Turn the nuclear bill from liability to asset

As one of only two countries to run a nuclear power programme without any statute dealing with the possibility of an accident — the other is Pakistan — India has done well to finally recognise the importance of enacting a liability law. With ambitious plans for 20,000 MWe of nuclear power generation capacity on the anvil, liability legislation, especially if it helps internalise the risks associated with this expansion, can lower the probability of accidents. A good law would also ensure speedy and adequate compensation to victims.

The shabby manner in which the Indian system has dealt with the Bhopal disaster is a reminder of the need to place the victim at the centre of legislative action. Unfortunately, the international framework for nuclear liability is designed to favour nuclear suppliers. Despite this constraint, the Manmohan Singh government has managed to frame a law with some positive features. It includes two provisions that are not to the liking of the U.S., which wants to grab a share of the huge Indian market without accepting liability for any accident its products may cause. At the same time, the bill has some definite weaknesses.

The international regime on civil nuclear liability suffers from a serious flaw. By excluding the supplier, channelling liability for a nuclear accident to the operator and capping this liability, it leads to underinvestment in safety. This is because potential tort-feasors optimise their behaviour on the basis of artificially low damages they would have to pay in case things go wrong.

As Michael Faure and Karine Fiore have argued, any legal regime governing civil liability must aim to push the industry towards the prevention of accidents. “A basic notion is that the injurer should be fully exposed to damage costs in order to provide him with the necessary incentives for prevention” (“An economic analysis of the nuclear liability subsidy,” Pace Environmental Law Review, 2009). As a corollary, all those who can contribute to accident risk should be forced to internalise the costs of the damage they might cause. If all treaties on nuclear liability — including the Convention on Supplementary Compensation to which India is planning to accede — stand the economics of torts on their head, this is because of the nuclear suppliers' lobby. Right from the 1950s, when nuclear power was in its infancy, down to today, U.S. contractors have contended they cannot do business abroad if there is a danger of being exposed to law suits.

Under U.S. influence, international conventions dealing with nuclear liability have thus embodied three concepts of dubious merit from the efficiency perspective. First, legal channelling of liability for accidents to foreign operators, second, giving operators an extremely limited right of recourse against suppliers in the event of an accident and, third, setting aside ordinary tort law and disallowing fault-based claims by victims against operator or supplier.

All of this was done in the name of speedy compensation for victims since the quid pro quo of channelling was the rule of ‘strict liability' under which the operator is liable even if he is not at fault. Victims benefit from this rule since there is no ambiguity about who must pay. But as Tom Vanden Borre has argued, channelling was “not introduced to protect the victims of nuclear accidents, nor to reduce the insurance costs, but to protect the American nuclear industry.” The irony is that even as it has pushed the regime of legal channelling on the rest of the world, the U.S. system of economic channelling of liability allows tort claims as well as an unrestricted right of recourse for the operator. That is how, for example, Metropolitan Edison, the operator of the Three Mile Island reactor, sued its supplier, Babcock & Wilcox, after the 1979 accident.

Supplementing these layers of protection for nuclear suppliers is a fourth: legal jurisdiction belongs to the courts of the country where the accident takes place. Bhopal, where Indian victims approached a U.S. court, is the ghost that looms large. “While ultimately the court declined to take jurisdiction”, Ben McCrae, legal counsel for the U.S. Department of Energy, notes, “this was not because it doubted its capacity to do so: it basically waited to ensure that there was an adequate remedy available in India.”

In the wake of the Indo-U.S. nuclear agreement, therefore, getting India to accede to the CSC has been Washington's priority. That would effectively bar Indian victims from approaching an American court in the event of an accident involving a U.S.-supplied reactor. Of course, this in itself cannot be an argument against India adopting a liability law. Rather, the challenge is to embed nuclear liability in a set of legal and administrative measures that can ensure the payment of speedy and adequate compensation to victims as well as force everyone in the nuclear business — suppliers and operators — to internalise the costs of an accident. Indeed, the legislative challenge is to ensure that Indian victims get the same degree of protection from Indian courts as U.S. victims would from their courts.

In a recent article, Evelyne Ameye has confronted the flawed logic of channelling, making a safety-cum-engineering argument in favour of suppliers remaining liable for accidents their products may cause. (“Channelling of nuclear third party liability towards the operator,” European Energy and Environmental Law Review, 2010). This can be done in two ways. Liability for an accident can still be channelled on to the operator but his right of recourse in the event of supplier negligence is left unrestricted. The Russian Federal Act on Atomic Energy, for example, does not impose a limit upon the operator's right of recourse. (Alexander Matveev, “The Russian approach to nuclear liability,” International Journal of Nuclear Law, 2006). South Korea's liability legislation also allows operators to recover damages from suppliers in the event of negligence. A second way would be to allow victims to sue suppliers for fault-liability under tort law so as to win damages over and above what the operator pays through strict liability. Thus Germany, a party to the Paris Convention on nuclear liability, entered a reservation stressing its right, under national law, to hold persons other than the operator liable for nuclear damage. Besides, several conventions on environmental damage — such as the 2003 Kiev Protocol on industrial accidents in transboundary waters — now explicitly provide for strict as well as fault-liability to run side by side.

Ameye argues that channelling can no longer be justified on the grounds of nuclear power being an infant industry. Nor is it healthy to exclude suppliers from the liability chain when nuclear technology is rapidly evolving. “Given the increasingly complex designs of the new generations of nuclear power plants, it is… both legally and realistically incorrect to maintain the heavy burden of legal channelling upon the nuclear plant's operator … To the extent that design knowledge becomes more hermetic, it will be hard to sustain the operator's liability for risks he is not aware of or, even worse, for risks he cannot perceive”. This is especially so when all major nuclear accidents in the past — Windscale, Three Mile Island and Chernobyl — have occurred, in part, because of design flaws.

Turning to the Indian bill, the inclusion of strict liability is a positive feature. The bill also legally channels this liability to the operator, thus eliminating any ambiguity about who must pay. On the positive side, too, is the additional 300 million SDRs (approximately Rs. 2050 crore) Indian victims would be entitled to from pooled contributions by state parties to the CSC, as and when it enters into force.

On the negative side is the cap placed on the operator's no-fault liability. The bill sets this at Rs. 500 crore, a figure that is low by international standards and by the requirement of safety incentivisation. In case the operator is private — a key qualification since the bill is not limited to public operators — this cap amounts to a subsidy as the government will assume liability for damages up to a maximum of 300 million SDRs. Private operators must not get such a benefit. Even if the operator is a public entity, the liability cap will distort the true cost of running a reactor and lead to a higher than optimal share of nuclear power in India's energy mix.

Where the original Indian bill is innovative is in allowing operators a right of recourse against suppliers in the event of gross negligence (Section 17(b)). Also, the bill would appear to allow victims to sue for fault-liability, though the ambiguous wording of Section 46 leaves unclear whether tort claims can be pressed against only the operator or any other person whose negligence leads to an accident.

Since both provisions undermine the principle of channelling, U.S. suppliers want them deleted. Not only must that pressure be resisted but steps should be taken to clarify their provisions.

Also, in the light of Bhopal, it is cold comfort to be told that victims can use existing laws to pursue compensation. As the Merlin case in England showed, courts can treat tort claims for nuclear damage with scepticism. In India, where the law of the torts is not well developed, it is essential that the nuclear liability bill provide mechanisms to allow victims to effectively press their case.