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Insurance coverage and possible amendment of the Nuclear Liability Act

Petition: No. 60B

Issue(s): Governance, international cooperation, and natural resources

Petitioner(s): Siegfried (Ziggy) Kleinau (represented by the Canadian Environmental Law Association)

Date Received: 18 July 2003

Status: Completed

Summary: This petition is a follow-up to petition No. 60A. The petitioner is seeking more detailed information on federal plans to amend the Nuclear Liability Act, especially those provisions in the legislation related to insurance coverage. The petitioner seeks an increase in mandatory insurance coverage in line with international standards.  

Federal Departments Responsible for Reply: Natural Resources Canada

Petition

July 18, 2003

Auditor General of Canada
Office of the Commissioner of the Environment and Sustainable Development
240 Sparks Street, Stop 10-1
Ottawa, Ontario
K1A 0G6

Attn.: Ms. Gélinas

Sent via Fax and Regular Mail
Fax # 1-613-941-8286

Re: Petition #60-Follow Up Petition

Dear Ms. Gélinas:

We write as agent for Mr. S. (Ziggy) Kleinau with respect to Petition #60. Please accept this letter as a follow up petition on his behalf.

This petition is directed to the Minister of Natural Resources and concerns the Nuclear Liability Act. In his original petition, Mr. Kleinau requested that the Minister respond to a request to amend the Nuclear Liability Act to increase the limits in accord with practice in other countries and in accord with Canada's international treaty obligations.

In his reply, the Minister acknowledged that the current limit of $75 million dollars under the Act is not consistent with practice in other countries and advised that the Act is under review, and amendments should be proposed shortly.

However, Mr. Kleinau finds the response of the Minister, while helpful, to be too vague to be of assistance. In particular, Mr. Kleinau requests in this follow up Petition, that the following questions be answered:

  1. What process is presently underway for amendment of the Nuclear Liability Act?

  2. Is there any plan to seek public input regarding amendments to the Nuclear Liability Act?

  3. What new monetary limit is the Minister considering for section 31 of the Nuclear Liability Act?

  4. Has the Minister or his Department obtained any reports regarding what an appropriate limit would be for the Nuclear Liability Act and if so, could the Minister identify them by date, author and title? What were the main findings of such reports?

  5. Has the Minister or his Department considered an approach in the Nuclear Liability Act that would set a minimum required insurance amount per nuclear facility (such as $650 million dollars), but without continuing the "cap" or exemption from additional liability to operators that the Nuclear Liability Act, in section 31 presently provides? Is the Minister planning to seek public input on such an approach?

  6. Has the Minister or his Department studied the environmental and economic sustainability implications of the current "cap" on liability provided by the $75 million limit under the current Nuclear Liability Act? If so, could the Minister identify the studies and documents by date, author and title? What were the main findings of such studies?

  7. Has the Minister studied the implicit "subsidy" provided to nuclear power generation by the Nuclear Liability Act, and has the Minister compared this "subsidy" to the insurance and liability costs of alternative non-nuclear and "green" power generation? If so, could the Minister identify the studies and documents by date, author and title? What were the main findings of such studies?

  8. Has the Minister studied the sufficiency of the $75 million limit under the Nuclear Liability Act to cover anticipated or potential damages to person and property that could result from an accident at a nuclear generating facility that breached containment? If so, could the Minister identify the studies and documents by date, author and title? What were the main findings of such studies?

  9. Has the Minister responded to the recommendation of the Senate Standing Committee on Energy, the Environment and Natural Resources, Interim Report, "Canada's Nuclear Reactors, How Much Safety is Enough", dated June, 2001, Recommendation # 8, which recommended that:

    "The Committee recommends that the government take immediate action to amend the Nuclear Liability Act, and increase and maintain the mandatory operator held insurance coverage from the current 75 million dollars at an amount in line with the Paris and Vienna Conventions "over 600 million dollars".

    If so, what was the Minister's response?

  1. Has the Minister responded to the recommendation of the Senate Standing Committee on Energy, the Environment and Natural Resources, Report #14, dated June 6, 2002, Recommendation #15, which recommended that:

    "Recommendation 14:
    The Committee recommends that the federal government explore with the governments of the United States and Mexico, the possibility of establishing a North American Convention on Nuclear Liability."

Relevant background information to this Petition includes the following:

  1. The Nuclear Liability Act limits liability in section 31 for all consequences of an accident to $75 million.

  2. The Price Anderson Act is the U.S. equivalent to the Canadian Nuclear Liability Act. It operates by requiring each operator to maintain $200 million insurance as primary coverage, and then if an accident exceeds this amount, all nuclear operators (approximately 103 of them) must each pay $88 million dollars per reactor, making 9.3 billion dollars available for a large nuclear power accident in the United States.

  3. Following is an excerpt from the Senate Standing Committee report referred to in paragraph 9 above:

    "FEDERAL LEGISLATION: THE NUCLEAR LIABILITY ACT
    The Nuclear Liability Act (NLA), which came into force in 1976, places liability for nuclear damage on the operator of the nuclear installation. The required level of coverage under provisions of the Act is $75 million. The Act also provides for the establishment of a Nuclear Damage Claims Commission to deal with claims for compensation in the event that the Federal Government finds that total damages from any one nuclear accident are likely to exceed $75 million. The government is expected to pay for these claims. While utilities have paid premiums for 25 years, no insurer has made a payment for damage.

    The Committee heard that the $75 million coverage required under the NLA is woefully inadequate by international standards. Officials from Natural Resources Canada told the committee that today $250 million would be an equivalent amount, accounting for inflation, while the international standard is approximately $650 million Canadian.

  4. Representatives of the Nuclear Insurance Association of Canada reported that in the U.K. and in the U.S. (for specific plants) the limit is about $300 million (Canadian). Under the Paris Convention, to which most European governments are signatory, the recommended limit is $600 million. The committee asked why Canada lags so far behind, despite the fact that, during parliamentary committee debate preceding passage of the Act in 1976, it was recommended that the legislation be reviewed every five years. Twenty-five years later, the Act has yet to be updated.

    Officials from Natural Resources Canada described the history of the NLA review. The NLA was passed in 1970 but not proclaimed until 1976, after an agreement was struck with a group now known as the Nuclear Insurance Association of Canada (CNIA) to provide the liability coverage. Six years after enactment, in 1982, an Interdepartmental Working Group (IWG) was appointed by the Atomic Energy Control Board (AECB) to carry out the recommended review. In 1984, the IWG issued a discussion paper seeking public input. In 1990, recommendations were sent to the Minister of Energy, Mines and Resources. However, in 1987, Energy Probe, the City of Toronto, and Dr. Rosalie Bertell challenged the constitutionality of the NLA. The government consequently set aside plans to change the Act. In 1994, the court ruled, in favour of the federal government. The plaintiffs filed an appeal but withdrew it in 1996 due to lack of funds.

  5. In 1995, a new Interdepartmental Review Committee again began to develop proposed changes to the NLA in consultation with the various stakeholders. For four years, officials refined the proposed changes and once again sent them to stakeholders for comment. The committee was told that the revision process, focusing on improvement of victim compensation, clarification of key provisions, clarification of federal responsibilities and technical improvement, had neared completion. However, witnesses from Natural Resources Canada could not tell the committee when legislation to update the Act might be forthcoming. They said that they "...hope to bring proposals to the Minister's attention by the end of summer 2000." (The recent federal election resulted in a further delay in the process. Following the election, in February 2001, the Minister received the recommendations for changes to the Act. His decision is still awaited.) The committee is appalled at the lack of action.

    Recommendation 8:

    The Committee recommends that the government take immediate action to amend the Nuclear Liability Act, and increase and maintain the mandatory operator held insurance coverage from the current 75 million dollars at an amount in line with the Paris and Vienna Conventions "over 600 million dollars".

    http://www.parl.gc.ca/37/1/parlbus/commbus/senate/com-e/ENRG-E/REP-E/repintjun01part1-e.htm

  6. Following is an excerpt from the Senate Standing Committee on Energy, Environment and Natural Resources, referred to in paragraph 10 above:

    Nuclear Law and Liability

    In its interim report on nuclear reactor safety, the Standing Senate Committee on Energy, Environment and Natural Resources reported on the status of nuclear liability coverage in Canada. The Nuclear Liability Act calls for operators to carry a minimum of $75 million (Canadian) in liability insurance. If damages beyond that amount occur, the federal government must cover costs. The amount of coverage is far below the international standards and the Committee urged the federal government to quickly address this issue by amending the Act. Nothing that Committee members heard in our meetings with the NEA or the IAEA changed this view. In fact, the sense of urgency in bringing Canadian legislation up to date was magnified. The Committee therefore, reiterates its earlier recommendation:

    The Committee recommends that the government take immediate action to amend the Nuclear Liability Act, and increase and maintain the mandatory operator held insurance coverage from the current 75 million dollars at an amount in line with the Paris and Vienna Conventions "over 600 million dollars".

    While visiting the Nuclear Energy Agency in Paris, the Committee was briefed on the complex, interwoven set of international conventions governing nuclear liability insurance in Europe. There are several conventions governing liability and they have been amended and supplemented a number of times over the years. In fact, the major conventions are being updated again at the present time, and the level of coverage will, in all likelihood, soon be increased (to Can$3 billion), putting Canada's inadequate coverage (Can$75 million) in an even worse light than before. The level of coverage may not have been as significant in the past when all nuclear power plants where publicly owned. However, it becomes more of an issue as countries including Canada move towards private ownership. The following paragraphs present a brief history of nuclear liability conventions in Europe and in North America.

    From the early days of the development of the nuclear industry it was clear that the peaceful uses of nuclear power carried risks, which because of their potential magnitude and nature would not be adequately addressed by tort law. Such law had been developed to cover conventional industrial risks. In the event of a nuclear accident, these laws might actually prevent a victim from easily determining who was liable for any damages. European states that were promoting the use of stand-alone nuclear power plants wanted to ensure adequate financial compensation would be available for victims in the event of an accident and so developed a special multi-national (i.e. European) nuclear liability regime.

    The first instrument to be put in place was the Convention on Third Party Liability in the Field of Nuclear Energy of 29 July 1960, known as the Paris Convention. It was developed under the aegis of the OECD and incorporated a number of principles that would govern nuclear liability law. Canada's own Nuclear Liability Act is based on the same principles. They are:

    • the strict liability of the nuclear operator for third party damage;

    • the exclusive liability of the nuclear operator for third party damage;

    • a limitation on the nuclear operator's liability both in time and amount;

    • the nuclear operator's obligation to cover its liability by insurance or other financial security;

    • the application of the Convention without discrimination based on nationality, domicile or residence; and

    • channelling jurisdiction to the courts of the contracting party (country) where the incident occurred.[11]

    As already noted, the Paris Convention is a regional (European) one, with fourteen western European countries as Contracting Parties. It has been amended a number of times, including the 1963 Brussels Supplementary Convention. Under the terms of the Paris/Brussels regime a three-tier system of funding is provided. The first tier is the nuclear operators liability of at least 5 million SDR[12] (Can$10 million). The second tier is the difference between the operator's liability and 175 million SDR (Can$ 350 million), to be paid by the public funds in the country where the incident occurred. Tier 3 is an amount equal to 300 million SDR, which is roughly equivalent to Can$600 million, to come from contributions made by all of the countries that are parties to the Convention. The current discussions to revise this regime are looking to increase the total available compensation to approximately 1.5 billion SDRs (Can $3 billion).

  7. The second major instrument in the nuclear liability regime is the Vienna Convention on Civil Liability for Nuclear Damage. It was established by the IAEA in May 1963 in hopes that it would become a truly international, worldwide regime. It is based on the same principles as the Paris Convention. Thirty-two countries are party to this convention including many that have no nuclear power reactors. Countries from Europe, Central and South America, the Former Soviet Union, and Africa have signed this Convention. Despite its objective to do so, the Vienna Convention has not evolved into a truly worldwide liability regime. In fact, it has been noted that "...those nuclear power generating countries that do not belong to the Paris Convention or the Vienna convention account for more than half of world-wide installed capacity."[13] Included in this number are Canada, Japan, Korea, the Russian Federation and the United States.[14]

    Like the Paris Convention, the Vienna Convention has been amended since coming into force to increase the liability coverage. In 1997, an Amending Protocol brought the minimum liability up to 300 million SDR (Can$ 600 million). It also broadened the definition of "nuclear damage" to include damage to the environment, economic loss and the concept of preventative measures and consequential losses. These changes were a result of the experience associated with the accident at Chernobyl.

    Even before the Vienna Convention was amended, the realization of possible legal conflicts and complications arising from having two conventions, with some countries Party to both, and some to only one, led both the NEA and the IAEA, at different times, to suggest a Joint Protocol. The final impetus to getting such a joint agreement came with the accident at Chernobyl. It pointed sharply to the regional and international nature of damage from a major nuclear accident and the need for a comprehensive liability scheme. In 1988, the Joint Protocol Relating to the Application of the Vienna Convention and the Paris Convention was adopted. The protocol extended to any state that was party to one of the Conventions, coverage provided under the other.

    Following the accident at Chernobyl, the international community also realized that compensation provided for under existing conventions, even as amended, would be inadequate in the event of another such incident. As a result in 1997, after much negotiation, the IAEA Standing Committee on Civil Liability for Nuclear Damage adopted the Convention on Supplementary Compensation for Nuclear Damage, a stand-alone convention to which any State could become a Party whether or not they were also parties to the Paris and/or Vienna Conventions. The new convention has a two-tier system. Tier 1 compensation will come from the 300 million SDR (Can$600 million) minimum coverage to be provided by the operator or the Installation State (or combination, depending on national legislation). Tier 2 compensation will come from an international fund to which all Contracting Parties will contribute. Its size will depend on the number and type of States that eventually ratify the agreement; however, if most nuclear generating States sign on, it is expected to be about the same size as the Tier 1 fund. The Convention also spells out in detail how the funds are to be distributed (to cover victims both in and outside of the country in which the incident takes place). The United States and nine other countries have signed, but not yet ratified, this Convention. Canada is still considering its participation. Only three countries-Argentina, Romania and Morocco- have so far ratified the agreement.

    Committee members and officials from the NEA also discussed the North American situation with regard to nuclear liability. Concern was expressed about the huge difference between the levels of liability coverage in our two countries. In the U.S., the Price Anderson Act caps commercial nuclear operator liability at US$ 9.4 billion nationally. Operators must carry US$200 million of private, primary insurance on each reactor as well as US$88 million per reactor in "second level" insurance. This legislation is set to expire in August 2002 and its renewal has been hotly debated in Congress over the past year. The House of Representatives has already voted to extend the Act for a further fifteen years. On March 7, 2002 the Senate approved the extension of the Act for a further ten years. This proposal will now form part of the comprehensive energy legislation. Since the Bush energy plan calls for an increased reliance on nuclear power in the future, it is unlikely that there will be any major changes to the legislation or the proposed extension, although critics continue to argue that no other industry receives such protection from financial risks.[15] The level of coverage (US$9.4 billion) is especially upsetting to some critics in light of a 1982 U.S. study that predicted the cost of a worse case scenario accident at a nuclear reactor could range from US$24.8 to US$590 billion.[16]

    Contrasting this required coverage of US$9.4 billion to the Canadian legislation that only requires operators to carry insurance for Can$75 million in the event of an accident confirms the urgent need to update our law. Canada and the United States have signed a Memorandum of Understanding establishing a reciprocal arrangement in the event of a nuclear accident in one country having an impact on the other. Under subsection 34 (2) of the Nuclear Liability Act Canada has recognized the United States as a reciprocating country for purposes of the Act. The United States has undertaken to pay compensation to Canadian victims of an accident in the U.S.. Despite this agreement, perhaps it is time to give serious consideration to a formal North American Convention, similar to the Paris or Vienna Conventions.

    Recommendation 14:
    The Committee recommends that the federal government explore with the governments of the United States and Mexico, the possibility of establishing a North American Convention on Nuclear Liability."

    http://www.parl.gc.ca/37/1/parlbus/commbus/senate/com-e/enrg-e/rep-e/rep15jun02-e.htm#_Toc10948952

Mr. Kleinau looks forward to a response from the Minister to the above ten questions.

Yours truly,

CANADIAN ENVIRONMENTAL LAW ASSOCIATION

[Original signed by Theresa McClenaghan]

Theresa A. McClenaghan
Counsel

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Minister's Response: Natural Resources Canada

December 1, 2003

Ms. Theresa A. McClenaghan
Counsel
Canadian Environmental Law Association
130 Spadina Ave., Suite 301
Toronto, Ontario
M5V 2L4

Dear Ms. McClenaghan:

Ms. Johanne Gélinas, Commissioner of the Environment and Sustainable Development, has asked that I respond to the environmental petition that you submitted August 1, 2003 on behalf of Mr. Ziggy Kleinau (petition # 60B). This is a follow-up to the October 31, 2002 petition submitted by Mr. Kleinau, to which I gave my response on March 27, 2003.

I will address each question in your petition in the order that they were presented:

1.

The standard government process for preparing legislative amendments is currently underway for the Nuclear Liability Act. Departmental recommendations to Cabinet will lead to a draft Bill for introduction into Parliament.

2.

Our current plan is to seek public input regarding amendments to the Nuclear Liability Act through the Parliamentary process.

3.

As a key aspect of the government's comprehensive review of the Act is to increase the mandatory operator held insurance coverage, a number of options have been considered regarding an appropriate amount. The intent is to be able to deal realistically with accidents that are foreseeable. The recommended coverage should also take into consideration inflation, the availability of increased insurance capacity, and international trends.

4.

On September 17, 2003, the Department obtained a report entitled "Review of the Coverage Limit in the Canadian Nuclear Liability Act". The report gives the final results of a study conducted by International Safety Research (ISR) and Magellan Engineering. The study was a continuation of a research contract let out in 2000 by Canada's nuclear regulator, the Canadian Nuclear Safety Commission (CNSC), to conduct a thorough review of the methodology used to measure risk and determine insurance coverage requirements of the different types of nuclear installations covered by the Nuclear Liability Act. The study addressed the impact of worst-case scenario design-basis accidents at nuclear power plants. These are very low-probability events that could result in severe reactor damage, resulting in the subsequent release of radioactive material into a containment building, followed by controlled discharge into the environment. The CNSC includes such accident scenarios in its assessment of foreseeable accidents when imposing licensing conditions on nuclear operators.

The results of the study indicate that total costs from a worst-case scenario design-basis accident could range from $1 million to $100 million, depending on the time period for the controlled release of radioactive material, on weather conditions, and on the size of the evacuation area assumed. In the majority of cases, the costs would comprise mainly evacuation costs and economic losses suffered by individuals and businesses who were forced to evacuate as a precautionary measure.

I have attached a copy of the report for your information.*

5.

The Department is not considering the approach that you have suggested that would impose liability upon a nuclear operator beyond the required insurance amount set out in the Act. Public views on this issue may be expressed as part of Parliament's review of the Bill.

6.

The Department has not considered it necessary to conduct any studies on the environmental and economic sustainability implications of the current $75 million limit imposed on nuclear operators by the Nuclear Liability Act. Again, public views on this issue may be expressed as part of Parliament's review of the Bill.

7.

You refer to the "implicit subsidy" provided to nuclear power generation by the Nuclear Liability Act. I interpret this to mean that you consider the limit imposed on the nuclear operator's liability as a subsidy which lightens the nuclear operator's economic burden.

The Department has not undertaken any studies to determine if the provisions of the Nuclear Liability Act creates a subsidy when compared to the insurance and liability costs of alternative non-nuclear and "green" power generation. However, it must be realized that the Nuclear Liability Act offsets the limited liability of the nuclear operator by the imposition of absolute liability and compulsory financial protection, burdens which non-nuclear forms of power generation are not subject to.

Whether or not the provisions of the Nuclear Liability Act create a subsidy to the nuclear power generation, it is important that this legislation exists in order to ensure that a clear compensation and civil liability regime is in place in the unlikely event of a nuclear accident with third-party consequences.

8.

Beyond the study referred to in my response your question no. 4, the Department has not conducted any studies on the sufficiency of the $75 million liability limit of the current Nuclear Liability Act to address the damages to person or property that could arise from an accident at a nuclear power generating plant that breached containment. Canadian nuclear power plants, employing CANDU technology, are designed and built to such standards that the chance of a severe accident involving a breach of containment—and hence a large release from the plant—is extremely low. Canada's nuclear regulator, the CNSC, considers such accidents to be unrealistic in the Canadian setting and does not include them in its assessment of foreseeable accidents when imposing licensing conditions on nuclear operators.

9.

The Government of Canada acknowledges the merit of the recommendation in the Standing Senate Committee report to increase the mandatory operator held insurance coverage from the current 75 million dollars to an amount in line with international levels. No response was considered necessary since raising the operator's mandatory insurance coverage is a key aspect of the government's comprehensive review of the Act which addresses improvements in victim compensation, clarification of key provisions and the responsibilities of the federal government, as well as improvements to technical aspects of the Act.

10.

The Government of Canada also acknowledges the merit of the Standing Senate Committee's recommendation on exploring the possibility of establishing a North American Convention on Nuclear Liability. No response was considered necessary since, in concert with revisions to our domestic regime, we will examine options on Canada's international position in the area of nuclear third-party liability.

I trust that this addresses the concerns you have indicated in your petition.

Yours sincerely,

[Original signed by Herb Dhaliwal, Minister of Natural Resources Canada]

The Honourable Herb Dhaliwal, P.C. MP

*[attachment not posted]