LIABILITY CAPS AND STATE REINSURANCE BACKSTOPS

Government can limit what a storage operator must pay for specified damage, or promise public money for specified losses that exceed agreed private cover. These are different choices. A liability cap sets the operator’s maximum legal bill; it leaves losses above that amount unpaid unless another funding route exists. A public reinsurance backstop instead supports the insurer or industry scheme after it has borne its agreed share, allowing it to continue offering protection against unusually large losses. This may be useful where a rare but severe storage incident creates potential costs that private insurers cannot credibly cover, preventing otherwise viable CDR contracts or investment. Government must show that this gap exists and define who is protected. Ordinary insurance belongs under Carbon Insurance Instruments; routine care of transferred sites belongs under Long-Term Stewardship Funds.

The law should explain the order of payment in money terms. For example, the operator may pay an initial amount, its insurer the next agreed share, and a public facility a specified layer above them. That illustration is a design choice, not a standard CDR arrangement. Rules must identify the covered event, claimant, attachment point where public payment starts, maximum public payment and treatment of losses beyond all limits. The operator should retain meaningful responsibility for prevention. Premiums and industry contributions need to reflect risk, and any extra charge imposed on other operators after an incident must be realistically collectible. Public commitments require fiscal authority, oversight, cross-border allocation where relevant and appropriate rights to recover money after negligence or misconduct.

A lender may refuse a project whose uninsured liability could exceed the company’s resources. A credible public commitment to pay a defined exceptional share can reduce that uncertainty, allowing an insurer to offer cover and the lender to assess the project’s remaining exposure. Insurance for the initial losses can remain private, with companies and insurers still carrying enough risk to encourage prevention. An industry pool can spread part of the burden across firms, while government covers only an agreed further share. These arrangements can preserve access to insurance when commercial capacity contracts. As evidence improves and private insurers accept more exposure, government can reduce or reprice future support. The benefit depends on an enforceable payment promise and evidence that it addresses a real coverage gap.

A cap can leave victims uncompensated if no other party is required and able to cover the remaining loss. Public protection shifts covered losses to taxpayers even when no payment has yet been needed. If premiums are too low or operators retain too little responsibility, the arrangement can reward poor site selection and weaken prevention. A common event may also exhaust both private insurance and the ability of other operators to contribute. Government should therefore test severe combined losses, preserve appropriate recovery rights and make potential public payments visible before committing to cover.

The responsible authority should compare available private insurance and industry resources with severe-loss scenarios, expected annual payments and the state's maximum legal commitment. Reviews should examine premiums, incidents that nearly caused a loss, claims handling and any compensation left unpaid. Evidence that commercial insurers can reliably absorb more risk can justify raising the threshold for public cover or reducing the state's share, with notice that protects existing contracts from abrupt withdrawal.

Treasury and legislators should determine the maximum public commitment and its funding. Storage regulators assess preventable risks; insurers and operators propose the cover and industry contributions they can provide. Potential claimants and host communities should examine liability limits and payment rights. Independent financial-risk specialists should test the assumptions, including whether firms could pay additional contributions after a major event.

National governments and states with appropriate legislative and fiscal powers can establish caps and public backstops. A supranational institution could operate a common facility only with an explicit guarantee mandate and resources; harmonisation alone is a narrower contribution. Private insurers may administer layers but cannot commit taxpayers, and local authorities ordinarily lack the fiscal and liability powers for a sector-wide backstop.