time the principle has found its way into domestic nuclear liability laws of the countries that sought to promulgate such legislation.

The main justification for this approach is the belief that unlimited liability placed on many players would render the business of nuclear power unviable. Consequently, two primary factors have motivated the approach of channeling all liability to the operator. First, this approach avoids difficult and complicated questions of legal cross-actions to establish liability in every individual case. Second, it obviates the necessity for all those that might be associated with construction or operation of a nuclear installation, other than the operator itself, to take out insurance, and thus allows concentration of the insurance capacity available.3

The present system is therefore viewed as cost-effective because nuclear operators can channel the cost of insurance against future nuclear accidents to the consumers that use the nuclear power. If liability were more widely dispersed, the price of nuclear equipment would increase to reflect the cost of insurance borne by the products’ suppliers, which may be many for even a single nuclear power project.4

The nuclear industry also argues that restricting liability to operators acts as an incentive for operators to strictly adhere to safety standards and to introduce the latest technology to maintain the highest standards of safety.5

With the increasing influence of developing countries such as India and China, the nuclear industry now faces the attractive prospect of lucrative new markets in which nuclear energy will be a significant source of power. What was not expected, however, was that one of these developing countries, India, would attempt to change one of the basic principles of international nuclear liability law by altering the limits of supplier liability.

The principle of supplier liability was introduced when the Indian parliament passed the Civil Liability for Nuclear Damages Act, 2010 (CLNDA). Under the CLNDA, liability for a nuclear incident would principally lie with the operator, which would be required to pay compensation. However, the act also introduces the novel concept (novel at least in the area of nuclear liability law) of supplier liability over and above the accepted principles of operator liability. Whether prominent supplier countries such as the United States, Japan, France, and Russia will accept this new principle remains to be seen. However, supplying India with nuclear material confers significant economic benefits on France and Russia, and preliminary evidence suggests that both countries may accede in the case of deploying reactors in India. In fact, recent reports indicate that Russia has already arrived at a preliminary agreement with the Indian authorities and has accepted the Indian nuclear liability law. While the exact modalities of the agreement are in the process of being worked out, the structure adopted appears to be one in which the increased cost of the supplier purchasing insurance for the supplied component will lead to an escalation in the cost of the concerned component.6 If this agreement were to be finally signed, it would be a watershed moment in the history of international nuclear liability law.

Whether countries that are now planning or are in the commission stage of nuclear power plants, including those in the Association of Southeast Asian Nations (ASEAN) or other South Asian countries, will consider the CLNDA to be a feasible model, or whether India, because of its unique standing in the world economy, will stand alone in enforcing this principle remains to be seen.

If major supplier countries such as France and Russia agree to the supplier liability model that is “modish” in India, then France and Russia and the other suppliers may have difficulty arguing that the same model should not be accepted elsewhere. Some academic and environmental organizations are even arguing that Japan should consider adopting supplier liability, especially in light of the fact that much of the compensation paid out for the Fukushima disaster was taxpayer funded.7 Very recently, about 1,400 plaintiffs have filed a lawsuit against the three companies that supplied the reactors at the Fukushima nuclear power plant, namely, Toshiba, General Electric, and Hitachi. This lawsuit, filed at the Tokyo District Court, challenges current regulations that provide immunity to suppliers from liability in nuclear accidents and that place the liability solely on the operator, in this case, the Tokyo Electric Power Company (TEPCO). The plaintiffs have argued that the three suppliers failed to implement safety improvements to the four-decade-old boiling water reactors at the nuclear power plant, and they are seeking a token compensation of 100 yen (approximately US $1) each. The goal of the plaintiffs is not economic compensation, but to raise awareness in relation to the issue of supplier immunity from nuclear liability.8

Another pressing issue, which is being raised in the aftermath of the Fukushima accident, is the extent of nuclear liability provided for in the various international conventions and domestic laws as well as the sufficiency of funds to meet compensation demands. A consistent criticism being expressed is that none of the legal frameworks pertaining to nuclear liability provide for adequate compensation structures from the operator, and most of the compensation in the event of a nuclear incident would actually be funded by taxpayers. This criticism also constitutes a hurdle against public acceptance of nuclear energy, especially in developing countries. In fact, in India, the operator companies will also be wholly government-owned, which could explain in part why the Indian government chose to introduce an expanded concept of supplier liability. In a recent development on this issue, the Canadian government is seriously contemplating introducing legislation to significantly increase the liability thresholds for nuclear accidents from the present level of about $73 million to $1 billion.9

The Indian law introducing supplier liability, the lawsuit against the suppliers of the Fukushima nuclear power plant, and the proposed increase of liability thresholds by the Canadian government to $1 billion are all part of increasing measures and voices that are seeking reform to the extant nuclear liability regime. This is the ideal time for the nuclear industry itself to suggest reforms that are acceptable to the public at large while not discouraging investment and innovation in the nuclear industry.

This paper briefly examines the evolution of the principles of international nuclear liability, as well as the liability mechanisms presently embodied in international conventions and domestic laws. The paper also discusses some of the problems within the international legal framework on international nuclear liability and explores the possibility of regional cooperation as a way to address transboundary nuclear incidents. It will also discuss methods of compensation that can be structured to ensure availability of higher compensation in the event of a nuclear incident. The paper concludes with a discussion of the supplier liability mechanism introduced by India and the consequent commercial impact on international trade in nuclear energy.


ENDNOTES

2 Many thanks to Sunil Felix, Francesca Giovannini, James Glasgow, Stephen Goldberg, Neha Kalkotwar, Michael May, Steven Miller, M. P. Ram Mohan, Sanjay Mullick, Thomas Phillippe, John Randell, Arvind Ray, Els Reynaers, Robert Rosner, Deepto Roy, Scott Sagan, Rakesh Sood, Bhanudey Kanwar Singh, Shobha Singh, and all the participants at the meetings organized by the American Academy of Arts and Sciences in Hanoi, Hiroshima, and Bali for their valuable support, comments, and suggestions. I would also like to acknowledge the invaluable support of the American Academy of Arts and Sciences and the Nuclear Law Association of India. All errors remain mine.

3 Revised text of the Expose des Motifs of the Paris Convention, approved by the Organisation for Economic Co-operation and Development (OECD) Council on November 16, 1982, available at http://www.oecd-nea.org/law/nlparis_motif.html.

4 Arya Hariharan, “India’s Nuclear Civil Liability Bill and Supplier’s Liability: One Step towards Modernizing the Outdated International Nuclear Liability Regime,” William & Mary Environmental Law and Policy Review 36 (1) (2011): 223–255.

5 Kathy J.S. Fritz, “Civil and State Liability for Nuclear Accidents: A Proposal for Eastern Europe,” International Legal Perspectives 6 (1994): 37, 60–61.

6 Charu Sudan Kasturi, “India Cracks N-liability Barrier With Russia,” The Telegraph, April 1, 2014, http://www.telegraphindia.com/1140402/jsp/nation/story_18145683.jsp#.U0QmXq2SzvI.

7 Hariharan, “India’s Nuclear Civil Liability Bill,” 1. See also Sandeep Dikshit, “Japan May Amend Its Nuclear Damage Compensation Act,” The Hindu, March 5, 2013, http://www.thehindu.com/sci-tech/energy-and-environment/japan-may-amend-its-nuclear-damage-compensation-act/article4476106.ece.

8 “Hundreds Sue Toshiba, GE, Hitachi over Fukushima Nuclear Disaster,” Voice of Russia, January 31, 2014, http://voiceofrussia.com/news/2014_01_31/Hundreds-sue-Toshiba-GE-Hitachi-as-responsible-for-Fukushima-nuclear-disaster-3397/.

9 “Canadian Government Introduces Nuclear Liability Legislation,” Nuclear Engineering International, February 4, 2014, http://www.neimagazine.com/news/newscanadian-government-introduces-nuclear-liability-legislation-4171533.