Tuesday, March 29, 2011

Fukushima Nuclear Power Plant Owner May Avoid All Liability for Nuclear Accident

Despite extremely questionable design engineering that saved Tokyo Power and Electric many millions of dollars, but ignored the threat of a major tsunami, the company may not be liable for any damages resulting from its Fukuskima Daiichii nuclear power plant disaster.

According to Paul J. Scalise, a former financial analyst, who is writing a book on Japan’s electric power system, under Japanese law governing compensation for nuclear damage, companies are liable for the cost of all nuclear accidents resulting from reactor operations except when the accidents are provoked by a “grave natural disaster of an exceptional nature or by an insurrection.” The company might plausibly seek to avoid liability altogether within that definition, he said, according to NYT.

So the question becomes one of whether the tsunami provoked the accident or whether design shortcuts resulted in the accident, because the tsunami should have been anticipated.

Beyond that, it appears that the Japanese government may step into the picture, in any case, in a manner similar to the way the United States government stepped in to bailout elite banks during the height of the financial crisis.

In both cases, the bailout of U.S. banks and a potential bailout, of some sort, of TEPCO by Japanese authorities, the result is severe moral hazard which is created when major corporations are again protected from the risk of their actions.

In the case of the nuclear energy industry in Japan, financiers of such nuclear energy will not be concerned about the accident risk when lending to such entities since the government will protect them against  such loss.

I have already commented on my suspicions that some form of TBTF thinking was developing in the Japanese government:
Government protection of the corporate elite has reached a new level of absurdity in Japan.

Japan's top lenders, including Sumitomo Mitsui Financial Group , are in talks to provide up to 2 trillion yen ($24.7 billion) in emergency loans to Tokyo Electric Power to help the operator of the damaged Fukushima nuclear power plant.

One has to think that the Japanese central bank and the Japanese government are behind this, by letting the bankers know they are protected against down side risk.
Eliminating TBTF thinking in the nuclear industry will certainly result in banks and other financial institutions taking a much closer look at accident risk, then if they know government is standing nearby to absorb losses.

Shareholders and bankers should suffer the losses from their investments. It will cause them to pay much closer attention in the future to the types of projects they are financing and thus cause much higher construction standards before financing can be achieved.


  1. Ah! The wonders of the corporate legal form!

  2. I'm going to hold you liable for a 9.0 earthquake. How's that sound?

  3. I think you should...if I decide to build a nuclear energy plant.

  4. "the company may not be liable for any damages resulting from its Fukuskima Daiichii nuclear power plant disaster",... tell that to the locals who glow in the dark.

  5. Nuclear power would not likely exist in a free market - the cost to insure against a disaster would be too great for any business to bear without the backing of the taxpayer.
    Read about the Price–Anderson Nuclear Industries Indemnity Act:

  6. I live in central Japan, just outside the area where radiation has increased by a small margin. But still I have to live in the constant fear that my children might eat food containing levels of unacceptable radioactivity. I can try to buy local ... but eating out now has all new meaning, because I have no way of knowing where the restaurant procured its food -- or for that matter how about bread made in Tokyo? My children by law have to go to state run schools, and eat lunch there. These lunches are often cheaply done -- will they be safe? Heck, if people don't want to buy some of the tainted, but government approved "safe" food, why not have the government buy it and feed it to the children?

    This all presumes things don't get worse.

    Will I get any compensation for this? Will my children? While maybe nuclear power can be made to work, it's an issue where you simply can't get it wrong. You have to get it right, because if you get it wrong, you leave a mess that could literally last for centuries.

    Putting this aside, what are the two main reasons why people are asked to support nuclear power?

    1. Because it lets off less greenhouse gases.
    2. Because it allows for energy independence (for the nation.)

    In other words:
    1. [Insert hysterical screaming] the globe is warming, the globe is warming!
    2. We must make our nation strong.

    You end up with these massive nuclear reactors stacked up side by side, subsidized and *encouraged* by the government, left to the company to manage. They keep the profits, but the government eats the losses ... shoddy security prevails, because government takes responsibility, then the company brides bureaucrats to ease the standards.

    Energy policy and Keynesian economics are very similar. They are both short sided, guided by national interest (as opposed to individual interest), and have grave long term consequences.

    Quite frankly, to hell with energy *policy* … and guess what, we probably never needed nuclear power to begin with, so blame it on the government!