Nuclear third-party insurance and liability.

ROADMAP

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Nuclear third-party insurance and liability.

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DG –

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final decision of the Commission on whether this initiative will be pursued or on its final content and structure.

A. Context and problem definition (1) What is the political context of the initiative?

(2) How does it relate to past and possible future initiatives, and to other EU policies?

(3) What ex-post analysis of existing policy has been carried out? What results are relevant for this initiative?

(1) The Fukushima nuclear accident has renewed worldwide attention on the need to ensure the sufficiency of damage coverage in case of a nuclear accident.

In the EU, the nuclear liability regimes of Member States (MS) are governed by a set of International treaties and by national laws that differ from one MS to the other, depending on which treaty or treaties, if any, it has signed and ratified:

- Most of the MS which joined the EU before 2004 are Parties to the Paris and Brussels Supplementary Conventions, adopted under the auspices of the Organisation for Economic Co-operation and Development (OECD),

- Most of the EU-12 MS which joined the EU in 2004 and 2007 as well as Croatia, are Parties to the Vienna Convention adopted under the auspices of the International Atomic Energy Agency (IAEA),

- In addition, 5 MS are party to neither of these International conventions.

(2 & 3) The issue of nuclear third party liability insurance was addressed by the European Atomic Energy Community (Euratom) in 1959/1960. A Commission proposal in this field was however shelved as the then MS chose to rely on the Paris Convention 1960 and the Brussels Supplementary Convention 1963.

The intention of the Commission to review how nuclear third party liability insurance could be improved in Europe, within the limits of EU competence, has been announced in the following recent initiatives:

- the Commission Communication of 10 November 2010 on Energy 2020,

- the Commission Communication of 24 November 2011 on the interim report on the stress tests of nuclear power plants (NPPs) in the European Union,

- and the Commission Communication of 4 October 2012 on the final report on these stress tests.

The Green Paper on the Prevention and Insurance of Natural and Man-made Disasters, which was adopted on 16 April 2013, refers to the on-going analysis undertaken by the Commission on the issue of nuclear third party liability insurance.

In the framework of the 2014 report on the application of the Environmental Liability Directive (ELD), DG ENV is currently analysing the question of potential discrepancies between the ELD and the liability regimes excluded from the scope of the ELD. These exceptions include in particular nuclear third party liability as covered by the Paris and the Vienna Conventions.

What are the main problems which this initiative will address?

The lack of legal unity regarding nuclear third party liability, due to the coexistence of different legal regimes in the EU MS, is the main problem to be addressed. This lack of legal unity might in particular have an impact on:

- The functioning of the internal market, because of the non-level playing field conditions between operators in different MS (intra- sectorial distortion). Equally the rather low levels of limitation of third party liability (and the limited financial security) enjoyed by most nuclear operators, and resulting in relatively low insurance costs, may favour the nuclear industry over other electricity producers and could be perceived as an advantage provided by the State to the nuclear industry (inter-sectorial distortion).

- The compensation of victims, especially as regards cross-border effects of a nuclear accident. This issue is not properly addressed by national legislations and there is therefore a risk that claims from citizens from other countries might not be treated on the same basis as those from citizens of the accident State. Lastly, it appears that the amounts foreseen for the liability of nuclear operators, both in the national laws of the EU MS and in the international conventions, are very low when compared with the likely costs of a severe nuclear accident.

Who will be affected by it?



Nuclear operators and their insurers (or operators' insurance pools), as they are responsible for compensating nuclear damages.



Member States which would be required to cover damages exceeding the insurance cap



EU citizens, who would benefit from an improved and more equitable compensation of their losses in the event of a nuclear

accident.

(1) Is EU action justified on grounds of subsidiarity?

(2) Why can Member States not achieve the objectives of the proposed action sufficiently by themselves?

(3) Can the EU achieve the objectives better?

(1) Yes, see reply to (2) and (3).

(2) & (3) MS have adhered to different international conventions (or in 5 cases to none), which has led to the current lack of legal unity, with liability amounts of nuclear operators ranging from € 5.4 million to € 2.5 billion and a mix of limited and unlimited liability regimes.

The increase of the level of liability and of financial coverage of nuclear operators in case of an accident could also be envisaged through the updating of the International agreements. However, the amendment and ratification procedures of the Paris and Vienna Conventions appear as being difficult, cumbersome and time consuming, especially since non-EU countries would also be involved. In addition, such approach would exclude the five EU MS which are not party to these Conventions.

Finally, an initiative at the level of the EU will also address cross border aspects of claim management which cannot be regulated at national level and have not been covered by the Paris and Vienna Conventions.

B. Objectives of the initiative What are the main policy objectives?

The main policy objective would be to increase the legal coherence in the EU, in order to:

- tackle the impact which the coexistence of different legal regimes in EU MS might have on the functioning of the internal energy market, (both from an intra and inter sectorial point of view) and

- improve the victim compensation regime (in particular in the event of an accident with cross-border effects).

Do the objectives imply developing EU policy in new areas?

The objectives are part of the existing EU policy to improve the overall legal framework of nuclear safety (including safety of nuclear installations, radioactive waste and spent fuel as well as nuclear liability).

This was confirmed by the European Council following the 2011 Fukushima nuclear accident.

C. Options

(1) What are the policy options (including exemptions/adapted regimes e.g. for SMEs) being considered?

(2) What legislative or 'soft law' instruments could be considered?

(3) How do the options respect the proportionality principle?

(1) & (2) Options and instruments

The Commission intends to follow a two-steps strategy to address the issues and achieve the objectives described above:

Step 1: Adoption of a non-legislative initiative in order to present the main problems to be tackled at the EU level and to deepen the debate on the most important issues such as the capacity of the financial markets regarding financial security coverage and aspects related to the cross border claim management.

Step 2: Adoption of a legislative proposal, on the basis of Article 98 of the Euratom Treaty, which empowers the Council to issue directives, upon proposal of the Commission, on nuclear third party liability insurance.

In the context of a legislative proposal, 3 sub-options could be envisaged:

- Sub-Option 1: improvements to claims management systems AND increase of the amounts of financial security that nuclear operators have to provide while retaining the concept of capped limited liability and without touching upon the existing legal regimes framed by the international conventions.

- Sub-Option 2: (sub-option 1) AND introduction of the concept of unlimited liability (i.e. the regime in 10 MS). No impingement on general legal principles of both Paris and Vienna Conventions (e.g. strict and exclusive liability of the operator, compulsory insurance with a minimal insurance amount at significant higher levels than those currently applicable).

- Sub-Option 3: Establishment of a new and completely harmonised nuclear liability regime, regardless of adherence to existing international conventions, and possibly deviating from existing legal principles of the Conventions.

The regulatory burden for SMEs/micro-enterprises can be considered negligible as few if any such entities are involved as nuclear operations or insurance companies.

(3) Proportionality principle:

Step 1: N/A.

Step 2:

- Sub-Option 1: By simply addressing the technical issues of cross-border claims management and increasing minimum coverage

amounts, while respecting the legal principles enshrined in the international conventions, sub-option 1 would fully respect the

proportionality principle.

- Sub-Option 2: By addressing the questions of unlimited liability, the minimal amounts of financial security and the common principles of claims management, sub-option 2 fully respects national competences and the international commitments (existing Conventions) of MS towards nuclear liability. As for Option 1, the action would be proportionate in as much as only cross-border issues of claims management and the liability coverage address internal market concerns, two areas in which Member States lack competence to intervene on their own motion.

- Sub-Option 3 would affect the international obligations of those Member States adhering to different international conventions in the field and might therefore be considered disproportionate.

D. Initial assessment of impacts What are the benefits and costs of each of the policy options?

Preliminary remark: the following answers are given subject to the delivery by the contractor of the final version of the Competitiveness study for the Impact Assessment which is currently on-going.

Step 1 (non-legislative initiative): N/A

Step 2 (legislative proposal): the impacts of a legislative proposal would depend on the option chosen following the completion of the Impact Assessment currently undertaken by the Commission :

- Sub-option 1

Benefit: Improving technical modalities of claims management and setting higher minimum amounts of financial security would improve victim compensation and partially tackle internal market concerns, while being in line with the general legal principles of both the Vienna and Paris Conventions. This option should not actually meet too strong opposition by Member States (and international organisations) attached to "their" international conventions.

Costs: Not a fully-fledged "harmonisation", i.e. a certain "legal patchwork" situation would continue (minimum amounts only, some Member States already prescribing unlimited liability). Increase of costs for many nuclear operators, especially those based or operating in Vienna Convention States.

- Sub-option 2

Benefit: The benefits of option 2 should be similar as those mentioned under option 1. However, the introduction of unlimited liability could also contribute to improve public acceptance towards nuclear energy, by showing that nuclear operators are taking an increased responsibility towards the risks induced by nuclear technology.

Costs: Operators would have to manage the increased liability of carrying the full risk of a nuclear accident. Insurance cover for the full costs of an accident would be impossible. Issue could manifest itself in the form of investors requiring a greater return on their investment, which could feed through higher electricity costs.

- Sub-option 3:

Benefit: Concerns about internal market distortions due to different liability regimes would most likely disappear or extremely reduced. A harmonised nuclear liability regime across the EU would ensure equal treatment of potential victims and nuclear operators.

Costs: This option would increase the global "legal patchwork" by adding a separate EU nuclear liability regime to the ones already existing at international level. It remains to be seen to what extend the costs would be covered by the operators and/or the insurance sector.

Could any or all of the options have significant impacts on (i) simplification, (ii) administrative burden and (iii) on relations with other countries, (iv) implementation arrangements? And (v) could any be difficult to transpose for certain Member States?

(i) Simplification:

By harmonising the levels of liability, i.e. significantly increasing the minimum coverage amount and introducing unlimited liability sub- Option 2 and partially also sub-Option 1 would introduce more transparency in the costs for liability, thus rendering the calculation of insurance and other financial guarantees easier. Sub-Option 3 would complicate the legal panorama and most likely require MS to overhaul their international commitments on nuclear liability.

(ii) Administrative burden:

The sub-options envisaged in case of adoption of a legislative initiative mainly concern private operators and insurers which would need to adapt their administrative procedures (and increase coverage) accordingly. However, there could be some synergies stemming from the said transparency of the liability costs in the internal market, for instance in the sense that cross-border claims management procedures might be harmonised by insurance operators themselves.

(iii) Relations with other countries:

Sub-option 3 would most likely create conflicts with neighbouring third countries which are parties to the existing international conventions

due to the need for most MS to denounce the Paris and Vienna Conventions.

(iv) Implementation arrangements:

In the context of a legislative initiative with a significant increase of the minimum coverage amount, operators should be given some time before the requirement of fully insurance of that amount should come into force (transitionary period).

(v) Transposition:

As pointed out under iii), for MS party to one of the Conventions (Paris or Vienna) there will be first a need to denounce those treaties.

(1) Will an IA be carried out for this initiative and/or possible follow-up initiatives?

(2) When will the IA work start?

(3) When will you set up the IA Steering Group and how often will it meet?

(4) What DGs will be invited?

(1 -4) Yes, the Commission already started to work on an impact assessment on the issue of third party nuclear liability insurance at the beginning of 2013.

Invitations to participate in the IA Steering Group were sent in July 2012 to the all the Commission services.

The IA SG already met 4 times, on 27 February, 26 April, 27 May and 23 October 2013, and most of the services invited have sent a representative, in particular: ENER, LS, COMP, MARKT, SG, JUST, ENTR, ENV, EMPL, RTD, JRC.

(1) Is any option likely to have impacts on the EU budget above € 5m?

(2) If so, will this IA serve also as an ex-ante evaluation, as required by the Financial Regulation? If not, provide information about the timing of the ex-ante evaluation.

(1) No (2) N/A

E. Evidence base, planning of further work and consultation

(1) What information and data are already available? Will existing IA and evaluation work be used?

(2) What further information needs to be gathered, how will this be done (e.g. internally or by an external contractor), and by when?

(3) What is the timing for the procurement process & the contract for any external contracts that you are planning (e.g. for analytical studies, information gathering, etc.)?

(4) Is any particular communication or information activity foreseen? If so, what, and by when?

(1) As explained in more details in the reply to the following question, the results of the 2009 legal study and of the 2010 workshop on nuclear liability, as well as the recommendations of the informal expert group on nuclear third party liability are already available. The Commission has also been closely associated in the discussions held on nuclear third party liability in the OECD/Nuclear Energy Agency and the International Atomic Energy Agency.

(2) The outcomes of the on-line public consultation which was carried out between 30 July 2013 and 22 October 2013 will also be taken into account. The Commission has also commanded an external study to analyse the potential impacts of a future initiative on this issue on the competitiveness of the nuclear industry.

(3) The finalisation of the work of the external consultant on issues of competitiveness proofing and the potential impact of the introduction of unlimited liability is expected for the end of 2013.

(4) The Commission intends to co-organise, in collaboration with the European economic and Social Committee, a Stakeholders' Conference on nuclear third party liability at the beginning of 2014.

Which stakeholders & experts have been or will be consulted, how, and at what stage?

With the view of starting a discussion on nuclear liability insurance, the Commission already contracted a legal study, published in December 2009, to assess the possibility of Euratom accession to the Paris Convention and co-organised a workshop on a nuclear liability regime in the EU in 2010.

As follow-up, an informal expert group on nuclear third party liability was created, representing all major stakeholder groups: European Commission services (DG Energy, DG Internal Market, DG Competition, and Legal Service), insurers, suppliers, operators, international organisations, some governments and academics. The purpose of the group was to explore common ground amongst the stakeholders (consensus building) in view of a possible future proposal of the Commission under Article 98 of the Euratom Treaty. The group met six times between April 2011 and February 2013, when its recommendations were presented. The group recommended that action should be taken on (1) claims management and related matters, (2) insurance, operators' pools and other financial guarantees and (3) compensation amounts.

Following the presentation of these recommendations, the Commission started to explore, by means of an impact assessment, how the situation in the area of nuclear third-party liability and insurance could be improved in the EU.

In this context, an on-line public consultation was carried out by the Commission to seek views of all persons and entities interested on

the need for common rules at EU level on insurance and compensation for nuclear accidents in the EU. As mentioned under (4) in the

previous question, stakeholders will be further consulted in 2014 with the organisation of a one-day Conference on nuclear third party

liability.