Thank you, and thank you very much for inviting me to appear before your committee today.
I've been working with nuclear liability and compensation issues for about 20 years, mainly in the context of the international conventions and the development of national legislation in Europe. It's from this international perspective that I've looked at the provisions of Bill C-20.
In my presentation today I will argue that the proposed liability limit is too low and not in line with relevant international standards. However, having just listened to Mr. Murphy's intervention, I can see that the proposal from the insurance industry would bring it more in line with what exists internationally.
However, the bill as it stands today already appears insufficient and out of date. In my opinion, the bill as it stands today would not establish a modern comprehensive nuclear liability and compensation framework for Canada. There can be no doubt that the current Nuclear Liability Act needs updating. The bill aims to do this mainly by providing a new definition of damage and a significant increase in nuclear operator liability.
I agree that the bill would provide an improved definition of damage and an appropriate scope of damage to be compensated. These provisions are in line with those found in current international instruments and in contemporary national legislation in other countries with major nuclear power programs. These are clear improvements, and I will not discuss them further in this presentation.
The increase in the liability limit to $650 million Canadian is perhaps the most noticeable feature of the bill. At first glance, the proposed increase appears considerable. As was mentioned earlier, it's a nine-fold increase, although taking into account the inflation since 1976, I understand that this figure should now be around $350 million Canadian. However, the amount looks insufficient compared to what would be needed following a nuclear accident. There is no single internationally accepted methodology for assessing the economic damage that might result following a nuclear accident. Therefore, estimates of such damage vary widely, but whatever approaches are taken to calculate the possible damage, it is clear to me that $650 million Canadian would not be sufficient to compensate for damage from a moderately large nuclear accident. On that basis alone, I would argue that the proposed liability limit is inadequate.
This, I should note, is with respect to nuclear power reactors, and I take on board the comments about research reactors made earlier.
There are two other explanations that have been offered for the proposed liability limit, that they're in line with current practice internationally and that there is a need to settle them within the capacity of the insurance market. I do not consider this to be fully the case.
In claiming that the new liability limit is comparable to those found internationally, the basis for comparison is not clearly made. I would suggest that the only meaningful comparison should be with international instruments and national legislation that is applicable in countries with a similar standard of economic situation to Canada and with a similarly developed nuclear power program. On this basis, the relevant international instrument is the OECD's Paris Convention. The Paris Convention is open to any OECD member state and it has attracted membership from much of western Europe. In 2004 it was amended by a protocol intended to modernize this instrument. This protocol requires a minimum operator liability of about $1,100 million Canadian. This is the minimum standard that nuclear operators in western Europe are now expected to meet, and this minimum far exceeds the upper limit proposed in the bill. Indeed, a state that would apply the proposed Canadian liability limit would not be able to ratify the protocol to the Paris Convention. The proposed limit is simply too low.
It is also worth noting that the 2004 protocol to the Paris Convention removes any requirement for an upper limit on operator liability. A number of Paris Convention states already have in place, or are considering, unlimited liability for their reactor operators. This is already the case in Switzerland and Germany, and has been for some time. It is also the case in Finland, where a large reactor is presently under construction.
Earlier this month a Swedish government inquiry stated that there are “overriding reasons for introducing unlimited liability for the nuclear power industry in Sweden”, and it proposed amending legislation accordingly. Outside of the Paris Convention framework, Japan also imposes unlimited liability on nuclear reactor operators.
It is true that there is a finite capacity of the insurance market, in Canada and elsewhere. However, there is no inherent reason to bind operator liability to this limited insurance. There are other ways to provide additional credible, verifiable financial securities for compensation in the event of an accident. By failing to consider such possibilities, the bill unnecessarily limits operator liability to what can be provided by the insurance market.
One approach developed elsewhere to provide additional compensation funds is the pooling of operators' resources, not insurance pools. The principal advantage of an operator pooling system is that large sums of private money--not public funds--can readily be made available to compensate victims. Perhaps the most familiar example of this is the United States, where by combining third-party insurance with an operator pooling mechanism, the total compensation made available per incident is over $10 billion U.S.
Operator pooling was introduced in Germany in 2002. This was because the financial security required from nuclear reactor operators was raised to nearly $4,000 million Canadian per incident. That amount far exceeds the capacity of the German insurance market. The solution developed to meet this goal was to combine individual operator insurance with an additional mutual agreement between German reactor owners. Each partner agrees to contribute to the total financial security required, based on that share of ownership with the German reactor fleet. The partners must also demonstrate to regulators each year that the promised funds would be available if needed, and the ultimate liability of the operator remains unlimited. In the event that the damage caused exceeds the financing available, other assets of the operator are available to add to the compensation amounts, including recourse against the assets of reactor owners if necessary.
Earlier this month, a Swedish government inquiry proposed a similar approach to that being used in Germany; that is, a combination of individual third-party operator insurance combined with an additional mutual agreement. It proposed that the nuclear operators be required to ensure a fund of $1,900 million Canadian per accident. The reactor operators’ liability would also be unlimited. The Swedish inquiry favoured such an approach as it was economically efficient and also provided reassurance that the nuclear industry would be responsible for the major costs of a nuclear accident. I would note that the Swedish proposal is in the context of a planned new investment in Swedish nuclear power.
In conclusion, I would like to reiterate three points. Yes, I believe the bill would improve on current Canadian nuclear liability legislation in some respects. However, the proposed new operator liability limit of $650 million is not comparable to minimum liability obligations found in the most relevant international instrument and does not compare well with compensation funds in other western countries with major nuclear power programs. Taken together, key provisions of the bill appear insufficient and out-of-date already, when compared with those found in contemporary nuclear liability legislation elsewhere. Thus, in its present form, in my view, the bill would not establish a modern comprehensive nuclear liability and compensation framework for Canada.
Thank you very much once again for this opportunity to appear before your committee.