Nuclear Installations (Liability for Damage) Order 2016

Earl of Kinnoull Excerpts

Wednesday 27th April 2016 Grand Committee

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change and Wales Office (Lord Bourne of Aberystwyth) (Con)]

My Lords, we are today considering an instrument which amends the Nuclear Installations Act 1965 in order to implement changes to the Paris convention on nuclear third-party liability and the Brussels supplementary convention. The powers to make this order are contained in Section 76 of the Energy Act 2004.

Before briefly outlining what the draft order seeks to do, I take the opportunity to restate the Government’s commitment to make sure that we have a secure, affordable and clean energy system to keep the lights on in the decades ahead.

As noble Lords may be aware, the United Kingdom is a signatory to the Paris convention on nuclear third-party liability and the Brussels supplementary convention. These conventions establish a largely western European framework for compensating victims of a nuclear incident. The regime has been in place since the 1960s and is one of the cornerstones of international nuclear liability law. This special international regime is necessary since ordinary common law is not well suited to deal with the particular problems in this field. The regime provides compensation to the public for damage resulting from a nuclear accident and makes sure that the growth of the nuclear industry is not hindered by bearing an intolerable burden of liability. The reciprocal nature of the regime scheme also provides for consistency internationally. Amendments to the conventions were agreed by the Paris and Brussels signatory countries in 2004, including by the United Kingdom. They will come into force once the amendments have been ratified by the signatories to the conventions. The United Kingdom is committed to ratifying the amending protocols and to do so we need to implement the changes in United Kingdom legislation.

This order will upgrade the existing nuclear third-party liability regime and ensure that, in the event of a nuclear incident, an increased amount of compensation will be available to a larger number of claimants in respect of a broader range of damage than is currently the case. The proposed changes will apply to existing operators of nuclear licensed sites and to operators of any new licensed sites in the future. The liability regime will be extended to facilities used for the disposal of low-level nuclear radioactive waste.

Operators must put in place insurance or other financial security to cover their potential liability. It will be for operators to bear the costs of this on their balance sheets. At societal level the policy is estimated to have zero net impact as the current resource cost of government holding the contingent liability is considered equivalent to the future insurance costs for the industry.

The provisions of the order will come into force at different times. Some provisions will come into force shortly after the order is made so as to allow secondary legislation to be made to complete implementation of the regime changes. However, the main provisions will not come into force until the revised regime comes into force in respect of the United Kingdom. Joint ratification of the Paris protocol is required with the other EU signatories to the conventions, and this has a current target date of 1 January 2017.

On the specifics of the order, it provides for the inclusion of new categories of damage, in addition to the existing categories of personal injury and property damage: costs of measures of reinstatement of the impaired environment, loss of income deriving from a direct economic interest in any use or enjoyment of the impaired environment and costs of preventive measures where there is a grave and imminent threat of nuclear damage and consequential compensation.

The amendments to the conventions increase significantly the amount of funds available for compensation in the event of a nuclear incident. Under the current regime approximately €300 million in total is available for compensation, and this will rise to €1,500 million. Operators will be required to bear much greater financial responsibility for a nuclear incident. Operators of power stations and similar sites will have an immediate increase in liability from the current €140 million to €700 million and this will then rise by a further €100 million annually up to €1,200 million. We are continuing to use the flexibility in the conventions to set lower liabilities for lower-risk situations where, in the event of an incident, there is unlikely to be significant damage. The lower liability levels for low-risk and intermediate sites and low-risk transport will be brought into effect by additional regulations to be made in advance of the commencement of the order. All liability levels will be topped up from public funds to a total of €1,500 million per incident, if needed, to meet compensation claims as required by the amended Brussels convention. Contributions from all Brussels convention countries will be used to top up the funds from €1,200 million to €1,500 million.

Contracting parties are permitted to impose a higher liability limit or unlimited liability. The UK has adopted an approach similar to most other contracting parties in capping liability to make sure that operators are able to put in place insurance or other financial security specifically to cover their third-party liabilities.

The geographical scope of the conventions is extended so that it is wider than countries that are party to the conventions, including non-nuclear countries and countries that have equivalent and reciprocal liability arrangements.

The order increases the period in which claims for personal injury can be brought against operators to 30 years from the date of an incident. The limitation period for other claims remains 10 years.

The provisions on allocation of jurisdiction between Paris convention countries now take into account the establishment of exclusive economic zones under international law and other types of maritime zone. The provisions also specify that only one court in the convention country where the incident has occurred should deal with claims arising from it. This avoids conflicting judgments as to liability, as well as ensuring that the responsible operator’s liability limit is not exceeded. This provides clear benefit to the United Kingdom if it is affected by a nuclear incident in another country.

The instrument brings into the liability regime operators of disposal sites for nuclear radioactive waste. We are working with Paris convention countries to agree an exclusion for operators of disposal installations that take only low-level and very low-level nuclear radioactive waste since the risks such waste present are not what the Paris convention was designed to address. If excluded from the regime, general tort law will continue to apply to these sites.

The revised Paris convention now requires every Paris convention country to ensure that its law allows another country to bring representative actions on behalf of its people. This does not create any new right to compensation; rather, it provides an alternative avenue for claiming compensation and allows for co-ordination of large volumes of claims. The order creates rights for other countries to bring representative actions in the UK. The UK Government will have the equivalent power to bring representative actions in other Paris convention countries.

One of the key features of the Paris regime is the requirement for operators to maintain insurance or other financial security to cover their liabilities under the convention. Operators currently meet this requirement by purchasing insurance from the market. Under the new regime, the market is willing to provide cover to the full extent of the operators’ new liabilities, apart from the extension of the limitation period from 10 to 30 years for personal injury claims. If operators are unable to obtain cover for a liability, Governments are required to provide it, so we will, on a commercial basis and for a charge, consider arrangements to fill this gap in cover until the market is prepared to cover it. If such arrangements are made, I will ensure that a report is made to Parliament on them every two years.

The United Kingdom will review the operation of the revised regime in line with the timings set by the contracting parties to consider any revisions to the Paris convention. The form and timing of the review is a matter for the contracting parties—including, of course, the United Kingdom—to agree.

I finish by emphasising the importance of this update to a long-standing regime. Nuclear power in the UK has a strong safety record and the likelihood of a nuclear incident occurring is extremely small. The production and use of nuclear power, however, involves the use of hazardous radioactive materials and an incident could have far-reaching adverse consequences for human health and, indeed, the environment.

Guarding against those risks is therefore of the highest priority for the Government. The United Kingdom has in place robust safety, security and environmental protection regimes that comply with frameworks laid down at EU and international level. The liability regime is aimed at ensuring adequate and fair compensation for victims, while ensuring that the operators, who are in the best position to ensure the safety of their installations, take responsibility for any failure in safety. Further, recognising that the effects of a nuclear incident do not stop at national boundaries, the conventions aim to provide a high degree of uniformity in certain basic rules across their signatory countries.

[The Earl of Kinnoull (CB)]

My Lords, I had not intended to speak on the order, but given that I have spent 25 years in the international insurance markets at senior level in Hiscox—I therefore declare my interest—and given that I was involved in and responsible for this area of insurance for some time, I have some knowledge. I shall make two points and ask one question of the Minister.

My first point is that greater use of commercial insurance in these risks will undoubtedly drive better risk management simply because we are very much less rich as insurers than the Government, so we are very careful with our risk management to try to ensure that things go well. Therefore, I thoroughly welcome the arrival of the order and the greater reliance on third-party insurance.