Abstract
In Western Europe, the nuclear liability is governed by two international conventions, drafted by the Nuclear Energy Agency of the OECD: the Paris (1960) and Brussels (1963) Conventions. These conventions traditionally limited the liability of the nuclear power plant operators to relatively low amounts. In France, the liability of the (state owned) operator of €91 million is covered by insurance (for €31 million) and reserves (for €60 million). A recent modification to the conventions occurred in 2004 and increased the liability limit to €700 million. In this paper we aim to evaluate the costs for covering the increased liability for the nuclear risk after the introduction of the 2004 amendments. In order to do so, we calculate the actuarial insurance premium for the nuclear risk and find that the current premium charge is very large. The paper tries to explain the high price of nuclear liability insurance. Also the costs of the own reserves for the coverage of potential nuclear accidents are examined. We then aim to evaluate the different options (mostly insurance and reserves) and indicate the optimal combination of both instruments to cover the future operators’ liability limit, introduced by the latest 2004 amending Protocols.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
A second regime came into being through the aforementioned UN-related International Atomic Energy Agency (IAEA). Within this framework, the Vienna Convention concerning civil liability for nuclear damage was drafted and ratified on May 21st 1963 by 32 countries of South America, Eastern Europe and Asia. A Common Protocol to both the Conventions was signed in 1988 after the Chernobyl accident in order to coordinate their scope of application.
Thus, States would, for example, be allowed to provide a higher level of compensation than that prescribed by the Conventions.
The only exception is the situation where the operator would be able to prove that the accident was due to an intentional fault of one of his partners (see Paris Convention, article 6.e.) or where the damage caused was due to the direct result of “an act of armed conflict, hostilities, civil war, insurrection or, a grave natural disaster of an exceptional character” (article 9).
1968 French nuclear law.
According to article 20 of the Protocol, “(the new amendments) shall come into force when ratified, accepted or approved by two-thirds of the Contracting Parties. For each Contracting Party ratifying, accepting or approving thereafter, they shall come into force at the date of such ratification, acceptance or approval”. The “reasonable delay” within which to ratify the Protocol was fixed by the European Council on December 31st 2006 [JO no L 097, 03/08/2004 pp. 0053–0054].
The 2004 Protocols amended article 3(a) and (b) of the Brussels Convention as follows: “(a) Under the conditions established by this Convention, the Contracting Parties undertake that compensation in respect of nuclear damage referred to in Article 2 shall be provided up to the amount of €1,500 million per nuclear incident, subject to the application of Article 12bis; (b) Such compensation shall be provided as follows: (i) up to an amount of at least €700 million, out of funds provided by insurance or other financial security or out of public funds provided pursuant to Article 10(c) of the Paris Convention, such amount to be established under the legislation of the Contracting Party in whose territory the nuclear installation of the operator liable is situated, and to be distributed, up to €700 million, in accordance with the Paris Convention; (ii) between the amount referred to in paragraph (b)(i) of this Article and €1,200 million, out of public funds to be made available by the Contracting Party in whose territory the nuclear installation of the operator liable is situated; (iii) between €1,200 million and €1,500 million, out of public funds to be made available by the Contracting Parties according to the formula for contributions referred to in Article 12, subject to such amount being increased in accordance with the mechanism referred to in Article 12bis”.
This figure refers to the French operator’s liability cap, which currently amounts to €91 million. As regards those OECD nuclear operators whose current liability cap is higher, they will have to put in less additional effort in order to meet their new obligation.
This liability insurance is contracted through three organizations: the insurers Axa Corporate Solution and AGF (inside Assuratome, the French nuclear insurance pool) and the European mutual ELINI. This is a partial and “excess loss” insurance, that is, it covers damages between €60 million and €91 million.
Damage suffered during transport or damage to the installations themselves is covered through other specific insurance contracts.
The Minimum Efficient Scale (MES) is a term used in industrial organization to denote the smallest output that a plant (or firm) can produce such that its long-run average costs are minimized (the plant is thus placed at the lowest point on its long-run average cost curve). It is also known as the output of long run productive efficiency. In the insurance industry, it stands for the situation where the insurer’s economies of scale are fully exploited, that is, where the insurance premium is set so that his costs are minimized.
For example, in France, where the insurance sector is heavily taxed, the insurance contracts (except for life-insurance) are affected by a specific tax, the “tax on insurance Conventions” (“taxe sur les Conventions d’assurance”). This tax is calculated using different rates according to the types of guarantee and the insured’s activity. For example, car insurance is taxed at 18% for civil liability and damages, fire-insurance for private persons at 30% and the other parties to residential insurance contracts are taxed at 9%. Real estate and the other material goods of manufacturers, tradesmen and craftsmen are taxed at 7%, like their exploitation losses. To this tax, additional parafiscal taxes must be added according to sectors (Lambert 1998/1999).
We exclude from our analysis accidents resulting from external events (e.g. natural catastrophes or terrorism) since these events are not foreseeable and thus cannot be affected by a probability.
The second conditional probability is in fact divided into three cases: damages of €3 billion, damages of €17 billion and damages of €83 billion. These cases are all concerned with the same probability of occurrence but as regards radioactive emissions, their severity is not the same. The limit of €83 billion in the third case is obviously arbitrary since major accidents could cost much more. Therefore, we consider that this cost is unlimited and can certainly exceed €83 billion.
Thus, for example, a nuclear operator in the Netherlands would not have the possibility of obtaining coverage from the Belgian nuclear pool (Syndicat Belge des Assurances Nucléaires, abbreviated SYBAN) since the latter only covers the nuclear risk in Belgium. The pools do not cooperate with one another. They only purchase reinsurance together.
This analysis disregards the case of a natural monopoly which does not benefit from any regulatory support but exists precisely thanks to its own efficiency.
This is particularly the case for the operator’s liability insurance. Indeed, as far as their first-party liability insurance is concerned, some European nuclear operators resort to mutual pools to which they contribute in order to cover their own damage. This is the case in Belgium, for example, where a mutual between nuclear operators (called Emani) has been created to which also other European operators refer.
The IASB (International Accounting Standards Board) is an independent organization in charge of enacting the accounting rules at an international level.
In France, the rules relating to liabilities are contained in the Règlement CRC (Comité de la Réglementation Comptable) no 2000-06 of December the 7th 2000 which modified the Chart of accounts in that respect.
Translated from French in Vernimmen (2005, p. 749).
In that respect, the CAPM, which provides an estimate of the uncertainty aversion, can also be used in the analysis of the profit and risk aversion of the insurance industry which we have addressed in Sect. 2.
Retrieved August 31, 2007 from http://www.boursorama.com.
In this respect we can refer to mutuals which have been created in Europe to supplement the pools such as ELINI (European Liability Insurance for the Nuclear Industry) in Belgium.
See Faure and Fiore (2008).
Abbreviations
- OECD:
-
Organisation for Economic Co-operation and Development
- NEA:
-
Nuclear Energy Agency
- NRC:
-
Nuclear Regulatory Commission
- PRA:
-
Probability Risk Assessment
References
Arrow, K. (1965). Aspects of the theory of risk bearing. Helsinki: Y. Jahnsson Foundation.
Bataille, C., & Birraux, C. (2003). La durée de vie des centrales nucléaires et les nouveaux types de réacteurs. Paris: Rapport 832 de l’Office Parlementaire d’Evaluation des Choix Scientifiques et Technologiques.
Bataille, C., & Galley, R. (1999). Rapport sur l’aval du cycle nucléaire, Tome II: Les coûts de production de l’électricité. Paris: Rapport 1359 de l’Assemblée Nationale.
Bernoulli, D. (1954). Exposition of a new theory on the measurement of risk. Econometrica, 22, 23–36. (Bernoulli, D., Trans (1738). Specimen theoriae novae de mensura sortis. Académie de Saint-Pétersburg, 5, 175–192).
Carrez, G. (2003). Rapport fait au nom de la Commission des Finances, de l’Economie Générale et du Plan sur le projet de loi de finances rectificative pour 2003, tome II. Paris: Rapport 1266 de l’Assemblée Nationale.
Cohen, E. (2006). Analyse Financière (6th ed. Economica).
Dimson, E., Marsh, P., & Staunton, M. (2001). Triumph of the optimists: 101 years of global investment returns. Oxford: Princeton University Press.
Direction Générale de l’Energie et des Matières Premières (DGEMP). (2003). Les coûts de référence de la production électrique. Paris: Rapport du Ministère de l’Economie, des Finances et de l’Industrie.
Dubin, J. A., & Rothwell, G. S. (1989). Risk and reactor safety systems adoption. Journal of Econometrics, 42(2), 201–218.
Dubin, J. A., & Rothwell, G. S. (1990). Implicit subsidy to nuclear power through price-Anderson liability limit. Contemporary Economic Policy, 8(3), 73–79.
Dussart-Desart, R. (2005). La réforme de la Convention de Paris sur la responsabilité civile dans le domaine de l’énergie nucléaire, et de la Convention complémentaire de Bruxelles. Un survol des principaux éléments de la modernisation des deux Conventions. Bulletin de Droit Nucléaire, 75, 7–34.
Electricité de France. (2004). Annual report. Paris: EDF.
Electricité de France. (2005). Annual report. Paris: EDF.
Electricité de France. (2006). Annual report. Paris: EDF.
Ellsberg, D. (1961). Risk, ambiguity, and the savage axioms. Quarterly Journal of Economics, 75, 643–699.
Faure, M. (1995). Economic models of compensation for damage caused by nuclear accidents: Some lessons for the revision of the Paris and Vienna Conventions. European Journal of Law and Economics, 2(1), 21–43.
Faure, M., & Fiore, K. (2006). An economic analysis of the French nuclear liability subsidy. Working paper.
Faure, M., & Fiore, K. (2008). The coverage of the nuclear risk in Europe: Which alternative? Geneva Papers on Risk and Insurance—Issues and Practice, 33(2), 288–322.
Faure, M., & Hartlief, T. (1998). Remedies for expanding liability. Oxford Journal of Legal Studies, 18(4), 681–706.
Faure, M., & Hartlief, T. (2003). Insurance and expanding systemic risks. Paris: OECD.
Faure, M., & Van den Bergh, R. (1995). Restrictions of competition on insurance markets and the applicability of EC antitrust law. Kyklos, 48(1), 65–85.
Faure, M., & Van den Bergh, R. (1990). Liability for nuclear accidents in Belgium from an interest group perspective. International Review of Law and Economics, 10, 241–254.
Faure, M., & Van den Bergh, R. (2002). Competition on the European market for liability insurance and efficient accident law. Maastricht Journal of European and Comparative Law, 9(3), 279–306.
Fiore, K. (2006). The subsidy of the French nuclear power: An empirical analysis of the Paris and Brussels Conventions liability limit. Working paper.
Heyes, A., & Liston-Heyes, C. (1998). Subsidy to nuclear power through price-Anderson liability limit: Comment. Contemporary Economic Policy, 16(1), 122–124.
Heyes, A., & Liston-Heyes, C. (2000). An empirical analysis of the nuclear liability act (1970) in Canada. Resource and Energy Economics, 22(1), 91–101.
Hogarth, R., & Kunreuther, H. (1985). Ambiguity and insurance decisions. American Economic Review, 75, 386–390.
Krueger, A. O. (1973). The political economy of the rent-seeking society. The American Economic Review, 64, 291–303.
Lambert, A. (1998–1999). La situation et les perspectives du secteur des assurances en France. Paris: Rapport d’Information 45, Tome 1, Partie 1, Commission des Finances.
Lautier, D. (2003). Les performances des entreprises électriques européennes. Economies et Sociétés, série Economie de l’Energie, 9, 257–287.
Lintner, J. (1965). The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. Review of Economics and Statistics, 47, 13–37.
Markowitz, H. M. (1952). Portfolio selection. Journal of Finance, 7(1), 77–91.
Markowitz, H. M. (1959). Portfolio selection: Efficient diversification of investments. New York: Wiley.
Niskanen, W. A. (1971). Bureaucracy and representative government. Chicago, NY: Aldine, Atherton.
Nuclear Energy Agency (NEA). (1994). Power generation choices: Costs, risks and externalities. Paris: OCDE.
Pratt, J. W. (1964). Risk aversion in the small and in the large. Econometrica, 32, 122–136.
Prévot, H., de Juvigny, B., Louvot, M., Izart, C., & Lehmann, F. (2004). Les coûts complets du nucléaire et hypothèses de financement. Appendix 5. Rapport d’enquête sur les prix de l’électricité, Conseil Général des Mines.
Savage, L. J. (1954). The foundations of statistics. New York: Wiley.
Schieber, C., & Schneider, T. (2002). Valorisation monétaire des impacts sanitaires et environnementaux d’un accident nucléaire. Synthèse des études ExternE, intérêts et limites de développements complémentaires. Rapport 275 Centre d’étude sur l’Evaluation de la Protection dans le domaine Nucléaire.
Sharpe, W. F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. Journal of Finance, 19(3), 425–442.
Spadaro, J. V., & Rabl, A. (1998). External costs of energy: Application of the ExternE methodology in France. Paris: Ecole des Mines.
Trebilcock, M., & Winter, R. A. (1997). The economics of nuclear accident law. International Review of Law & Economics, 17, 215–243.
Treynor, J. L. (1961). Toward a theory of market value of risky assets. In R. A. Korajczyk (Ed.), Asset pricing and portfolio performance: Models, strategy and performance metrics (pp. 15–22). London: Risk Books (published in 1999).
Treynor, J. L. (1962). Market value, time, and risk. Working paper.
Tullock, G. (1967). The welfare costs of tariffs, monopolies and theft. Western Economic Journal, 5, 224–232.
US Nuclear Regulatory Commission (USNRC). (1990). Severe accident risks: An assessment for five US nuclear power reactors, final summary. Report NUREG-1150, 1, Washington DC, USA.
Vanden Borre, T. (1999). Channelling of liability: A few juridical and economic views on an inadequate legal construction. In N. L. J. T. Horbach (Ed.), Contemporary developments in nuclear energy law. Harmonising legislation in CEEC/NIS (pp. 13–39). Kluwer Law International.
Vanden Borre, T. (2007). Shifts in governance in compensation for nuclear damage, 20 years after Chernobyl. In M. Faure & A. Verheij (Eds.), Shifts in compensation for environmental damage (pp. 261–311). Vienna: Springer.
Vernimmen, P. (2005). Finance d’entreprise. (6th ed. Dalloz).
Von Neumann, J., & Morgenstern, O. (1947). Theory of games and economic behavior. USA: Princeton University Press.
Acknowledgements
We are grateful to Prof. Pierre Garello (CAE, UPCAM, Aix-en-Provence), Prof. Antoine Gentier (CAE, UPCAM, Aix-en-Provence), Axel Pierru (IFP, Paris), Nuno Garoupa (Univ. Illinois) and to two anonymous referees for their useful comments on an earlier version of this paper.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Faure, M.G., Fiore, K. The civil liability of European nuclear operators: which coverage for the new 2004 Protocols? Evidence from France. Int Environ Agreements 8, 227–248 (2008). https://doi.org/10.1007/s10784-008-9076-4
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10784-008-9076-4