Idea: Oil spills, pipelines and negative externalities: insurance as a solution

I just posted on how we can use mandatory insurance on public works projects to guarantee the quality of the work. I’d like to briefly expand this idea to all major projects that have the potential to cause a large amount of public harm: oil platforms or tankers (think of the BP Deepwater Horizon disaster), oil pipelines (think of the Enbridge spill in Michigan or the planned TransCanada and Enbridge pipelines from Alberta), nuclear power plants (think of Fukushima), and probably a host of others I haven’t considered yet.

The basic idea is to only grant permits for construction and operation when the operating company has purchased insurance from a stable, major, independent firm. In the event of a disaster, the insurance company would be forced to pay out damages for all costs relating to the disaster, with a relatively low threshold of proof. These damages would include contributions to government coffers for hard-to-quantify but nonetheless real harm, such as destruction of coral reefs, indirect economic effects, and so forth.