Nuclear Insurance

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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."

Signature: __________________________________________alyazahra



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ACKNOWLEDGEMENT

Firstly, I would like to thank my supervisor, Mr Robin Michaelson, for his guidanceand 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.



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ABSTRACT

The history of nuclear power has been a turbulent one, with demands fallingwhenever 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 paperanalyses the hazards associated with nuclear energy, the impacts of major nuclear

accidents and the history and future developments of third party liability legislations.



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



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1 INTRODUCTION

Before 2010, the last known major nuclear accident was Chernobyl in 1986. With nofurther 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 inWorld 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 re-

examining 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.



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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 subject’s 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.



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2 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 considerableamount of energy.

According to the International Energy Agency (IEA) (2014), nuclear energy generates

4.8% of the world’s total energy and 11% of the world’s 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 world’s 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.



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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 toother 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.



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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).



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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 country’s 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 world’s 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.



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3 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 operator’s 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 theradiation 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.



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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 public’s 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).



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NNWS also have to accept safeguards agreements, which are proclamations about

their nuclear sites, resources, and operations and allow the IAEA to validate the non-

diversion 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.



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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.



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4 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

0 Deviations with no safety significance

1 Anomaly

2 Incident

3 Serious incident

4 Accident with local consequences

5 Accident with wider consequences

6 Serious accident

7 Major accident

Figure 1: Rating Criteria of INES Scale

Source: Kermisch And Labeau (2013).



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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 public’s f ear 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 long-

term 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.



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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 ofthe 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 thatthe 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).



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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 Down’s

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).



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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 Tōhoku

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 plant’s seawall - water flooded the plant and destroyed

most of the backup generators.



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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 children’s

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 thismight change, as usually radiation effects are not known immediately.



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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 Japan’s 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 Chernoby l’s 180 tonnes, and released more

radiation into the ocean than Chernobyl since the Fukushima plant is located near

the sea.



18

Elliot proclaimed that before the accident, Japan’s 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.



19

5 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 Act’s

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.



20

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.



21

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.



22

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.



23

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 state’s 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.



24

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 operator’s 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 all-

encompassing, 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 non-

contracting 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.



25

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 isestimated 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 atthe 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.



26

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.



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6 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 world’s total electricity.

Whilst nuclear energy has some positive aspects, there are also negatives. As

discussed, nuclear energy’s 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 Islandincident, 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.



28

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.



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7 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



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