Economics v. Justice? International Nuclear Liability Regimes

After the recent earthquake in Japan, there has been a global outpouring of sympathy and support. Governments and individuals worldwide have been trying to help Japan recover from the tragedy. Likewise, the world has been on edge regarding the ongoing crisis at the Fukushima I (or Fukushima Daiichi) nuclear power station, as everyone hopes that an even more serious nuclear catastrophe can be avoided.

Yet what about those individuals devoid of empathy or, seemingly, any human emotion? Pseudo-humans so empty and craven that, seeing the Japanese nuclear crisis, they think first and foremost about what the impact will be on the stock market. Self-interested automatons from an economics textbook come to life, who focus only on things that matter – or rather, the thing that matters: money. Whose writing will cater to this audience? The Wall Street Journal? Fox Business News? Amateurs! Come with me, fellow homo economici, and let us cast off this veil of humanity.

Firstly, the crisis in Japan has been playing havoc with the stock market, and that can only mean one thing: investment opportunities! Here’s a great stock pick[1] to get the ball rolling: General Electric. GE built (wholly or in part) half of the reactors at the Fukushima I plant, and the crisis now unfolding has been partially attributed to a design flaw. In reaction to this news, GE’s stock price dropped by nearly 5% on Tuesday March 15th. The joke’s on the doubters though – legally, GE cannot be held liable at all! Buy now and the stock price will recover as soon as GE’s legal immunity sinks in.

I know what you’re thinking: why is a manufacturer immune from liability when a design flaw in their product threatens thousands of lives and untold environmental contamination? How can it be riskier for a company to put dead snails in ginger beer than it is designing faulty nuclear reactors? The answer lies in the regimes governing civil liability for nuclear damage.

The largest international regime pertaining to nuclear civil liability is the 1988 Joint Protocol which combined the Vienna Convention on Civil Liability for Nuclear Damage (1963) and the Paris Convention on Third Party Liability in the Field of Nuclear Energy (1960). The 1988 protocol draws from the civil law tradition, and functions to assign absolute and sole liability to the operators of nuclear facilities. It also limits liability to a maximum dollar value, and sets a time limit on bringing a suit to 10 years. Operators are required to have insurance equal to the liability limit.

The Joint Protocol has been ratified by 26 countries, consisting primarily of the continental European Union (excluding France), and several Latin American countries. Japan (along with the UK, the US, and Canada) is not party to the joint protocol. However, most countries with a civil nuclear power industry have legislation which is very similar in substance to the Joint Protocol, and the primary distinguishing characteristic is the dollar value limit on liability. The Joint Protocol has an upper limit of liability for the operator of 700m euros, the UK legislation limit is 140m pounds per nuclear installation, Canada’s regime has a limit of $75m per power plant, and Japan has a limit equivalent to $1.2B USD.

All of this is well and good for GE (and its shareholders), and isn’t too bad for the operators of nuclear plants. But what is the rationale behind this global consensus on exempting nuclear manufacturers from any liability? In part, absolute liability for the operator is a simplification mechanism for claimants, who can receive compensation without having to go through a tortuous law suit trying to prove who was responsible for what and in what degree. But assigning liability to the operators alone is also a recognition that manufacturing nuclear equipment is an extremely specialised, R&D- and capital-intensive field, and that as a result, there are only a handful of companies in the world who do it. If these manufacturers – including GE – were liable for nuclear accidents, they would be facing a financial risk large enough to bankrupt them instantly. If this were the case, some of these companies may choose to abandon nuclear manufacturing, threatening the global nuclear energy industry’s supply of equipment. Legal limitations on liability are thus a way of providing economic security for manufacturers.

All systems of liability have built-in biases and values. Every legal system balances the interests of plaintiffs and defendants, of society and the individual, of justice and economics. On the latter measure, international nuclear liability regimes clearly favour economics over justice for the victims, who may not be fully compensated because of limitations on the scope and amount of liability. Recognising this value system won’t change the legal aftermath of the Fukushima I disaster, but is important that we bear it in mind as nuclear liability regimes continue to evolve. Because after all, there has to be a limit on how much we allow monetary calculations to trump our own humanity.

Next time, we consider what’s more important: freedom for the Libyan people or an extra 10 cents per litre at the gas station?


[1] Disclaimer: the author is a terrible investor and is poor.

Brett Hodgins Brett Hodgins a third-year law-MBA student from a small town in Ontario. The town has both a prison and a mental institution. Brett has three siblings, a niece and nephew, and two turtles who do not have names. Brett is interested in international politics and law.

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