Proposal for global nuclear fuel insurance fund

Friday, 25 January 2008

The World Economic Forum (WEF) has published the Global Risks Report 2008, which highlights the need for new thinking and concerted action on a number of global issues, including energy supply. An international "nuclear fuel insurance fund" is one suggestion.

 

Global Risks 2008, published in cooperation with Citigroup, Marsh & McLennan Companies, Swiss Re, the Wharton School Risk Centre and Zurich Financial Services, highlights key areas of risk that will be a focus of discussions by business leaders and public policy-makers at the World Economic Forum Annual Meeting which is currently taking place in Davos, Switzerland. The report is based on input from a network of more than 100 top business leaders, decision-makers, scientists and other leading academics convened throughout 2007 as part of the World Economic Forum's Global Risk Network.

 

The report focuses on four emerging issues which will impact the world economy and society in the decade ahead: systemic financial risk; food security; supply chain vulnerability; and energy.

 

Global Risks 2008 says that the availability of energy resources is key to the global economy, but guaranteeing a safe, secure and sustainable supply - and doing so in line with global commitments to reduce greenhouse gas emissions - is increasingly problematic. With the dollar price of oil at record highs, the report recommends an improved approach to securing viable energy supplies in the years ahead. According to the report, "the incentives in place to reform the global energy economy in a way which reduces global risk holistically are not in place."

 

The report notes that "concerns over climate change and long-term energy security have put nuclear power firmly back on the 2007-2008 global agenda. As a non-carbon-based energy source with a much-improved safety record since Three Mile Island and Chernobyl, nuclear technology has a number of attractions in an era of uncertainty."

 

The WEF suggests that some countries considering introducing nuclear energy as part of their energy mix (including Turkey, Vietnam and Egypt) may be deterred due to concerns about access to enriched uranium. It says that such countries fear being "blocked in the future by the six states which currently produce enriched uranium on a commercial basis: France, Germany, the Netherlands, Russia, the United Kingdom and the USA." To avoid this, they may decide to start their own uranium enrichment programms, which would raise proliferation concerns.

 

The report suggests that one solution could be to develop an international "nuclear fuel insurance fund". It says, "Turning the risk of the spread of nuclear technologies into an opportunity to create a sustainable framework for the production of safe, clean and secure electrical power should be a major objective of global policy." The report adds, "The innovative use of financial markets may offer a way to achieve it."

 

The WEF says that a "truly innovative concept", known as "insure to assure", has been proposed by a joint team from the Wharton Business School and Harvard's Kennedy School. The proposal - complementary to the efforts of the International Atomic Energy Agency (IAEA) and others - imagines a partnership between financial industries and governments to create the world's first international nuclear fuel insurance fund.

 

Under the concept, premiums collected from all member countries would be deposited in a mutual insurance company (MIC) which, in turn, would use some of the money to build a cash reserve and to purchase supply options. Residual funds would go to a consortium of insurers and reinsurers that would provide layered financial protection to all participating countries.

The IAEA member governments would serve as a financial backstop for the consortium. In the event of a fuel disruption, the MIC would exercise its options and work with fuel suppliers, energy producers and transporters to arrange timely fuel delivery or alternative electricity purchases off the energy grid (if available). The insurance consortium would compensate member countries and others involved in replacing fuel for any loss of efficiency as previously contractually agreed.

The report says that the concept is based on "a key principle of mitigating global risks: while everyone is looking to ensure energy security through energy independence, the 'insure to assure' concept might help improve energy security by creating a clear framework for 'energy interdependence'."

 

According to the WEF, "the proposal is now being studied by different stakeholders" It says that the proposal "would bring together two worlds that rarely talk to one another: the worlds of international security and international finance." The report states that the proposal currently only deals with nuclear fuel supplies, but says that there is "no reason why a larger mutual insurance company could not help turn wider global energy interdependence from a source of perceived vulnerability to a source of systemic coherence and security."