17 November 2007

Nuclear liability: time to address the imbalance

By Marguerite Finn

"The one area where nuclear energy does receive an effective subsidy is in state support for insurance against the cost of a major nuclear catastrophe." (Malcolm Grimston in 'Nuclear energy – unlocking the market potential', 2006)

On 6th November 2007, Her Majesty The Queen pronounced the words "My Government will introduce legislation to provide clean, secure and affordable supplies of energy". The main aims of the Energy Bill are (a) to strengthen the market framework to help ensure secure and affordable energy supplies and (b) to encourage a diverse, secure supply of electricity while at the same time reducing carbon dioxide emissions. There is one important word missing from the description of the energy the Government aims to supply. It is the word safe.

Safety applies to all energy production but to none more so than nuclear energy – which is fraught with danger at every stage of the nuclear cycle and which is why nuclear power is so unpopular. To pacify and encourage a reluctant and suspicious public anxious not to see their money spent on unnecessary and dangerous nuclear technology, the Government has assured us that: "if it is decided that it is in the public interest to allow private sector investment in new nuclear power stations, the Energy Bill would create a framework that will help protect the taxpayer by requiring owners or operators of a new nuclear power station to make financial provisions to cover the full decommissioning costs and their full share of waste management costs". OK – that's better than the current situation where the public has to foot the bill. Yet, there is a word missing here too – insurance. Who pays the insurance policy against nuclear accidents? This insurance is often referred to as the nuclear sector's 'silent subsidy' and we don't talk about that – but we should talk about it because you and I are currently paying for it!

Insurance is something we grapple with frequently in our daily lives: whether it is chasing the best deal on car insurance (to protect us and our possible victims in the case of an accident), insuring our diamond rings or arguing with the water company as to who is liable for the drains between the house and the road – it is a tiresome but essential part of our lives. It is fair too that large companies whose waste products may cause severe damage, cover all such third party costs. Why then is the nuclear industry, so uniquely capable of catastrophe, exempt from this liability – which is currently underwritten by the taxpayer? At present, international insurance regimes only require that nuclear operators pay, in the event of a nuclear accident, a small fraction of the potential claims. The rest would have to be paid by the Government or not paid at all.

This may be about to change. On 5th November, Anthony Froggett, an independent consultant on European Energy Policy and Simon Carroll from the Centre for Biological Diversity, in Sweden, presented a paper entitled The Future of Nuclear Energy in a Carbon Constrained World, arguing that there are "seriously inadequate nuclear liability and compensation arrangements currently in place across the various EU Member States". They suggest there is a "need to introduce new liability and compensation arrangements that reflect the actual potential costs of nuclear accidents, that would fully compensate damage caused in the event of a nuclear accident and which would eliminate this significant subsidy to nuclear electricity generation". So far, attempts to raise the minimum nuclear liability by even a modest amount have been fiercely resisted but the European Commission now wants to address the whole issue of nuclear third party liability. This presents a real opportunity to develop and implement a fairer, more efficient and effective nuclear liability and compensation scheme to the benefit of all.

The lack of such a requirement produces the biggest market distortion in the electricity sector. If nuclear operators were required to pay their own nuclear insurance, the cost of nuclear electricity production would significantly increase – and this would be reflected in the true cost of nuclear energy.

Renewable energy generators do not enjoy this economic protection. They have to take out insurance to cover the risk of potential damage to the environment and the public. This makes them seem less 'competitive' than nuclear energy – although the reverse may be the case.

The consequences of a nuclear accident are of such an order of magnitude compared to any other accident, that the international community should make absolutely certain that – if nuclear power really is necessary – the nuclear industry should cover all the risks itself with adequate insurance.