NUCLEAR RISKS AND INSURANCE

ALYA ZAHRA BINTI MOHD ZAMZAM

STUDENT ID: 120022809

SUPERVISOR: ROBIN MICHAELSON

SUBMISSION: APRIL 2015

Submitted as the final year project for the BSc Honours Degree Course in Actuarial
Science of City University London.
"I certify that I have complied with the guidelines on plagiarism outlined in the Course
Handbook in the production of this dissertation and that it is my own, unaided work."

alyazahra
Signature: __________________________________________

ACKNOWLEDGEMENT

Firstly, I would like to thank my supervisor, Mr Robin Michaelson, for his guidance
and assistance throughout writing this paper. His help has been vital and has aided
me towards enhancing the quality of this paper.

I would also like to express my gratitude to my family and friends for their constant
and unwavering support. Additional gratitude also has to be given to Ms Faridah
Faiz, Ms Siti Farhana Sheikh Yahya and Mr Simran Singh for proofreading my work
and providing helpful criticisms.

Special thanks also have to be given to my father, Dr Mohd Zamzam Jaafar, a

nuclear engineer, for giving me the inspiration to write about this interesting subject
and also for the clarification on certain terms.

ABSTRACT

The history of nuclear power has been a turbulent one, with demands falling
whenever a major accident occurs and demands rising whenever there are growing
concerns about greenhouse gas emissions and the longevity of the oil and gas
industry. However, due to the consequences of nuclear accidents like Fukushima
and Chernobyl, international legislations have been enacted to limit the
reimbursements that have to be paid out by the government and the operator. The
aim of this paper is to understand the risks associated with nuclear energy and to
explore the nuclear insurance industry, specifically third party liabilities. This paper
analyses the hazards associated with nuclear energy, the impacts of major nuclear
accidents and the history and future developments of third party liability legislations.

ii

TABLE OF CONTENTS

Acknowledgement ........................................................................................................i
Abstract ....................................................................................................................... ii
1 Introduction ......................................................................................................... 1
2 Nuclear Energy.................................................................................................... 3
2.1

Background of Nuclear Energy................................................................................. 3

2.2

Benefits of Using Nuclear Energy............................................................................. 4

3 Risks and Costs Involved with Nuclear Energy ............................................... 7

3.1

Nuclear Energy Risks............................................................................................... 7

3.2

Costs of Nuclear Energy .......................................................................................... 9

4 Nuclear Disasters and the Costs Incurred ...................................................... 11

4.1

Three Mile Island, United States ............................................................................ 12

4.2

Chernobyl, Former Soviet Union ............................................................................ 13

4.3

Fukushima Daiichi, Japan ...................................................................................... 15

5 Nuclear Legislations for Claims and Effects on Government and Operator 19

5.1

Price-Anderson Act ................................................................................................ 19

5.2

International Legislation ......................................................................................... 21

5.2.1

Paris Convention .............................................................................................. 21

5.2.2

Brussels Supplementary Convention ................................................................ 22

5.2.3

Vienna Convention ........................................................................................... 23

5.2.4

Joint Protocol .................................................................................................... 24

5.2.5

Convention on Supplementary Compensation .................................................. 25

6 Conclusion ........................................................................................................ 27
7 Glossary............................................................................................................. 29
8 References......................................................................................................... 30

INTRODUCTION

Before 2010, the last known major nuclear accident was Chernobyl in 1986. With no
further episodes occurring since then, the majority of the public eventually became
more comfortable with the idea of nuclear power. Countries began accelerating or
starting their own nuclear programs.

Interestingly, most individuals from generation Z (the term for the cohort born in the
late 1990s) have no knowledge of the Chernobyl incident. For some, their only
knowledge regarding nuclear events was the bombing of Hiroshima and Nagasaki in
World War II, but the Fukushima incident in 2011 soon enlightened them. This
incident also sparked a rise in anti-nuclear campaigns, which resulted in countries reexamining their nuclear policies.

In debates against nuclear power, the main arguments were centred on the
devastating consequences following an accident due to radiation. The effects from
Chernobyl are still evident today 29 years later and since the losses were not
insured by the former Soviet Union, the current governments of Belarus, Ukraine and
Russia are still paying out claims to victims. The 9/11 terrorist attacks in 2001
exposed the world to the threat of terrorism. Since bombs can be made from nuclear
materials, this danger is also an inherent part of nuclear risks. This raises the
question of why countries remain interested in nuclear power and, setting aside the
years after Fukushima, why we see a rise in the construction of nuclear plants.

Nuclear insurance is unique as there are two types of insurance involved, property
insurance and third party liability insurance. Property insurance is taken up to insure
the nuclear sites while third party liability insurance covers the effects of an accident.
In the 64 years since nuclear energy was first introduced, a few legislations have
been established to limit the amount that the concerning parties were liable for.
Following the Chernobyl and Fukushima accident, revisions were made periodically
to ensure that the legislations were up-to-date with current developments of the
industry and the economy.

The topic of this paper is Nuclear Risks and Insurance and the focus of this paper will
only be limited to civil nuclear programs and accidents, given the subjects broad
scope. Therefore, military nuclear programs will not be mentioned. Since major
accidents have only occurred at reactor sites, more focus will be placed on nuclear
reactors instead of enrichment or waste management facilities. Similarly, attention
will only be given to third party liability insurance and not nuclear property insurance.

This paper will review the risks and the benefits associated with nuclear energy, the
nuclear accidents and the legislations that were enacted for third party liabilities. The
revisions of these conventions and the future prospects of the nuclear insurance
industry will also be discussed.

In terms of the structure of the paper, the first upcoming chapter will introduce
nuclear energy, its current status in the world, and the advantages of nuclear energy.
The next chapter will mostly elaborate on the drawbacks and the current steps taken
to mitigate them. Chapter four will cover the analysis of major nuclear accidents,
along with the causes. The social, political, and economic impacts of each accident
will also be disclosed. Lastly, the final chapter will evaluate the different legislations
and their impact on the insurance industry.

NUCLEAR ENERGY

This chapter presents a discussion on the background of nuclear energy and the
reasons for its demand.
2.1

BACKGROUND OF NUCLEAR ENERGY

Nuclear energy is the energy obtained during nuclear processes, mainly nuclear
fission, to generate electricity. Nuclear fission is a process where the nucleus of an
atom, usually Uranium-235, is split into smaller parts and releases a considerable
amount of energy.

According to the International Energy Agency (IEA) (2014), nuclear energy generates
4.8% of the worlds total energy and 11% of the worlds electricity in 2012, with
France being the largest consumer as it obtains 76.1% of its electricity from nuclear
energy. The International Atomic Energy Agency (IAEA) (2014) mentions that there
are now 437 nuclear power plants in the world, with 72 under construction in 31
countries. The United States is the biggest producer of nuclear energy, with 100 fully
operating power plants and five more under construction, yielding 801Terawatt-hours
(TWh), which counts towards 32.1% of the worlds total production of nuclear
electricity.

Historically, it all started when the Experimental Breeder Reactor-1 in Idaho, United
States managed to generate enough electricity to light up four light bulbs in
December 1951 (Freeman, 1952). In 1954, the Obninsk Nuclear Power Station, in
Russia supplied electricity to a power grid for the first time (Kotchetkov, 2004). In
1956, Calder Hall, situated in Cumbria, United Kingdom became the first nuclear
plant to produce electricity on an industrial scale (Stoneham, 2010). Since then,
nuclear energy has been used to generate electricity in many countries.

The oil crisis in the 1970s led to a spike in the number of operating nuclear power
plants. However, the declining prices of fossil fuel and the economic crisis later in the
decade, along with the Three Mile Island nuclear accident in 1979 and the Chernobyl
incident in 1986, curtailed the growth of the nuclear industry. Following that, there
was a substantial decline in the growth of nuclear energy as the public became more
concerned about its safety risks. Nevertheless, some countries decided to follow
through with their nuclear programmes (Organisation for Economic Co-Operation and
Development Nuclear Energy Agency (OECD NEA), 2003). In 2010, the IAEA
predicted that nuclear demand would grow considerably in the next few decades
(IAEA, 2010). While these predictions have since been decreased in light of the
Fukushima-Daiichi incident in 2011, the demands have yet to be in decline (IAEA
2013).
2.2

BENEFITS OF USING NUCLEAR ENERGY

Nuclear energy is an environmentally friendly energy source as it emits a

comparatively low amount of carbon dioxide and produces negligible amounts of
sulphur dioxides or nitrogen oxides (Bosselman, 2007). In fact, when compared to
other types of renewable energy for example, photovoltaic, hydro, wind and biomass,
nuclear energy is the second lowest emitter of greenhouse gases after hydro energy
(Weisser, 2007). Granted, some greenhouse gases are emitted when uranium is
extracted from mined ores during milling, during the enrichment processes and when
fuel is transported (Dones et al., 2007) and even when the whole life cycle is
considered, the amount generated is insignificant.

Carbon footprint is something that has to be taken into account when thinking of
energy production, especially after the signing of the Kyoto Protocol, which aims to
reduce the greenhouse gas emissions from its parties (OECD NEA, 2002). Although
some emissions from nuclear plants were not considered because of concerns
arising from safety, proliferation and waste disposal, this is subject to change as a
follow up treaty is currently in negotiation.

Geographically, nuclear energy has an advantage over other sources of renewable

energy as the power plants can be erected wherever it is most convenient, i.e., it
does not have to be erected only at locations where their source of energy is most
abundant. To illustrate, wind farms can only be built in locations of high wind
frequency, which might be far from where the electricity is needed so more costs are
incurred to transmit electricity. Unlike intermittent energies like solar or wind that
require certain weather conditions to be present before generating energy, nuclear
energy is more reliable as it can generate energy even in adverse weather conditions
(Bosselman, 2007). Nonetheless, natural disasters might have an effect on energy
production, as demonstrated by the 2011 tsunami that affected the nuclear reactors
in Fukushima.

Concerns surrounding the amount of radiation exposed to workers and surrounding

areas have no basis as investigations from the United Nations Scientific Committee
on the Effects of Atomic Radiation (2008) have proven that nuclear power only
exposes the public to low-levels of radiation. The amount of radiation is also found to
be less than those received from background radiation that occurs naturally in the
environment, such as those from radon gas and cosmic radiation. Average radiation
exposure for a nuclear power plant worker has also been established as being a very
small amount and it is even less than the average amount that airline flight crews or
coal workers are exposed to.

By definition, nuclear energy is not renewable but its source is in continuous supply.
There are huge reserves of uranium in Canada, Kazakhstan, Namibia, and Australia
(Elliot, 2013) and it is expected to last longer than coal and natural gas (IEA, 2014).
It is also possible to stockpile uranium and this reduces the risk of insufficient supply
due to transportation problems or political disputes. Uranium is also very cost
effective and easy to transport; only a small amount is needed to produce
considerable amounts of energy (Adamantiades and Kessides, 2009). A kilogram
(kg) of uranium releases the same amount of energy as 14,000kg of liquid natural
gas, 22,000kg of coal or 15,000kg of oil (OECD NEA, 2003).

Uranium can be reprocessed to increase the supply but there are restrictions
surrounding it as its by-products, plutonium and highly enriched uranium, can be
used to make explosives (OECD NEA, 2008). Another drawback is that uranium is
only available in certain countries and this might increase a countrys dependence on
the countries with the uranium reserves (Ridlington, Telleen-Lawton, Neumann,
2007). Currently, some countries like India, Germany and United States are looking
at thorium as another source of nuclear fuel as it is a cheap and plentiful element.
In summary, nuclear energy is responsible for a percentage of the worlds total
energy production and it has provided energy for civilian use for more than 60 years.
The global demands for nuclear energy increased mostly due to its predicted
continuity and its low carbon footprint. In light of the catastrophic nuclear accident in
Chernobyl, the demands decreased. It soon picked up again but the Fukushima
accident then reduced the demands once more. The next chapter will examine the
drawbacks of nuclear energy.

RISKS

AND

COSTS

INVOLVED

WITH

NUCLEAR

ENERGY

This chapter will discuss the drawbacks of nuclear energy, specifically the risks for
parties involved. The chapter will mainly focus on the operators risks along with a
financial overview involving costs for building a reactor and for decommissioning.
3.1

NUCLEAR ENERGY RISKS

As previously mentioned, the biggest concern regarding nuclear energy is the

radiation risk. Nowadays, power plants are deemed safe due to new technological
advancements and safety measures that have been put in place. Safety principles
set out by the IAEA, for example, the Convention on Nuclear Safety have made the
likelihood of major accidents very low (IAEA, 2006). Nevertheless, it is impossible to
build a plant with 0% probability of failure given that human fallibility is one of the
main causes of accidents (OECD NEA, 2008).

Waste from nuclear power plants is extremely hazardous and must be handled
correctly. As reviewed by Van der Zwaan (2002), this problem can be overcome by
burying waste deep underground in geological repositories, which has been
established to last awhile. The Yucca Mountain underground site in Nevada, United
States is one such repository. One caveat of this method is that if nuclear energy
production doubles in the next decade or so, the amount of waste produced will
increase and the current repository would be insufficient. Van der Zwaan then
estimates that a repository of equal size to Yucca Mountain will need to be built every
25 years if the production of nuclear power doubles in the United States.
Adamantiades and Kessides (2009) declare that public opinion is also a problem as
the public generally do not agree to a repository being built close by, fearing that the
radiation will leach into the groundwater and nearby water sources. One solution is to
internationally manage the storage of spent fuel by building an international
repository (Van der Zwaan, 2002) but difficulties arise when picking a location.

Even if the operations of a power plant have been terminated, it is still providing a
threat to its surroundings by being a radioactive waste that could be contaminating
surrounding areas. Ergo, it is necessary to decommission the nuclear plants that
have reached the end of their license or the ones that were shut down earlier due to
plant failure. According to the OECD NEA (2003), decommissioning is a process
where nuclear plants cease to operate and are removed from service. The
radioactive materials are decontaminated and radiation is reduced until the site is
safe to be re-used. However, as essential as decommissioning is, it is also a very
expensive process with estimations going up to about $14billion.

Besides that, the bombing of Japan in Word War II and the after-effects from the
radiation are still in the forefront of the publics mind, as are the 9/11 terrorist attacks.
The fear of a terrorist organization hijacking or attacking a nuclear power plant and
producing nuclear weaponry is still very prominent. As follows, this gives the public
more reason to protest against a power plant being built nearby.

Moore (2011) argues that shutting down all nuclear reactors would not stop terrorists
from finding a way to produce nuclear weapons. It is actually much easier to enrich
uranium with centrifuge technology than to extract plutonium from nuclear reactors.
He further argues that many useful technologies that have been invented, such as
fire, could be used as weapons. He states that we should not ban beneficial
technology just because it could be used in a harmful way and to remember that
these technologies could also benefit mankind. For instance, nuclear technology
used in medical treatments comes from the materials that are generated in reactors.

Adding to that, there are many non-proliferation treaties and conventions that have
been signed between countries. One of the earliest amongst them is the Treaty on
the Non-Proliferation of Nuclear Weapons (NPT) that was endorsed in 1968 by 191
countries. One of the main responsibilities is that Nuclear Weapon States (NWS),
countries that had nuclear weapons when the treaty came into force, cannot transfer
any nuclear weapons and cannot aid Non-Nuclear Weapon States (NNWS) in
procuring nuclear weapons while NNWS cannot obtain or manufacture any nuclear
weapons (Andem, 1995).

NNWS also have to accept safeguards agreements, which are proclamations about
their nuclear sites, resources, and operations and allow the IAEA to validate the nondiversion of disclosed nuclear material by accessing the nuclear sites. In exchange,
NNWS receive help in researching, developing and using nuclear energy for peaceful
purposes (OECD NEA, 2008). The IAEA safeguards are also applied to countries
that have not signed the treaty but only on selected sites. They are also an option for
NWS, which most have taken up (OECD NEA, 2003).

Nuclear plants also have other risks surrounding the plant itself. Its main function is
to produce electricity but there are instances where it could fail to do so, e.g., during
an accident, when the plant is suffering from too many errors and cannot be relied on
to generate energy. This will consequently affect the electricity grid and disturb
emergency plans, as experienced during the Fukushima-Daiichi incident. Marques
(2011) expressed that there could also be problems related to the design of the plant
itself as seen in Chernobyl, although this is more or less a non-existent risk as each
plant design now has to comply with the regulations set by the IAEA and license is
only given after this is certified.
3.2

COSTS OF NUCLEAR ENERGY

Nuclear energy is relatively safe when compared to other sources of energy but once
an accident happens, particularly a massive one, the liabilities that the government or
the operators incur are substantial. The total clean up costs for the first major nuclear
accident, the Three Mile Island incident, were in excess of $1billion (Booth, 1987).
This exorbitant amount concludes why nuclear insurance is needed.

Conversely, when compared with other forms of energy, nuclear accidents occur at a
less frequent rate. From 1907-2007, there were 213 accidents involving fossil fuels
and only 63 nuclear accidents. Furthermore, nuclear energy accidents only caused
4,067 fatalities, which is relatively low when compared to the 171,216 deaths caused
by hydroelectric energy. Whilst this is so, Sovacool (2008) reiterates the need for
nuclear insurance as nuclear energy accounts for the highest economic cost at
$16.6billion.

As reviewed by Kessides (2012), constructing a nuclear power plant is very

expensive and has long construction times due to complex radiation containment
systems and built-in safety equipment. Regulatory severity also plays a role, as every
modification, even small ones like shifting a pipe several inches, has to be approved.
The construction progress generally takes a very long time because public opinion
needs to be taken into account, more so in a democratic country, and this could be a
long process (OECD NEA, 2004).

Moreover, a nuclear power plant has to procure a combined construction and

operating license that could take up to 30-42 months and certain legal procedures
also have to be executed (Adamantiades and Kessides, 2009). A nuclear power plant
has to stop operations when they reach the end of their regulatory lives, as the
operating license has an expiration date, even though the money invested for
building it is tremendous. In the United States, operating licenses last for 40 years
but as reported by Ahearne (2011), there have been talks for a 20-year extension.

This chapter expounds more on the downsides of nuclear energy but the main
problems would definitely be the threat of terrorism and the absence of a proper
waste management strategy. Radiation risks are also a major issue with nuclear
energy. Nevertheless, safety records of the industry and the new advancements in
the design lower the risk of a nuclear accident with off-site repercussions, such as
one rivalling Chernobyl or Fukushima. The amount the operator has to pay out for
claims and for decommissioning are, however, very high. To build a nuclear reactor,
the operator also requires a huge allocation of money as well as time. The next
chapter will explore the accidents that have occurred, the events that lead to the
accident and the developments that ensued from the aftermath.

10

NUCLEAR DISASTERS AND THE COSTS INCURRED

This chapter elaborates on the three major significant nuclear accidents that have
occurred in the world, the reasons for the occurrence of such accidents, the safety
measures that were undertaken, and the effects of the accidents to the public and the
environment. Any political, economic or social developments regarding the accidents
will also be expounded.

The International Nuclear Event Scale (INES), according to Kermisch and Labeau
(2013), is a logarithmic scale used to classify nuclear events based on the relation to
safety. Levels 1-4 are considered as incidents and levels 5-7 are termed accidents.
There is also a level 0 which is regarded as deviations with no relevance to safety.
Figure 1 below illustrates the rating criteria for the INES scale. The objective of this
scale is to serve the general public with an assessment on events. So far, there have
only been two nuclear events that rated a 7 - the Chernobyl and Fukushima incidents
in 1986 and 2011 respectively.

Levels

Description

Deviations with no safety significance

Anomaly

Incident

Serious incident

Accident with local consequences

Accident with wider consequences

Serious accident

Major accident
Figure 1: Rating Criteria of INES Scale
Source: Kermisch And Labeau (2013).

11

4.1

THREE MILE ISLAND, UNITED STATES

While this accident was only a 5 on the INES scale, the accident is one of the few
nuclear events where clean up has officially finished and total costs incurred are
known fully.

The accident took place on March 28th 1979 when a valve failure, combined with the
plant operators inadequate knowledge, ensued in a core meltdown in one of the
reactors on Three Mile Island (Marques, 2011). Plant operators only discovered that
there was a problem a considerable amount of time later and by this time, almost half
of the core had melted.

Fortunately, the containment building was not breached and it was determined that
only minimal radioactive releases were discharged. The average individual radiation
dose from the accident was found to be smaller than the average background
radiation in the United States (Talbott et al., 2003). Nonetheless, miscommunication
led to the evacuation of 140,000 residents living near the plant.

A movie released a few days before the accident about a nuclear meltdown, similar
to the accident, increased the publics fear and paranoia.

This accident was the first to occur on a grand scale in the United States; as such,
revolutionised the training programs, the emergency plans, the regulatory practices
and the operating procedures for the nuclear industry.

Clean up of the reactor was completed in 1991, with total costs amounting to
$973million. Fuel canisters were transported to Idaho National Laboratory for longterm storage. The plant was decontaminated and declared safe for long-term
management. Brock et al. (2014) predicted that the decommissioning of the plant
would be finished in 2036.

12

4.2

CHERNOBYL, FORMER SOVIET UNION

Mould (2000) explains that a poorly planned systems test carried out on one of the
four reactors in the Chernobyl Nuclear Power Plant triggered the accident. The
experiment was conducted in the early hours of April 26th 1986, after which, there
was an unexpected power surge. The reactor power continued to rise exponentially
even after an emergency shutdown was initiated. This led to a rupture in the fuel
channel and was followed by two thermal explosions, with the fire persisting for about
two weeks. The emanated radioactive plume spread across Europe and affected
most of the countries west of Chernobyl, especially Belarus, Ukraine and Russia.
Delay of information from the Soviet authorities eventuated in the late evacuation of
the inhabitants of Pripyat, the city where the plant was located. In fact, the first
reports about the accident came from Sweden - two days after it occurred.

Hawkes (1986) also declared that aside from human error, one of the main reasons
for the accident was the design of the RBMK reactors, which is prevalent in the
Soviet Union. While not necessarily fundamentally hazardous, there are flaws
concerning the emergency systems of the reactor. British authorities also state that
the design was not up to their standards, although it was mentioned that the RBMK
reactors had certain implementations that were an advantage compared to western
reactors.

Residents living within 30 kilometres (km) of the plant were evacuated, along with the
livestock, and relocated to nearby districts. Stable iodine was passed out to the
population to prevent the accumulation of radioiodine and decrease the chances of
having thyroid cancer. Ingestion of foods such as milk, vegetables, drinking water,
wild animals and fish were regulated based on the concentration of radionuclides.
After the accident, it was discovered that even some of the sheep in Wales, United
Kingdom were contaminated. Compulsory radiation testing and restrictions against
transactions on the affected farms was only lifted in 2012 (British Veterinary
Association, 2012).

13

While there was an escalation in thyroid cancer and leukaemia cases, as anticipated,
there was also an unexpected rise in suicide rates (IAEA, 2006). There were other
psychological and social problems present, such as alcoholism, anxiety issues and
stress-induced illnesses. Radiophobia also gave rise to higher abortion rates.
Although there were mutations in plants and animals (Saino et al., 2007), the World
Health Organization (WHO) (2006) states that there may not be a relationship
between the exposure to radiation and the manifestation of birth defects and Downs
syndrome in children born after the accident.

The first people to die in this accident were two power station operators; one died
from thermal burns while the other, whose body was never found, died in the reactor.
In the first three months, the number of casualties increased to 28 with most of the
deaths involving plant workers and a few firemen. The Chernobyl Forum, established
in 2003, articulated that in total there have been 134 cases of acute radiation
syndrome reported. There were other deaths reported in the time since the accident
but the cause of death could not be determined and might not even be associated
with the exposure to radiation (IAEA, 2006).

Mould further states that a sarcophagus was constructed over the affected reactor to
restrict the radioactive contamination and as it was constructed in haste, it is not
expected to last long. A second sarcophagus that is expected to last for 100 years is
currently being erected. Since the plant supplied the Kiev reservoir, due to its close
distance to the Pripyat River, hydraulic engineering structures - including a cooling
slab under the reactor were built to prevent water contamination.

Visitors and returnees are now allowed into the evacuated zone, called the
Chernobyl Exclusion Zone, but only areas within the 30km zone. The inner 10km
zone is and probably always will be illegal to enter. Nevertheless, present-day
environmental conditions show that the accident has some favourable consequences
as the population of plants and animals in the Exclusion Zone has flourished and
some rare animals can now also be found in the area (Baker and Chesser, 2000).

14

Chernobyl was a major accident and the process of clean up is expected to take a
very long time with an exorbitant amount to be paid at the end. The OECD NEA
(2010) conveyed that the former Soviet Union was not part of any international
nuclear liability regime that would have given the victims an entitlement for
compensation. The victims had to rely on the goodwill of the current governments.
Up to 2003, the Belarus government has paid out more than $13billion while the
Ukrainian government has set aside about 7% of its total expenditure for Chernobyl
related expenses (IAEA, 2006).

Additionally, there are legislations in place to provide aid and privileges for victims of
Chernobyl and currently about seven million people benefit from this. Wide
applicability meant that this turned a huge financial burden for the government. Some
health and socio-economic impacts might not be detected yet, so there could be
more claims in later years. There are also expenses incurred for monitoring the level
of radiation and for healthcare programs.
4.3

FUKUSHIMA DAIICHI, JAPAN

On 11 April 2011, one of the most severe earthquakes hit the coast of the Thoku
region (Povinec, Hirose, Aoyama, 2013). On the Richer scale, the Great East Japan
Earthquake had a magnitude of 9.0 and resulted in massive tsunami waves, reaching
up to 40m in height.

When the earthquake occurred, all of the nuclear plants along the eastern coast
automatically shutdown as part of the emergency safety procedure. Eight of the
eleven reactors that were operating at the time of the accident managed to attain
cool shutdown status, ensuring that the plants were stabilized. However, the site of
the Fukushima Daiichi nuclear power plant lost power due to the tsunami as the
waves were higher than the plants seawall - water flooded the plant and destroyed
most of the backup generators.

15

Although all processes ceased during the automated shut down, heat from nuclear
decays were still being released and as the cooling pumps were not operating, this
ensued in the melting of the fuel core. This, combined with other factors, lead to
hydrogen explosions in the three reactors that released radioactive fragments into
the air. The earthquake and the tsunami also wrought havoc to the buildings, the
machinery and the roads, thus making it harder for emergency workers to access the
reactors and resolve the issues affecting the cooling down of the reactors.
Communications and monitoring equipment, such as meters and control functions,
were also affected by the electricity loss.

Due to the melting of the nuclear fuels, the government of Japan declared a nuclear
emergency and instructed the residents living within 20-30km, about 150,000 people,
to evacuate the area. Inadequate information and emergency procedures that have
not been revised or improved resulted in residents moving to areas with high levels of
radiation. Monitoring posts that were used to measure dose rates were not
operational due to the loss of electricity.

As a result, more people were exposed to high radiation levels. Residents, children
and workers dose levels were determined and it was found that all of the childrens
dose levels were in an acceptable range whereas there were about 102 residents
and 167 workers that exceeded the acceptable amount. These people were then
decontaminated.

The government administered iodide tablets to residents living in the evacuation zone
and announced restrictions on foodstuffs that exceeded the index values, such as tap
water, milk for infants, meat, vegetables and marine food. However, WHO (2013)
reported that the radiation exposed to the general public from the radioactive clouds
and from food intake was not substantial enough to cause severe health impacts.

In total, this accident claimed 15,873 lives, with 6,114 more injured and 2,744 people
missing. However, the earthquake and the tsunami caused most of these deaths,
with some deaths from the explosion and the evacuation. None of the deaths
reported were due to the radiological impact from the nuclear accident, although this
might change, as usually radiation effects are not known immediately.
16

Investigation into the accident by the National Diet of Japan Fukushima Nuclear
Accident Independent Investigation Commission (2012) concluded that the accident
was man-made due to the Tokyo Electric Power Company (TEPCO), the operator,
and regulatory bodies failure to establish basic emergency procedures and adopt
appropriate preventive actions against the risk of a tsunami, which was known to be
a possibility since 2006. Therefore, the operator is liable for all costs and the
government has to indemnify the losses, according to Japans national legislation for
third party liability.

Reinsurers, Munich Re (2011) and Swiss Re (2011), have announced that the
accident is unlikely to affect the private insurance industry, as coverage for nuclear
facilities in Japan excludes earthquake shock, fire following earthquake and tsunami,
for both physical damage and liability.

Japan Centre for Economic Research estimated that the total damage for the
accident could cost up to $250billion, including the compensation for the victims from
TEPCO (Elliot, 2013).

The costs to decommission and decontaminate the Fukushima Daiichi reactor might
be greater than the costs incurred for the Chernobyl accident because the area
surrounding the Chernobyl reactor was permanently evacuated whereas, as Japan
has a limited amount of land, it was decided that a full clean up of the Fukushima
Daiichi reactor will be attempted. TEPCO plans to have the final decommissioning of
the site around 2041-2051.

According to the INES scale, this nuclear accident rated a 7; the same scale as that
of the Chernobyl disaster. Compared to the Chernobyl accident, the Fukushima
accident had less radiation impact because there were no catastrophic releases and
the level of exposure was lower. Nevertheless, the Fukushima plant had much more
fuel stored, 4,277 tonnes of fuel to Chernobyls 180 tonnes, and released more
radiation into the ocean than Chernobyl since the Fukushima plant is located near
the sea.

17

Elliot proclaimed that before the accident, Japans energy policy involved more than
50% dependence on nuclear energy and about 30% on renewables. After the
accident, understandably, public morale was low. There were protests all over the
country, notably a demonstration by 60,000 people in Tokyo in September 2011.

A poll that was carried out also found that only 6% of the Japanese people were in
favour of nuclear power and a major 57% declared that they did not want any new
plants. In the end, the prime minister at the time, Naoto Kan, declared that Japan
would focus more on renewable energy and slowly phase-out nuclear power. In fact,
all 54 reactors in Japan were shut down by May 2012 and it is uncertain whether they
will be restarted. The energy policy is currently under discussion and a revised
version will be due soon.

This chapter showed that while the accidents were not totally caused by human error,
it is indisputably a key factor. Furthermore, the number of deaths due to radiation is
low in comparison to other sources of energy like hydroelectric power. Emergency
procedures and fail-safes are the reasons why the accidents did not have a bigger
consequence. Nonetheless, these accidents incurred a huge amount of money for
governments and operators due to the process of decontamination and from
damages sustained during the evacuation procedure.

There is a huge problem in realising the real costs of these accidents, as run-off
costs from decommissioning and latent diseases such as cancer is not immediately
evident.

Other than the economic effects, there were social and political

consequences, as the public soon feared nuclear energy, which prompted countries
with nuclear programmes to revise their nuclear policies. The next chapter will
examine the different legislations that have been enacted regarding third party
liabilities.

18

NUCLEAR LEGISLATIONS FOR CLAIMS AND EFFECTS

ON GOVERNMENT AND OPERATOR

This chapter analyses the different legislation enacted for third party liability
insurance and the significance for operators and insurance pools. As international
bodies IAEA and OECD NEA have adopted their own conventions, more emphasis
will be given to these legislations rather than national legislations.

With nuclear energy, there is property insurance for the installation itself - be it
nuclear reactors, research facilities, reprocessing and enrichment plants or storage
facilities for spent fuel and radioactive waste - and there is also third party liability
insurance (Reitsma and Tetley, 2010). There have been a few international
conventions legislated to limit the total amount paid out for third party liability
insurance. Most countries with a nuclear program will also have their own national
legislation, with the oldest being the Price-Anderson Act 1957 by the United States.
Compared to other national liability regimes and also international regimes, the Acts
principles are different as there is less dependence on the government to provide
compensation if funds are insufficient.
5.1

PRICE-ANDERSON ACT

The Price-Anderson Act is a federal law that was legislated in 1957, with the aim of
granting compensations to victims of a nuclear event whilst protecting the interests of
the operator, or the liable party, by spreading the risk and limiting the compensations
to $560million. Anderson (1978) criticises this limit as irrational, given that the
WASH-740 study suggested that an accident happening could cause a damage of
$7billion. In addition, the government only decided on the amount of $560million
because it is large enough to sufficiently, but not fully, protect against losses and
small enough not to alert the public. The limit was unchanged for about 20 years,
despite changes to the economy and the industry, but there were modifications in the
components of the limit with less reliance on government indemnity payments.

19

There are two layers involved with this liability insurance: the first layer is offered by
nuclear insurance pools, amounting to $140million; the remaining balance from the
$560million is provided by the second layer, which are government indemnity
payments from the Nuclear Regulatory Commission (NRC). For the United States,
nuclear insurance pools provide for both third party liability insurance and property
insurance. In 1978, nuclear pools covered up to $220million of damage to nuclear
reactors, making the total of $360million that nuclear pools are liable for, in the case
of a serious accident.

This Act has been revised a few times, with one of the most significant revisions in
1975 concerning the phasing out of government indemnity payments. Nuclear
operators were obligated to pay a $5million retrospective premium per operating
reactor. In 1977, with 62 operating reactors, this reduced the payments the
government is responsible for by $310million. Now, the liability limit has been
increased to more than $12billion, with $375million from insurance pools and
operators paying $121million per operating reactor with a cap of $18million for annual
payments (NRC, 2013).
Galiette (1978) reports that in the event of an extraordinary nuclear occurrence,
operators waive certain law defences in exchange for government indemnification,
which subject them to strict liability where payments will be made regardless of who
is at fault. This is to prevent operators from arguing that there is no correlation
between an accident and an illness and to circumvent operators who do not pay out
for latent claims. Coverage is extended to the operator and to other parties that are
liable such as the supplier of the components of the plant, as stated under the
omnibus clause.

Another feature of the Act, the tort liability exemption, offers operators and other
parties a blanket protection that absolves them of any responsibility from claims that
exceed the limit of $560million. This limit is absolute with no exceptions and injured
parties will absorb any excess damages.

20

The imposed limit is expressed on an aggregate basis and not on a per person basis;
so the greater the extent of the damage, the less the compensation the injured
parties should expect to acquire. Delays also should be expected if damages exceed
the limit because any plan set up has to allow for latent claims.

By 2000, 43 years under the Price Anderson Act, nuclear insurance pools have
compensated up to a total of $151million while the government has reimbursed
$56million, with about $70million paid for the Three Mile Island accident (American
Nuclear Society, 2005).
5.2

INTERNATIONAL LEGISLATION

5.2.1 PARIS CONVENTION

On July 29th 1960, under the auspices of the OECD NEA, Western European
countries adopted the Paris Convention for Third Party Liability in the Field of Nuclear
Energy (Schwartz, 2010). The purpose of this convention was to outline the basic
principles regarding third party civil liability.

To guarantee integration between the Paris Convention and the Vienna Convention,
the Additional Protocol to the Paris Convention was endorsed in 1964. The Paris
Convention and the Additional Protocol became effective from April 1968. The
convention is open to all OECD members and currently 20 countries have signed it.
Two countries, Austria and Luxembourg, have not yet ratified.

The convention has since been amended twice, in 1982 and 2004. The 1982
Protocol to amend the Paris Convention came into force on 7 October 1988, while
the 2004 Protocol has not been enforced yet. The amendments include changing the
unit of accounts from gold prices to Special Drawing Right (SDR) of the International
Monetary Fund and increasing the amount of compensation to neutralize the impacts
of inflation.

21

The minimum liability under this convention after the 1982 amendment is
SDR5million and the maximum is SDR15million, but states can increase the
maximum amount if it believes that the operator has the financial security to comply
with the higher limit. Germany, for example, has unlimited maximum liability.

The 2004 Protocol has increased the minimum amount to SDR700million and the
maximum limit, if there is one, is to be set by the state. For low risk installations, the
minimum limit is fixed at SDR70million whereas the minimum for transportation
purposes is SDR80million. If two or more operators are liable, then all the operators
are jointly and severally liable.

The time limit to submit a claim has also has been lengthened from 10 years to 30
years, but for injury and death only. Claims also have to be made within three years
from the time of discovery of the damage, instead of the previous two years.

The geographical scope was also extended so that the convention is applied where
damage is experienced, with the exception being non-contracting states that does
not offer equivalent benefits. Some additional damage is also covered by this
modification such as costs from the restoration of the environment and economic
losses due to injury or property damage.
5.2.2 BRUSSELS SUPPLEMENTARY CONVENTION

The Brussels Convention Supplementary of the Paris Convention was endorsed in

1963 to ensure extra compensation was available for the losses incurred in a nuclear
accident and it is only applicable for parties of the Paris Convention.

This is due to the realisation after the adoption of the Vienna Convention that the
amount of compensation from the Paris Convention is inadequate. There are 17
contracting parties of this convention, with two parties who have not ratified. The
three members of the Paris Convention that did not join this convention are Greece,
Portugal and Turkey.

22

This convention is suited for the parties of the Paris Convention who want to add an
additional compensation from public funds for those whose claims were denied. This
was established using a three-tiered remuneration arrangement, where the first tier
consists of the maximum amount enforced on the operator by national law. The
second tier is the balance between the SDR175million and the first tier amount,
which is the responsibility of the state where the nuclear incident took place, whereas
the third tier is composed of the joint contribution from the contracting parties,
according to a formula involving the states nuclear capacity and gross national
product, which could be any amount up to SDR175million.

Following revisions of the Paris Convention, the Brussels Supplementary Convention

was also revised in a similar manner in 1983 and 2004 but only the 1983 Protocol
has been executed.
The recent 2004 revision set the first tier cap at 700million while the second tier
amount is to be the remainder from the first tier amount up to 1200million. The third
tier amount is, at least, an extra 300million, making the minimum total amount
available under this revised convention then 1500million. The formula to establish
how much contracting states should contribute was also altered so that heavier
weightage is given for larger nuclear capacity.
5.2.3 VIENNA CONVENTION

The Vienna Convention on Civil Liability for Nuclear Damage was advocated under
the aegis of the IAEA in April 1963 for members from Eastern Europe, Africa, Asia
Pacific and South and Central America and was executed in 1997 (Schwartz, 2010).

The Vienna Convention has the same principles as the Paris Convention but with a
broader geographical scope. This convention is open to all members with 45
signatories presently. However, five parties including the United Kingdom have not
yet ratified.

23

The difference between the two conventions is that the Vienna Convention does not
stipulate a cap for the liability amount, giving the state the authority to fix a limit.
Furthermore, compared to the Paris Convention, operators have a strict liability and if
the operators financial security fails, the state is obligated to provide compensations.

The convention was altered in 1997 with the minimum amount increased from
$5million

to

SDR300million.

Operators

are

required

to

provide

at

least

SDR150million, with the balance under the responsibility of the state. This 1997
Protocol to amend the Vienna Convention was enforced on 4 October 2003. Similarly
to the 2004 Paris Convention, the time limit and the geographical scope was
extended. The Vienna Convention, however, gives more priority for victims who are
injured or bereaved, if a deficit is expected. As with the Paris Convention, the scope
of damage was also broadened.
5.2.4 JOINT PROTOCOL

Before the Joint Protocol, according to both conventions, the court of the state where
the accident occurred has authorization over the claims with provisions in place for
when jurisdiction could not be ascertained or when jurisdiction falls on courts of more
than one party. Moreover, with both conventions, non-contracting parties will not
receive compensation even if there was any damage.

As a result of the Chernobyl accident, where the magnitude of damage was allencompassing, the Joint Protocol relating to the Application of the Vienna Convention
and the Paris Convention was enacted in 1988 by 35 countries and executed in April
1992 to create a better connection between the two conventions.

According to Schwartz (2010), the Joint Protocol eradicated the status of noncontracting states, thus parties of the Joint Protocol and one of the conventions have
equal rights for compensation as parties of the Joint Protocol and the other
convention. The geographical applicability was essentially broadened to include
victims from parties of both conventions. The Joint Protocol also ensures that given
the occurrence of a nuclear accident, only one of the two conventions is applied.

24

5.2.5 CONVENTION ON SUPPLEMENTARY COMPENSATION

The Brussels Supplementary Convention is considered to be a favourable model.

Therefore, during the discussions for the revisions of the Protocol to amend the
Vienna Convention in 1997, the IAEA elected to adopt the Convention on
Supplementary Compensation for Nuclear Damage (CSC).

CSC is unique as it is open to all countries, regardless of prior membership to the

Paris or the Vienna Convention. Non-contracting states of both conventions must
have a national legislation regarding nuclear liability to be a member of the CSC,
e.g., the United States. The CSC currently has 13 signatories, with only four who
have ratified.

The first tier for compensation consists of the SDR300million from the operator or
from both the operator and the state. Funds from this tier are to be used to
compensate victims, with no discrimination, from both inside and outside the state.
The funds in the second tier, only collected when the damage is in excess of the first
tier amount, will be from contracting parties and the total amount of this tier is
estimated to amount to SDR300million. Half of this fund will be for victims from both
inside and outside while the other half will be distributed to trans-boundary victims.
Nevertheless, it is forbidden for the funds from the second tier to be allocated to any
victims from non-contracting states of the CSC, as they did not contribute to the fund.

At this present time, 123 of the total 437 operating reactors are situated in countries
that are not part of any international conventions. Most of the reactors being built at
the moment are also in non-contracting states. This is mostly due to the limited
liability principle that was adopted by the international conventions, which is seen to
be conflicting with the victims best interests. Nonetheless, some of these states have
their own liability regimes such as Japan and Canada, though there are some that do
not have any particular legislation, i.e., India and Pakistan.

25

Reitsma and Tetley (2010) commented that the reason insurers are comfortable with
nuclear risks is because of the concepts of international conventions and the same
for non-convention states as national legislations usually reflect the conventions.
Additionally, only a few scenarios could cause a full-scale accident with extensive
losses.

The issue the insurance pools have with the recent revisions to both the Paris and
the Vienna Convention is that the time limit of 30 years makes its hard for the
insurers to ensure long term solvency. Due to uncertain long-time exposures, ten
years is the maximum the pools would cover (Tetley, 2006).

Financial obligations that have amplified also pose a problem, especially if the full
amount is foisted on to the insurance pools. The insurance industry usually regards
environmental liability as uninsurable because reinstating the compromised
environment will take a very long time. It is also ambiguous as it is hard to validate
when the damage began and who caused it. The nuclear insurance pools, therefore,
would not support this risk and would be reluctant to give out any money.

This chapter reviewed the different legislation and conventions in place for third party
nuclear liability. National legislations and international conventions are found to have
similar principles. However, the Price-Anderson Act imposes liability on operators
and insurance pools only, whereas in international conventions, the government and
the contracting parties are responsible for the losses. Revisions for both national and
international legislations typically involve the liability amount, which increases with
time because of inflation and also because the Chernobyl incident highlighted the
scarcity of the existing amount. There were some adjustments to the scope and the
duration that the damage was covered. There was also an illustration about the
arguments nuclear insurance pools had about these changes.

26

CONCLUSION

Nuclear power was first generated in 1951 in the United States. Since then, it has
been in demand mostly due to its low carbon footprint, which trounces renewable
energies like solar and wind. It is more convenient to build nuclear plants than
renewable sites, as there are fewer factors to take into account. Uranium is also
widely available, making nuclear energy relatively long lasting. Currently, it accounts
for about 10% of the worlds total electricity.

Whilst nuclear energy has some positive aspects, there are also negatives. As
discussed, nuclear energys main drawback is radiation risk, which is closely followed
by terrorism risk. If the safety measures installed on the nuclear sites are operational,
then radiation risk is lessened and the amount emanated is lower than background
radiation. The IAEA has also set up a few international safety principles that have to
be followed for the plant to be granted a license whilst international treaties such as
the NPT combat terrorism risk. However, since there is no functional long-term waste
management plans, a problem might arise in the future especially if nuclear power
generation intensifies.

The demand for nuclear energy decreased after the two major nuclear accidents,
Chernobyl and Fukushima. There were many factors at fault in both situations but
human error also played a part. Although the consequences were widespread, there
could have been more deaths if the plants did not have the appropriate emergency
systems in place. The large amount of casualties in the Fukushima accident could
mostly be attributed to the earthquake and the tsunami. The Three Mile Island
incident, which did not cause any deaths and only released a very small amount of
radiation, proved the effectiveness of the containment structure. This incident, a 5 on
the INES scale, took 12 years to finish cleaning up. This proves that it is hard to
realise the real costs of a nuclear accident as decontamination is an extensive
process and some radiation-induced health effects will not be diagnosed for a few
years.

27

As seen by the Fukushima and the Three Mile Island accident, the legislations
enacted ensured that claims are paid out whilst protecting the operator from
bankruptcy. The Chernobyl accident also stressed out the importance of nuclear
insurance. Since the plant was not insured, the governments of Belarus, Russia and
Ukraine were left to pay out enormous sums of money to compensate the victims
without much help from international parties. The international conventions add a
layer of protection as most of them stipulate the need for funds from contracting
parties. Not all nuclear countries are party to at least one of the international
conventions but this is not worrying as national legislations have mostly the same
principles as the conventions.

Recent revisions to the conventions, however, have raised some issues with the
nuclear insurance industry. The insurance pools reckon the wider scope of damage
covered and the longer time limit makes the nuclear site uninsurable. If insurance
pools do not insure the sites based on the new limits, the vision of having
international coverage is nearly impossible as operators and governments will find it
hard to cover the whole amount. The public might have to pay more tax. What will
happen if the limit is increased further? The insurance industry must find a new
system to insure the risks and manage the claims to ensure the longevity of nuclear
programs.

28

GLOSSARY

CSC

Convention on Supplementary Compensation for Nuclear Damage

IAEA

International Atomic Energy Agency

IEA

International Energy Agency

INES

International Nuclear Event Scale

NEA

Nuclear Energy Agency

NNWS

Non-Nuclear Weapon States

NPT

Treaty on the Non-Proliferation of Nuclear Weapons

NRC

Nuclear Regulatory Commission

NWS

Nuclear Weapon States

OECD

Organisation for Economic Co-Operation and Development

SDR

Special Drawing Right

TEPCO

Tokyo Electric Power Company

WHO

World Health Organization

29

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