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Home > Publications > Research Papers > > Challenges to the Liability Framework & Possible Solutions
Nuclear Liability: A Key Component of the Public Policy Decision to Deploy Nuclear Energy in Southeast Asia

Challenges to the Liability Framework & Possible Solutions

Regional Frameworks

The absence of a clearly delineated regional or international framework to govern issues of liability and compensation is a serious concern. Since the complications inherent in international negotiations will continue, countries that wish to pursue a civilian nuclear power program must not focus only on their own nuclear plans, but must also consider the interests of the region.

Presently, no legal or treaty obligation on ASEAN or South Asian countries relates to transboundary liability and compensation. The situation is akin to the pre-Chernobyl liability framework in Europe, and because of the proximity of these countries, is not advisable or desirable. Particular focus needs to be given to liability thresholds as well as to transboundary impacts.

Another option for ASEAN and South Asian countries is to consider legislation on the basis of reciprocity. An example of such reciprocity is the U.S. Price-Anderson Act and its Canadian counterpart, the Nuclear Liability Act.64 Each provides for reciprocity of legal remedies for liability and compensation in accident cases involving transboundary radiation.65 However, such a mechanism is not even under consideration by any of the South Asian or ASEAN countries. To the contrary, the existing laws in India, Bangladesh, Indonesia, and Malaysia are silent on the transboundary impact of nuclear accidents.

South Asia and the ASEAN region are thus ideally placed to adopt a liability framework similar to the Paris Convention. Any talk of nuclear expansion in this region ought to be accompanied by meaningful debate on adopting such a framework. This framework need not be confined to issues of liability alone but can also include other critical aspects: for instance, siting and regional mapping of risk zones and possible risk scenarios. Further, the unique circumstance of having foreign operators operating almost all aspects of nuclear power plants within another country can also be factored into these arrangements.

The Fukushima incident has offered the world another chance to strengthen the legal regimes governing nuclear liability, and countries in South Asia and the ASEAN region, where nuclear energy is in its early stages, have an opportunity to learn from previous experiences and to work on a harmonized regional liability regime. A stable and certain liability framework is imperative if all stakeholders are to accept nuclear energy as a sustainable method of power generation.


Availability of Compensation and Liability Limits

Under extant international and domestic laws, the best available limit of compensation can be found in the U.S. Price-Anderson Act—an accessible fund of approximately $12 billion. While methods of determining the total economic costs of a nuclear accident may be debated and questioned, what remains clear is that nuclear liability limits and available funds are unlikely to meet the actual economic costs that a nuclear accident brings about. It must however be pointed out that typically in cases where the financial security is inadequate to pay for the claims, public funds in the installation state are commonly used as the next source of funding. As seen in the cases of Chernobyl and now Fukushima, a large portion of the cost of an accident is more often than not borne by the affected countries and their taxpayers. This poses a serious challenge to the acceptability of nuclear power as a viable option, especially for developing countries (e.g., in the South Asia region or ASEAN), as the compensation mechanisms may be inadequate and could result in a lack of support among local communities for nuclear energy in these countries. This argument in fact gained significant momentum in India and resulted in the Indian law evolving a concept of supplier liability that is discussed elsewhere in this paper. This argument has also been raised in the context of Fukushima.

However, any such argument also needs to be examined from a realistic perspective. Presently, no insurance pool would be in a position to provide insurance in the range of hundreds of billions of dollars. Consequently, no commercial entity can be expected to open itself to the possibility of being completely bankrupted in the event of a nuclear accident. Such an approach would effectively discourage nuclear energy activities. This is clearly a challenging paradox. How can the nuclear industry meaningfully contribute to the economic costs of a nuclear accident while at the same time continue to be economically viable?

In considering the possible ways of addressing this paradox, it is important to keep in mind the evolution of international principles of liability. Rather than discarding these principles as unworkable or impractical, the approach for reforms in this regard should be to build on the existing platforms provided by the international conventions, particularly the CSC.

At the moment, the structure of creating a fund, as in the case of the Price-Anderson Act or the CSC, appears to provide a starting point to address this challenge. However, rather than confining contributions to such a fund within a jurisdiction (as with the Price-Anderson Act), the nuclear industry can consider creation of such a fund at an international or a regional level. Contributors to the fund should include not only nuclear operators, but also suppliers. Additionally, states can also contribute to such a fund. Considering the relative rarity of nuclear accidents yet the large-scale consequences of such an event, it would be in the interest of all stakeholders, particularly of the nuclear industry, to create such a fund. Rather than being solely operator-driven (as in the case of Price-Anderson) or solely state-driven (as in the case of the CSC), a combined operator- and state-driven approach along with contributions from the supplier community would result in a much more robust fund, which could provide meaningful compensation in the event of a nuclear accident.

The concept of the nuclear supplier community contributing in the event of a nuclear accident is not new. Section 934 of the U.S. Energy Independence and Security Act, 200766 deals with how the United States will meet its obligations under the CSC, and in particular its obligation to contribute to the international supplementary fund in the event of certain nuclear incidents. The section authorizes the secretary of energy to issue regulations establishing a retrospective risk-pooling program by which nuclear suppliers will reimburse the U.S. government for its contribution to the international supplementary fund in accordance with a predetermined formula. A similar concept can also be evolved at an international level, involving contributions into a fund by states, nuclear operators, and major suppliers. The working of such a provision can be in a manner that would make the contribution by nuclear suppliers reasonable without making the business itself economically unviable.

Another example of the implementation of a fund that involves active participation between states and industry is the International Oil Pollution Compensation Funds (IOPC Funds).67 The IOPC Funds provide financial compensation for oil pollution damage that occurs in member states resulting from persistent spills of oil from tankers.68 Notably, the funds are financed by contributions paid by entities that receive certain types of oil by sea transport. These contributions are based on the amount of oil received in the relevant calendar year, and they cover expected claims together with the costs of administering the funds. These contributions are payable by the individual contributors to the fund. A state is not responsible for the payment of contributions levied on contributors in that state unless it has voluntarily agreed to do so.69 Thus, the IOPC Funds are administered by states under the framework of international agreements, but whose main contributories are members of the oil industry.

Addressing the gap between the actual losses incurred by a nuclear accident and the limits of liability provided under different legal instruments will require a fundamental relook at international and regional frameworks for nuclear liability laws. A model that involves the creation and administration of a fund with both states and the nuclear industry (including the supplier community) being contributories is one worth considering, as it would increase the pool of accessible funds and create a meaningful compensation structure. It also addresses the argument against the present model, which completely insulates the supplier in the event of a nuclear incident. The structures adopted by the oil industry, as well as those contemplated in the CSC and the Energy Independence and Security Act, 2007, can be a good starting point in providing an effective amount of funds for compensation claims in the event of nuclear incidents, and they provide an existing structure that can be further built on. It will also go a long way in addressing the concern that nuclear suppliers are not playing a role in contributing to funds for compensation of nuclear accidents.


ENDNOTES

64 R.S.C., 1985, c. N-28.

65 Mohan, “Transboundary Nuclear Liability Regime.”

66 Available at http://www.gpo.gov/fdsys/pkg/PLAW-110publ140/pdf/PLAW-110publ140.pdf.

67 The framework for the regime was the 1969 International Convention on Civil Liability for Oil Pollution Damage and the 1971 International Convention on the Establishment of an International Fund for Compensation for Oil Pollution (1971 Fund Convention). To increase the scope and compensation under these conventions, the 1992 Civil Liability Convention and the 1992 Fund Convention were adopted. Following the Erika and Prestige incidents, a third instrument, the Protocol to the 1992 Fund Convention (Supplementary Fund Protocol), was adopted in 2003, providing additional compensation over and above that available under the 1992 Fund Convention.

68 See Funds Overview, http://www.iopcfunds.org/about-us/.

69 See The International Regime for Compensation for Oil Pollution Damage (August 2013), http://www.iopcfunds.org/fileadmin/IOPC_Upload/Downloads/English/explanatorynote_e.pdf.