The nuclear option

Over the fold, my piece on nuclear power in today’s Fin – published version was edited a bit.

The government’s inquiry into nuclear power has yet to hold hearings and take evidence, let alone produce a report. But its most important work has probably already been done. The announcement of the inquiry and the debate leading up to it has finally brought political reality in the debate over nuclear power and climate change into line with economic and scientific reality.

The only thing we know, with any reasonable degree of certainty, about the economics of nuclear power is that, at current prices, nuclear power is not competitive with generation based on burning carbon-based fuels like gas and coal. The most convincing evidence on this point is derived, not from engineering studies, but from simple observation. Even with a favourable regulatory environment like that of the United States, no new nuclear power plant has been commissioned for several decades (though some proposals have been announced recently). Nuclear power is growing only where it has some form of government backing.

If nuclear power is uneconomic at current prices, and is to be considered as a way of mitigating global warming, the economic policy problem has a simple answer. Put a price on carbon dioxide emissions either through a carbon tax or through requiring emitters to hold tradeable permits, and let the market find the most cost-effective solution. If the price of emissions rises enough, and no other solutions are more cost-effective, nuclear power will become competitive.

The fact that an answer is obvious does not mean that it will be reached. In this case, however, two members of the committee appointed by the government (economist Warwick McKibbin and George Dracoulis ) have already stated that some form of carbon price is needed. In a sense, their most important work has been done.

There are, of course, plenty of secondary issues to be addressed. We don’t know, for example, what price would be required for firms to invest in nuclear power, and we have no good way of accounting for costs of decommissioning and waste storage. We also lack good evidence on how much demand for electricity would decline in response to a permanent increase in the cost of CO2 emissions, and therefore of electricity.

However, there is no need to determine the answers to these questions in advance. What is necessary is a commitment to increase the cost of CO2 emissions over time, either directly through a carbon tax or indirectly, by issuing emissions permits in quantities that decline gradually over time, allowing emissions to reduce gradually over time.

The market will do the rest, with the assistance of some appropriately designed policies to meet gaps in research, for example in relation to clean coal technologies. The result may be a shift to nuclear power, development of alternative energy sources or improvements in conservation and energy efficiency. The important point is that in broaching the question of nuclear power, Howard has opened up the central policy issues that have, until now, been off the table.

Equally importantly, in restarting the debate on nuclear power, Howard took as starting points the fact that the global climate is warming, and the inference, supported by many converging strands of evidence, that this warming is primarily due to human activity. The massive body of evidence supporting these conclusions is too large for any single person to manage, but the International Panel on Climate Change provides readable (though still lengthy) summaries of the work of thousands of scientists on this topic.

Of course, the government’s official position, as stated by successive Ministers for the Environment, has long included acceptance of the standard scientific view. However, this acceptance has been undermined by the fact that many of the government’s closest political supporters have vigorously denied the science of global warming, with sotto voce support from senior Ministers.

This campaign has been ludicrous at times, with the vast body of peer-reviewed research on climate science being matched against the writings of such authorities as science fiction writer Michael Crichton and astrologer Theodor Landscheidt (whose work has been promoted by Australia’s Lavoisier Institute). Reliance on such dubious authorities reflects the fact that only a handful of qualified scientists support the denialist position, and most of these have obvious financial or ideological conflicts of interest.

Cimate science denialism has been politically useful to the government, bolstering its anti-Kyoto position, even if its arguments have been implausible and its advocates have been kept at arms length. But its usefulness is now passed, and the problem is to develop a policy framework for mitigating climate change at minimum economic cost.

33 thoughts on “The nuclear option

  1. Does anyone have the comparative costings for electricity derived from natural gas. For instance if we used the gas being sold to China and potentially USA would there be any cost or environmental benefits?

  2. JQ – good article. However there will not be a ‘debate’ on nuclear power at all. This Government has decided it wants nuclear power so there will be the appearence of a debate and we will get nuclear power whether it is economic or not. JH wants to be a big boy at the world nuclear table and cannot do it while he does not have any nuclear industry.

    This is not about economics where logic prevails sometimes it is about politics and power where logic is on a permenant holiday.

  3. JQ: “However, there is no need to determine the answers to these questions in advance.”

    I believe that an economic analysis of nuclear power has to provide answer to all questions. Otherwise the market will find the cheapest solution, not the socially optimal one. For instance, in the case of waste disposal, nobody knows exactly the long term environmental effects and the social costs of nuclear waste disposal. Many studies refer either to technologies that have never been tested (http://www.nuclearinfo.net/Nuclearpower/TheRisksOfNuclearPower), or simply skip the topic. (see http://www.countryguardian.net/generation_costs_report.pdf). Only if we have knowledge of the costs and benefits of each disposal option, decision makers can set proper guidelines and waste treatment standards. And only if we have done a proper cost-benefit analysis of waste disposal alternatives, it is possible to determine if nuclear power is economical or not.

  4. Let me be the first to pre-emptively say:

    Is that all that you bearded chai-latte basket weaving tax lobby sorts can think of? MORE TAXES??? Oh woe, woe, woe, we need a libertarian approach whereby we can all volunteer to reduce our emissions, that’s the moral approach.

    *snort*

  5. Reasons for a nuke debate:

    #1: attempt to split the labor party
    #2: short circuit the global warming debate, on which the Govt is extremely weak
    #3: try and get political traction for more mines and enrichment – a bigger local nuclear industry
    #4: try and get political traction for a nuclear waste dump
    #5: provides the option – if it is needed which it probably isnt – for a less embarassing entry into discussion of a carbon price.
    #6: distract everyone from other issues (its certainly generating a lot of discussion and wasting a lot of brain power isnt it?)

  6. Steve, don’t forget we’d buy the reactors, if ever built, from our greatest friend and ally, and I suspect we’d make some US Senators very happy.

  7. “The important point is that in broaching the question of nuclear power, Howard has opened up the central policy issues that have, until now, been off the table.”

    And don’t they wish they hadn’t – thus the focus on nuclear and nuclear alone, presumably (oh, and the well-resourced and infinitely patient nuclear lobby might have something to do with it).

  8. Steve – “#2: short circuit the global warming debate, on which the Govt is extremely weak”

    Not according to the Minister for Coal and Uranium Mining – Ian Campbell. He reckons Australia is a world leader!!!

    Read this in the SMH yesterday.
    http://www.smh.com.au/news/opinion/australia-leads-world-on-climate-change/2006/07/05/1151779009342.html

    “THE latest offering from the Climate Institute – The Top Ten Tipping Points on Climate Change – identifies what it considers to be the 10 key factors mobilising global climate change action.

    I agree with many of the institute’s points – the science of climate change is firming, there is significant movement in the international policy arena, new global energy security imperatives are emerging, and the community is more aware of the issue (“Rest of the world awake to climate change but we’re in denial”, July 5).

    But on the critical question – will Australia be left behind? – the institute has ignored key facts and this has led it to wrong conclusions. So here are 10 key points to show how Australia is in the driving seat in dealing with the global issue of climate change……”

    What a crock. My response is this:
    http://stevegloor.typepad.com/sgloor/2006/07/australia_leads.html

  9. So, no mention of conservation, regulation or subsidy of renewables. A price rise (which will fall most heavily on households) is the magic bullet. No discussion of the transition to a sustainable energy economy, the costs this will entail, and who will bear them. No discussion of the need for cost-benefit analyses of the different types of renewables versus fossil – which could lead to the retention of some fossil generation indefinitely, for some purposes, and which will be very much needed to direct investment. No discussion of the need for a national energy strategy, involving study of planning, R&D and regulation requirements at the least.

    Just a price rise. Wow.

  10. Even assuming nukes are inevitable there are many imponderables. Major CO2 cuts at the level of the plant would require several new nukes + several coal stations retired. I think one or two new nukes + coal as usual is more politically likely. Even if we implement carbon-trading-lite then nuclear will still need capital grants and indemnities. Ditto clean coal such as the Monash project which I think will suck up a lot of tax money before it starts to look like a permanent loser. Also the timing; nuke decision 2010 vs turning on the switch 2017. The climatic and political landscape will have changed vastly in that time eg US a spent force, $3/L petrol, recurring agricultural failures. It will play out either as a farce or a tragedy.

  11. Gordon, you could do it that way, with a central planning approach.

    Or you could raise the make the thing you want people to stop doing – emitting greenhouse gases – more expensive, and they’ll respond appropriately. They might end up using less energy, they may end up switching to non-emitting sources. The point is that the market has demonstrated its ability to manage this cheaply and efficiently in the case of sulphur dioxide emissions in the United States.

    Why won’t this work this time around?

    And you give Prof. Q no credit, when on any number of occasions on this blog he has argued for demand reduction as probably the cheapest way of solving environmental problems.

  12. Yawn…

    Another day another tax on households from the Central planning directorate..

  13. Apollo:

    Yawn…

    Another day, another knee-jerk rhetorical response from pseudo-libertarian, anti-government, no-tax, No Planning Undirected.

  14. Well, Robert Merkel, because trading systems like the SO2 system in the US are vulnerable to manipulation, because governments are not likely to set sufficiently severe caps and because they don’t address the extensive subsidies paid to fossil-based power generation.

    The SO2 system in the US was extensively rorted by Enron, which used it to set up a futures market in emissions allocations. Enron itself was a large purchaser of longer-term SO2 emissions allowances, allowances which could be purched six years in advance.

    We have seen in the EU that governments are reluctant to set severe caps on CO2 emissions targets – hence the recent price collapse of CO2 credits.

    An $6.5b. estimate of subsidies to the production of use of fossil fuels in Australia is here.

  15. I agree with the thrust of JQ’s position, but do worry a little about the loop-holes that may be instituted to bias the market in favour of the government’s preferred positions.

    For example, if nuclear really could cover all its costs for a price lower than a suite of renewables I would be amazed, but happy to go that way. However, pricing in the risk of proliferation is almost impossible, and while pricing in the cost of waste storage and decommissioning should not be that hard, we’ve seen plenty of governments globally subsdise nuclear on those points, thus making it cheaper than the alternatives.

    The more interesting question is why has Howard opened up this debate if the logic leads to the one thing he opposes more than any other – making the coal industry pay for its mess? I can only conclude that he is hoping that out of opposition to nuclear people will oppose a tax on coal which might make it competitive. Opponents of both nuclear and coal need to hold the line in the secure knowledge that if coal is taxed the major beneficiary (at least in Australia’s sunny land) will be renewables, not nukes.

  16. Gordon, your response got caught by the spam filter for no obvious reason.

    On your response, all policies are subject to manipulation – the US regulations on fuel economy introduced in the 1970s were rendered ineffectual or even counterproductive because of the exemption of SUVs, and pollution regulation of power companies has been evaded by the expansion of ‘grandfathered’ sources that were expected to be phased out.

    If I had hadm ore than 750 words available I would have written more about policies other than getting prices right, and as Robert Merkel points out, I have done so in the past.

    Still, I think I’m missing something. This and other comments from you seem to imply some sort of ideological purity test regarding the choice of policy instruments but I can’t work out what it is. In your last sentence, for example, you (rightly) object to subsidising coal, but you also get upset when i suggest taxing coal (or, more precisely the CO2 produced by burning it).

  17. Not “ideological purity�, Prof. Quiggin, but underlying desires to (1) create a CO2-reduction regime which is least susceptible to rorting, and (2) avoid inequity in the payment of the costs entailed in significant changes to energy production and use.

    With these in mind, I worry about a system based on the US system for controlling SO2 because apparently it has been rorted. What other systems are there? There is a straightforward regulatory approach, perhaps like the EU phased reductions on production of CFCs and bans on their sale. Or we could look at the US system of CFC reduction which (so far as I know) incorporates trading permits but also relies on EPA monitoring of every trade. I have not heard of a speculative market in CFC permits. I think both these systems incorporate comprehensive monitoring and penalties for noncompliance, ie a hefty dose of government regulation.

    I used to support a carbon tax. Then I began to think that such a tax would simply fall on households, because it doesn’t necessarily imply removal of existing subsidies – producers of CO2 like power stations pay the tax with one hand and get it back via subsidy in the other hand. They would act as tax collectors for State governments, who would trouser the tax money and look virtuous because they would be “fighting global warming�. Without separate arrangements for assisting householders to reduce energy consumption (which might include design regulation of appliances, cars and houses, improved public transport, assistance in substituting renewables like solar hot water and photovoltaic electricity) the net result is just a tax, without much if any net effect on CO2 production, and a very inequitable one at that.

    It would be interesting to try the different effects, before a business and State government audience, of advocating (1) a carbon tax or (2) removal of existing subsidies. Though these concepts are very closely related in economic theory, I suspect the reactions obtained would be very different.

    Your statement “all policies are subject to manipulation� doesn’t excuse us from trying to find the least vulnerable system, or from being alert to close loopholes and punish offenders.

  18. Gordon, I think the concerns you raise are serious, and I’ve discussed such things at length in the past. As I’ve written in my academic work on this topic market-based instruments do not ‘get the state out of the way’; they raise important issues of metagovernance, including compliance, enforcement and other forms of regulation.

    Still, without the right prices, all these tasks are much harder. And particularly in the context of the AFR audience, it’s important to stress the market-based aspect of the process.

    I wouldn’t claim that the SO2 emissions market has been perfect, but it’s generally regarded as highly successful, particularly when compared to purely constraint-based regulations, such as the ones I mentioned. And the CFC system seems to have gone exceptionally well.

    Finally, I don’t see carbon taxes as inequitable when you compare them to the taxes for which they would most likely substitute, such as general consumption taxes or payroll taxes. (I’d favor raising total tax revenue, but this is an issue that needs to be addressed and debated separately. If we’re going to avoid the moans of people like Apollo and econwit we need to make it clear that carbon tax revenue would be used to reduce other taxes).

  19. Prof. Quiggin, I don’t get your response. How can the SO2 control regime in the US be “regarded as highly successful� if it has been rorted by Enron? Was the world really flat until people worked out that it wasn’t? Or do you have information that the system is really better than I think it is?

    If “the CFC system seems to have worked exceptionally well�, does that mean it’s too good to be emulated?

    As far as “purely constraint-based regulations” are concerned, I think you have a blind spot. We need regulation for clean water, getting rid of asbestos, reducing CFCs, motor car engine emissions, measuring environmental impact, and heaps of other environmental issues. If regulations are sometimes evaded, price-based mechanisms are sometimes rorted. I’m sure you know this at bottom, but constant interaction with economists seems to be dulling your awareness.

    And as for the need to caress the prejudices of the AFR audience, words fail me.

    But I take heart from your assumption that a carbon tax will substitute for the GST and payroll taxes. If that is true, and if the proceeds will be used to provide the kinds of support for householders which I mentioned in my previous comment, then maybe I could support a carbon tax again. If.

    We obviously need to work harder to develop a CO2 reduction plan which incorporates price, regulation, conservation and equity. In fact, we need to realise that we need a plan, not just an inquiry into nuclear energy.

  20. And economists can make a contribution to The Plan. We obviously need a detailed review of price-based control schemes, incorporating all the ones mentioned so far and others which may exist. Should be worth a research grant.

  21. Maybe this has all been said here already, but one of the most important defects when nuclear-generated electricity is compared other processes is the fact that the eventual decommissioning of power staions is not factored in – it is generally assumed the government, ie the taxpayer, not the power consumer, will foot that bill. In Britain, figures of up to $175 billion have been mentioned recently, in the AFR, as the cost of decomissioning several out-of-date power stations. And in Japan, the only plant that is being de-commissioned (out of 55), at Tokai, north of Tokyo, will take seventeen years to complete.

    The pro-nuclear consensus has been created in Japan by the huge regional power utilities, and the power station builders, who have constructed ‘genpatsu’, as they call them, on a more or less cost-plus basis. Electricity generated by Japan’s nuclear industry costs more than any other kind in the world. And that’s without counting what the government spends on remote community infrastructure to persuade the prefectures to accept them (they are all miles from anywhere on the seaside in places where schools and sewerage systems were run down).

    Nuclear power has been promoted in Japan as a ‘priority strategy’ since the early 1970s, and always justified in terms of the nation’s bad luck. Nuclear power will provide Japan with ‘energy security’ and this has always been explained to people with the phrase that the country was ‘not blessed by the gods’ when energy resources were allocated in primeval times. That security is further enhanced by the creation, in Fast Breeder Reactors, of plutonium fuel which can be ‘burned’ in power stations as Japan’s first source of ‘indigenous’ fuel.

    And to those who think we will get nuclear power stations in Australia regardless of the current enquiry – they may be a red herring. Mr Howard might be more interested in uranium enrichment (and maybe even waste storage – although he says he is not) – because these operations are profitable, and would put Australia further up the international pecking order at the IAEA as a serious ‘nuclear power’ and consolidate our newfound importance to Washington.

    Who knows, it may be weapons this government has in mind, not electricity at all. Japan’s slow drift towards the same end is certainly a worry to her neighbours – there is currently a 40 ton stockpile of spent fuel plutonium and more to come from a reprocessing plant which comes into operation next year. So promises from the government thatall this plutonium will be ‘recycled’ as fuel in existing plants is regarded with much sceptiicism – especially by China, South Korea – and of course North Korea which goes some way to explain its current rogue behaviour.

  22. Hi John,

    Aggghhh! Lunchtime is over. But coming soon to “Random Thoughts” (my world-famous and universally acclaimed blog):

    “How I’d Solve the World’s Energy Problems…(If Only I Had $10 Billion).”

    http://markbahner.typepad.com

    Hint: Think techology prizes for:

    1) Non-tokamak fusion,

    2) Photovoltaics, and

    3) Methane hydrates.

    See my comments on Roger Pielke Jr.’s “Prometheus,” on

    July 10., 10:57 AM and

    July 11, at night.

    Now, if only Bill Gates will give me $10 billion. (Instead of wasting it on a bunch of diseases, and frivolous things like education.) 😉

  23. Mark – “3) Methane hydrates.”

    NO NO – I would rather have nuclear power. You do not want to be fooling with these. http://en.wikipedia.org/wiki/Paleocene-Eocene_Thermal_Maximum

    If I had 10 billion dollars and a couple of polititians.
    1. Energy conservation – cut demand in half
    2. Replace transport with electric and plug in hybrids
    3. Massively expand renewables (75%) – solarPV, solar thermal, wind, wave, tidal,biomass in a distributed smart electricity grid.
    4. Replace all thermal coal with IGCC for baseload

    No need for nuclear power or the methane hydrates.

  24. Ender, you forgot geothermal. We need a catchy acronym or rhyme or something so that people can remember all the different types of renewables.

  25. Ender –

    Methane hydrates: “NO NO – I would rather have nuclear power. You do not want to be fooling with these.”

    There are two reasons for “Yes, yes,” on methane hydrates. 1) Total deposits are estimated to be as much as 400 *million* trillion cubic feet of natural gas…that’s 1 MILLION years of supplying *100 percent* of total human usage of energy at current levels, 2) Natural gas is a fuel that can be used for transportation, residential, and central power plant energy. Fuel cells can run on it (when the carbon atom is stripped off). Particulate, carbon monoxide, and sulfur dioxide emissions are essentially zero. Nitrogen oxides can be cut to nearly nothing. It is free of political entanglements (since they are so widely deposited). It’s even much easier to separate out carbon dioxide from the flue gas stream.

    Regarding your suggestions: No offense, but I’m talking about solving the ***world’s*** energy problems with only $10 billion. (And in fact, I’m going to assume that there is a 30% loss for administrative expenses…so I’ll only have $7 billion of actual technology awards.

    In my mind, the most promising technology to do that, by far, is non-tokamak fusion. And I particularly like hydrogen-boron fusion (e.g. plasma focus fusion). No nuclear waste. Essentially no neutrons, in fact.

    And with technology awards, if non-tokamak fusion does NOT work, no awards (or very few awards) are paid out.

    You won’t even be able to replace all the coal plants in the U.S. with IGCC for the $7 billion. With such a small amount of money, you have to do only seeding…the technology has to grow by itself (because it’s clearly superior). An example is the U.S. government funding for ARPANET (that became the Internet). For $7 billion you can only get things started. You can’t jump into a mature technology (e.g. IGCC) and make any kind of difference.

  26. Joseph Stiglitz has a nice idea about how to force the USA into some kind of emissions-reduction regime. He says at Economists Voice that other countries “should prohibit the importation of American
    goods produced using energy intensive technologies, or, at the very least, impose a high tax on them, to offset the subsidy that those goods currently are receiving.� Such actions, he thinks, would be supported by the WTO.

  27. Mark – “There are two reasons for “Yes, yes,â€? on methane hydrates.”

    There is one huge elephant in the room reason for no no no and still more get the hell away from the methane hydrates other than no-one has yet worked out a way to mine them successfully is the EOCENE THERMAL EVENT was probably a methane burp. It wiped out 95% of the earths living organisms in the space of a few years. Methane calthrite reserves are HIGHLY unstable. It would only take one careless drilling to unleash a subsea landslide and create another massive burp. Global warming is already heating up the oceans which could make these deposits more unstable.

    When are you going to get the idea that there is no ‘silver bullet’ for our energy problems. There is no ‘lone ranger’ of nuclear or methane calthrites or anything that will solve the problems without some cutting back.

  28. Mark – “No offense, but I’m talking about solving the ***world’s*** energy problems with only $10 billion.”

    So who is going to build the fusion reactor in Somalia? Who is going to pay for the infrastructure to distribute the power in Somalia? Who is going to pay for the security forces to protect the power infrastructure in Somalia? You could spend your 10 billion in one country – look at Iraq.

    When you say the ****world**** you actually mean the First World – the only one that really matters to free market people. The Third world can obviously get along with the scraps as they do now.

    Distributed renewable power works in countries like Somalia just as well as it works in Australia. You only have to adjust the scale to suit the local conditions. It also does not necessarily need huge distribution networks. In Somalia a solar PV panel on a roof brings huge benefits. A wind turbine pumping water is the same. We need to lead by example and install the same systems for ourselves that we intend to install in the Third world. Otherwise they will always be looking at us and trying to ‘upgrade’ to fusion reactors and the profiligate lifestyles that we lead.

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