Liability caps

2010-07-08

in Economics, Law, Politics, Rants, The environment

Often, states choose to cap the liabilities of companies operating dangerous facilities like oil rigs or nuclear power stations. They recognize that companies are hesitant to build or own such things, as long as they might be called upon to pay the full cost associated with any accidents.

Of course, providing these caps is a deeply anti-market thing to do. There are very good reasons to worry about oil spills and nuclear disasters, and heavy costs are borne by many people when they occur. Those risks should be foremost in the minds of people who choose to invest in these facilities.

When governments grant companies ‘protection’ against massive claims in the event of disasters, they are saying that building these facilities is so important that it should be done even if there may ultimately be serious uncompensated harm imposed on the general public. This takes the illusory profits associated with environmentally harmful economic activities to a new level, by saying that even in cases where companies can be proven to have directly caused harm to third parties, in the pursuit of their own profits, those profits will be protected by the wealth and authority of the states.

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{ 4 comments… read them below or add one }

R.K. July 8, 2010 at 8:42 am

There is one major counterargument to this, in that liability caps might help encourage a more efficient amount of technological development and deployment.

Firms are hesitant to invest heavily in facilities based on new technologies, especially when there are large potential liabilities associated. Insofar as the deployment of such technologies is ultimately beneficial, the liability caps may be justified as a way of reducing one externality.

Tristan July 11, 2010 at 1:37 pm

I’m glad that you are angry about liability caps. I wonder, however, to what extent the progress attributed to capitalist growth in the late 19th and 20th centuries would have been possible without some for of externalizing liability onto the public purse. The whole idea of a corporation (share capital) is to limit the liability of investors so they can potentially benefit from profit without being exposed to all the potential risks.

When people claim to be “anti capitalist”, I think this is one of the structural inequities which they are opposed to.

Milan July 12, 2010 at 9:30 am

Trying to get capitalist governments and firms to live up to the rules and ideals of lawful capitalism is not anti-capitalist. It’s just anti-hypocrisy.

. March 30, 2011 at 7:59 am

Liability cap on Canada’s nuclear plants ‘outdated’ Plant operators would have to pay only $75-million in a nuclear disaster, a figure even the industry thinks is too low

JEFF GRAY

LAW REPORTER

Canadian nuclear plant operators would have to pay no more than $75-million in liability claims if a nuclear disaster like that unfolding in Japan were to occur in Canada. Nuclear critics say that’s a tiny fraction of the billions in health and damage claims that could result, and even Canada’s nuclear industry thinks it is too low. But a 1970s-era law, still on the books, caps the operators’ civil liability.

Such caps are common for the nuclear business around the world, but Canada’s stands out as particularly inadequate. A government bill that would have increased the limit to $650-million died on the order paper last week with the defeat of the Conservative government.

Nuclear critics around the world have long attacked the caps as hidden subsidies designed to limit potentially crippling costs for nuclear operators. Now, with all eyes on Japan, those caps could be getting a second look.

Tokyo Electric Power Co., which operates the troubled Fukushima Daiichi plant, faces tens of billions of dollars in liability claims from those who lived inside the 20-kilometre exclusion zone.

The claims could be so large that the government may have to nationalize the company, Japanese politicians and analysts say.

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