An Economic Analysis of the French Nuclear Liability Subsidy

While nuclear energy is coming back on stage, reconsidering its role in future energy policies must lead to a renewal of the question of the nuclear risk management. Indeed, given the uncertainties involved and the general public’s high aversion towards the nuclear risk, a minimization of the risk is first required through draconian safety rules. These procedures aim at avoiding, as far as possible, nuclear accidents ex ante. Thus, nuclear risk management is primarily concerned with the tools which provide incentives to nuclear operators to internalize their risk costs in order to maximise prevention. In addition, the international regime also addresses the need to provide compensation to victims in case of accidents ex post. The obligation to provide compensation to victims is also important in the light of this need to internalize the risk costs. This point is crucial, especially while some countries are reconsidering the role of nuclear energy even in cases where nuclear energy was formally phasing out. From an economic perspective, nuclear operators have to be exposed to the full risk costs they are generating. This means that efficient internalization and compensation mechanisms to cover these risks have to be designed. In addition to the safety regulation, compensation is addressed via civil liability rules and (partially) via the insurance market. The implicit market rule for an operator who creates a risky activity, consists for him in assuming all the risks he generates through the internalization of the resulting costs. This rule of thumb sounds quite intuitive, however, nuclear operators unexpectedly do not seem to follow it. Indeed, since the development of nuclear energy in the late 1950s, nuclear operators have benefited from a quite favourable liability regime and have always benefited from a strong political support and from an important subsidy relative to their limited civil liability. In this paper, we will rely on the French case. We aim at first providing an estimate of the amount of the French nuclear operator’s subsidy. Secondly, we will analyse the implications of the current legal regime in terms of incentives, compensation, efficiency, that is, in terms of internalization of the risk costs.