Nothing in this proposal, of course, could prevent states from enriching their own uranium. The goal of the fund, however, would be to dramatically reduce the incentive for countries to do so, and thus keep the enrichment capability limited to a small number of countries that can be more easily monitored. The fund could assure the full nuclear fuel cycle against political interruptions and other risks, such as natural disasters. Essentially a form of business interruption insurance, the fund would offer countries a cheaper, more attractive alternative to the significant technological and capital-intensive investments involved in enriching uranium on their own. Rising fuel demand and lagging supply, which are expected to keep uranium prices high and markets tight, will become additional incentives for countries to join the fuel insurance fund.
Key members of the nonproliferation community have endorsed this concept. Graham Allison, former assistant secretary of defense and author of Nuclear Terrorism: The Ultimate Preventable Catastrophe, has said it “presents an innovative way to assure countries of their fuel supplies, thereby removing one of the reasons for countries to establish their own, costly enrichment facilities.... Starting in the nuclear arena, the concept could lead to a breakthrough in how countries approach overall fuel security.” Former Senator Sam Nunn, cochairman of the Nuclear Threat Initiative (NTI), recommended to the U.S. House Foreign Affairs Committee in May 2007 that it give serious consideration to this proposal, because strengthening the international marketplace for fuel supplies is very much a part of the solution to fuel assurance. Finally, Joe Cirincione, director for nuclear policy at the Center for American Progress and author of Bomb Scare: The History and Future of Nuclear Weapons, says simply, “It’s a great idea…. This is certainly worth trying and could well be part of the solution.”
Indeed, the idea is starting to gain traction. The London-based Commonwealth Disaster Management Agency (CDMA) is interested in launching a working group on the concept of nuclear fuel continuity comprising experts in finance, insurance, nuclear power, and international law. Jack Taylor, advisor to CDMA and the proposed cochair of the working group, hopes to make progress toward having “a mutual insurance fund in some form up and running in 2008.” Gerald Doucet, secretary general of the World Energy Council, commends the effort and states that “governments need to explore innovative ways to work with private-industry partners.”
What’s clear is that the financial and insurance communities are interested in working with governments to provide fuel supply coverage. “We are not able to cover such exposures alone,” says Sebastiaan Reitsma, manager of nuclear risks for SwissRe. However, he adds, “we are prepared to consider covers granted in cooperation with governments.”
If this concept of insurance for assuring security is such a good idea, why isn’t the market already doing it? It is likely because there is no logical individual player to lead the effort, especially given the up-front costs in time and consultative fees to further this program. Certain players — the insurers, the nuclear utilities, and states — must band together to form a sufficient critical mass to make the proposal work. Private markets will not take this forward without the involvement of states and international organizations, states need to provide new contractual approvals for exports, state subsidies may be needed to attractively price the product, and states must provide the ultimate backstopping to the insurance mechanism. But it is the private insurers that will ultimately provide an efficient and profitable mechanism to decrease the cost and risk of supply disruptions.
What’s needed at this early stage most of all is leadership. At a recent IAEA meeting in Vienna, for instance, investor Warren Buffett pledged US$50 million via the NTI to the IAEA to help create a low-enriched uranium stockpile. Even though the plan required the IAEA to obtain matching funds of $100 million and would ensure a supply of less than 1 percent of the enriched uranium used globally each year, it was, nevertheless, just the kind of bold, public gesture by a high-profile individual that can make a difference. Other insurance and business leaders could similarly join leaders at the U.S. Department of Energy or other government agencies to raise the profile of the nuclear fuel insurance fund. With the right people gathered around a table, and a strong commitment to succeed, in a few years’ time the nuclear insurance fund could become — like the Price-Anderson Act, which governs liabilities in U.S. nuclear facilities, and the Terrorism Risk Insurance Act, which created a federal backstop for insurance claims related to terrorism — another example of a public–private initiative that both engages the engines of business enterprise and serves the common good. The challenge, but also the beauty, of that solution is that it would address the security of not just one country, but many clearly interdependent nations.