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Nuclear Installations (Liability for Damage) Order 2016

Volume 771: debated on Wednesday 27 April 2016

Motion to Consider

Moved by

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.

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.

Secondly, just per incuriam, much of the nuclear insurance around the world is conducted through the London international insurance markets, so, assuming that this will take place in lots of countries, the requirement for additional insurance will benefit those markets, which is helpful.

My question is in respect of Article 37. I have spent 30 years in the City looking at what I call currency conversion clauses, and Article 37 is precisely that. It refers to the,

“London closing exchange rate for the euro and sterling for that day”.

I do not believe that that is sufficiently precise at a couple of levels. First, I have never heard of that exchange rate. Google has not heard of it. There are many different and very successful commercial ways of defining exchange rates like that. Secondly, it does not say whether it is a bid, an offer or even a mid-market exchange rate. I think that that article could do with a fresh look, or perhaps I have missed something and I should be grateful to be corrected by the Minister.

My Lords, before I begin my remarks on the order before the Committee today, I should like to start by congratulating the Minister on his visit to New York last week to sign the Paris agreement on climate change on behalf of the United Kingdom. I trust that it was a wonderful experience as well as an honour to sign on our behalf, and I am sure that he will not mind me reminding him of this from time to time during our debates in future. Regarding the signing, perhaps I may ask him whether there are further legal requirements to make the Paris agreement operational. Is there a need for formal parliamentary ratification or, indeed, for possible amendments to the Climate Change Act down the line?

However, returning to more normal events, I thank the Minister for his introductory explanation today. The order is a lengthy document, and he has given the Committee an excellent summary. The instrument amends the Nuclear Installations Act 1965 in order to update and extend changes following the Paris agreement, as he has mentioned, and the Brussels supplementary convention, to both of which the UK is a signatory. The order covers the aspects of insurance liabilities for nuclear operating companies and how they are changing. As the Minister said, the powers to make the order come from the Energy Act 2004.

In the other place, questions focused on the decision to phase in higher levels of cover, from €700 million to €1,200 million, over five years, and whether that should be speeded up. The questions also covered the higher and lower aspects of the transport risks of materials and the pricing costs around the Hinkley Point deal. These were very helpful, and I understand the responses made by the Minister there, especially on the problems with pricing mechanisms where there is little or no track record of claims dealing with low-probability outcomes. The fact that any outcome could have high impact adds to the complexity.

At this point, I should declare my interests as a dairy farmer in Cheshire as I reflect that my reading of the order was made poignant by remembering the effects on farmers in north Wales at the time of the Chernobyl accident in the Soviet Union, when rain from the east deposited radioactive sediment on grass consumed by livestock in that area. At the time, there were thoughts that the land might be contaminated for several decades. Therefore, in noting the new category of,

“Loss of income deriving from a direct economic interest in any use or enjoyment of the environment”,

for which the example of “fishermen and cockle-pickers” is cited, I assume that this would also apply to farmers who have grazing on common land. Are there any definitions around “insignificant” in paragraph 7.14 of the Explanatory Memorandum, which states that,

“the impairment must not be ‘insignificant’”?

Any comments that the Minister could make on that would be helpful.

Following on from that, I also note the new category “Costs of preventive measures”, in paragraphs 7.15 and 7.16 of the Explanatory Memorandum, to mitigate the damage that might result from an incident. Here I could envisage a situation where the contamination of a large area could lead to food retailers refusing to take supplies of agricultural produce as a precaution, even though certain products could be said to be uncontaminated. Can the Minister say whether this situation would be compensatable?

The Explanatory Memorandum also explains the concept of an “occurrence” and cites the Magnohard case. Paragraph 7.31 explains that the order makes specific provision to address the point and that,

“the court took an expansive view of the meaning of ‘occurrence’ … The Order … does not adopt as broad an approach”.

Is the Minister able to explain why and what is the effect of this? The memorandum is silent on this point.

Lastly, I have a simpler question. The order requires that nuclear operators assume full responsibility for any breach, that insurance cover is to rise to new levels and that liability is extended to 30 years for claims for personal injury. The Explanatory Memorandum states:

“The Government will, subject to any EU or UK legal requirements such as state aid … fill any gap in cover”.

It is understood that such a gap may exist regarding extension to 30 years for claims for personal injury. Given that personal conditions and physical reactions can take several years to develop and can be severe and costly, will the Minister confirm that the Government will be providing the shortfall of cover in these circumstances? This will be a matter of prime public interest.

The UK has one of the strongest nuclear regulatory regimes in the world. Even as new reactor designs are developed, we can be confident that regulatory regimes will continue to maintain and improve all aspects of safety at nuclear installations. I am happy to approve the order before the Committee today.

My Lords, I am very grateful to noble Lords who have contributed to this debate and thank them for their general support. I reiterate that the United Kingdom has a very strong record both on nuclear safety and on protection in the event of a nuclear accident. I shall try to deal with the various points that have been raised by noble Lords.

First, I thank the noble Earl, Lord Kinnoull, for his comments and general support. I am most grateful for that. I reiterate that we have very strong performance in the London insurance markets—and, indeed, internationally, as this is not limited to just the United Kingdom—and he is right that the competitive element, not just in the UK but internationally, will help to ensure that standards are even better than before. On the noble Earl’s precise question on Article 37, I confess that I am not nearly as expert as him in these areas of the London closing exchange rate. I shall endeavour to find out and provide him with a more precise answer than the one I am now giving, but I would anticipate that either it is custom and practice that there is a particular exchange rate closure on a particular day or that there is a definition elsewhere that is cross-referred in the order. We are definitely checking that and the team will provide me with an answer. I shall write to the noble Earl and copy in the noble Lord, Lord Grantchester.

I thank the noble Lord, Lord Grantchester, very much for his typically kind and generous comments about signing the Paris agreement. It was indeed a great privilege to be there signing the agreement for the United Kingdom. I am conscious of the amount of hard work that has been done by many people, not just within the United Kingdom, but clearly within the United Kingdom cross-party—and, indeed, beyond party—that made all that possible, building on the success at Paris. The most challenging part of the whole ceremony was avoiding Zimbabwe—sitting straight behind us in the shape of Robert Mugabe. That apart, it was a very enjoyable and significant occasion.

The noble Lord asked whether the signing had a particular impact and when the agreement will come into place. It will come into place when 55 states have ratified, out of the 185 that concluded the agreement in Paris. I should say that 175 countries signed on day one, but they have to go through their internal ratification procedures, so it is 55 states representing 55% of emissions worldwide. As he and other noble Lords will know, the European Union made a joint statement on the position with regard to meeting the targets. Therefore, because the United Kingdom is part of the European Union, our position on ratification is that we will not ratify—and therefore the European Union will not ratify, because it depends on unanimity—until we have agreement on the effort share among the 28 member states. Work on that has begun.

The noble Lord referred to the coverage of the order. As he rightly said, it also covers Hinkley and is designed to cover potential new sites, as I think I said initially. He mentioned Chernobyl. Of course, there have been two major international nuclear incidents, of which Chernobyl was one; Fukushima was the other. The impact of Chernobyl, as he rightly said, was felt in north Wales—as I know—Cumbria and parts of Scotland. The increased protection that we have here will not help in that regard because Ukraine is not a party to this convention. We would be thrown back on to international law because Ukraine is not a party to the other major treaty either, the Vienna treaty, which has a less generous compensation regime.

The noble Lord asked why we are saying that it has to be something “significant” and therefore ruling out incidents that are “insignificant”. This is a fairly common legal practice—a de minimis situation to stop something that is so minor—to prevent vexatious litigation. I think that is the thinking behind it. He also asked whether this would allow claims by the likes of grocery shops, butchers and so on if there were a nuclear incident like Chernobyl in a member state of the convention. I think there would be an issue—I am treading very carefully because the noble Lord, Lord Faulks, is sitting close by—about the remoteness of damage and how far down the chain you can go in such a situation, but I will write to the noble Lord.

I may be able to help the noble Lord, in so far as I think that third-party traders may not be affected. I meant the produce from that area may be affected, even though it could not be said to be contaminated, because of a general ban on products from that area getting into the food supply chain.

I thank the noble Lord for that clarification. I think there are two issues in relation to that. One is indeed the remoteness: it would be a question of how far down the chain you could go in terms of liability. I did refer the noble Lord and other noble Lords to the fact that this new protection allows for the costs of preventive measures where there is a grave and imminent threat of nuclear damage and consequential compensation. I think that might cover it. The noble Lord raised a specific issue about Magnohard. I will write to him on that to give him a definitive answer.

I am grateful for noble Lords’ help and their broad acceptance and approval of the order. This is a more generous system. It is widely welcomed. It provides added protection and characterises our approach to nuclear energy.

Has the Minister had confirmation from the officials behind him that the Government will be picking up any gaps regarding personal injury claims being extended to 30 years?

I thank the noble Lord. I had written that down in my notes but I missed it. Yes, we will. I covered that in my introduction, I think. I said that we will fill that gap until the commercial market is able to take over. We will be making a commercial charge to cover that, but we will certainly fill that gap.

I commend the order to the Committee.

Motion agreed.