Nuclear isn’t looking promising either

For quite some time, I’ve argued that, if nuclear power is to make any substantial contribution to reducing CO2 emissions, its growth will have to accelerate in China and to be based on the AP1000, the only Gen III+ design likely to be built in numbers significant enough to achieve any kind of scale economy.

It now appears highly unlikely that this will happen. Although China notionally restarted its nuclear program in 2012, a year after Fukushima, approvals have slowed to a crawl. This article, from Nuclear Engineering International, explains some of the reasons.

More significantly, China appears to have abandoned the idea of using a Western design, and is instead pushing two designs of its own, the CAP-1400 (an adaptation of the AP1000) and Hualong 1, Chinese design with French antecedents, variously rated as Gen II, Gen II+ and “comparable to a Generation III”.

It appears that the cost of imported inputs to the current projects is seen as prohibitive. The hope that the Hualong will generate an export market, and the British government has just agreed in principle to the construction of one such plant, conditional on approval of the design. In the absence of any operational plants, that looks problematic, to put it mildly. The announcement looks to be driven more by diplomatic considerations than by economics, which suggests that actual construction may be a long way off.

Clean Coal is not going to happen

The announcement that the UK government is cancelling funding (budgeted at stg 1 billion) for its proposed competition for carbon capture and storage (CCS) marks the end of the last best hope that we can mitigate CO2 emissions while continuing to burn coal. If follows the abandonment of similar programs in Australia and the US.

Two thoughts on this.

First, it makes a nonsense of one of the justifications for supercritical coal-fired power stations, namely that they can be made “CCS-ready”.

Second, lots of projected paths to decarbonization involve substantial reliance on CCS. Those will need to be scrapped or changed substantially. The simplest change would be to replace coal+CCS with nuclear (the UK government now seems to be chasing the mirage of Small Modular Reactors) but that is only marginally less unrealistic than CCS (a new post on this shortly, I hope). The alternative is to rely on a combination of storage and smart grid pricing to adapt our current electricity system to one driven mostly by wind and solar PV, with hydro and limited amounts of gas as the dispatchable sources.

Private infrastructure finance and secular stagnation (crosspost from Crooked Timber)

For most of my academic career, I’ve been working on (more precisely, trying to demolish) the idea of private investment in public infrastructure, exemplified by the Private Finance Initiative in the UK and the Public Private Partnerships program in Australia. Here’s my first published article on the subject, from 1996. I conclude that

The current enthusiasm for private infrastructure, like the enthusiasm for public ownership which it replaced, has been based more on ideological beliefs in the virtues of one sector and the vices of the other than on any systematic economic analysis …Analysis of the relative performance of the private and public sector in different phases of infrastructure provision suggests that, in most cases, the private sector will be most efficient in the construction phase but the public sector will be best equipped to handle the risks associated with ownership.

Twenty years later, this analysis seems finally to have been validated. The UK Auditor-General recently reported that

Analysis of the 2012-13 Whole of Government Accounts (WGA) implies that the effective interest rate of all private finance deals (7%–8%) is double that of all government borrowing (3%–4%)

As a result of the excess costs, and some spectacular failures, bipartisan enthusiasm for the PFI has finally turned to disillusionment. Here’s the Telegraph, correctly putting much of the blame on New Labour. And, for balance, here’s the Guardian. There hasn’t been a similar admission of failure in Australia, but the flow of PPP projects has greatly diminished, and most new ones rely on a substantial component of public capital.

Unfortunately, the failure of private finance hasn’t led governments to resume the high levels of public investment that prevailed in the Keynesian era of the 1950s and 1960s. So, even with central bank lending rates at zero, there has been no real recovery in infrastructure investment. Apart from the direct effect of lower investment, there’s a strong case that infrastructure investment increases the returns from private investment in general and therefore stimulates growth.

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Nothing learned, nothing forgotten

I haven’t posted on the recent terror attacks, or the various responses, because I have nothing new to say, and nothing old to repeat that hasn’t been said, or repeated, better by others. It appears that no one has learned anything in the decade or so since the Iraq war began. This 2003 post from the Onion just needs the dates changed to be applicable (or not, for those who support the side being satirised here) to the current debate.

Having said all this, have I learned anything myself? The Iraq war turned me from being a liberal interventionist (though opposed in the case of Iraq) to a strongly anti-war viewpoint.

By December 2005, I had this to say[^1]

It would be a salutory effort to look over the wars, revolutions and civil strife of the last sixty years and see how many of the participants got an outcome (taking account of war casualties and so on) better than the worst they could conceivably have obtained through negotiation and peaceful agitation. Given the massively negative-sum nature of war, I suspect the answer is “Few, if any”.

The ten years since 2005 have confirmed me in the rightness of my views[^2]. But since the same is true of nearly everyone on all sides, that’s not very helpful.
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A global climate deal without Australia

Over the last few weeks, there have been quite a few reports that the US, Japan, Australia and Korea are negotiating an agreement that would greatly reduce the availability of concessional funding for new coal projects. Recent reports, though, suggest that the US and Japan will make an agreement on their owmsn ter, leaving Australia (and perhaps also Korea) to go its own way. That has some pretty big implications for the Turnbull government and its position at the Paris Conference.

National and international development banks and export credit agencies, including Export-Import Banks in (South) Korea and the US, the Japanese Bank for International Cooperation[1] and the Export Finance Insurance Corporation in Australia have been a major source of finance for coal plants in developing countries like the Phillipines and Vietnam. With Chinese coal demand having peaked, and India shifting emphasis to renewables, the coal industry is counting on rapid demand growth in countries like these.

The reported US-Japan deal would eliminate funding for coal-plants that don’t use supercritical technology, and would require ultra-supercritical technology for all but the poorest countries.[2] Apparently, Korea has proposed weaker restrictions, and Australia weaker still. But rather than split the difference, Politico reports that the US and Japan will make a deal without Australia and Korea.

As far as I can tell, we are still in the stage of preliminary posturing. Some sort of compromise, or perhaps capitulation, may be reached. But if the US-Japan deal goes ahead without us, that will be a pretty clear signal that Turnbull is going to stick with Abbott’s anti-climate policies.

If such an outcome is possible in these talks, it’s also possible in Paris. Until now, I’ve assumed that the imperative for a global deal is such that even Australia’s weak proposals, and rejection of any credible policy, will be treated as acceptable. But now that Harper is gone in Canada, and Japan is working with the US, Australia is unlikely to find much backing for a recalcitrant position. While Korea might hold out on export financing, it is unlikely to want to be seen as sabotaging the entire agreement.

Hopefully, this is one of those situations where the export finance negotiations are still on a dynamic set under Abbott. Hopefully, Turnbull can see that the merits of being a global citizen in good standing, notably including continued friendly relations with Obama, outweigh any grumbles he might face from the LNP right.

Update An agreement has been reached. It looks pretty close to capitulation by Australia, though the government extracted enough concessions to call it a compromise. (Hat Tip: Cambo in comments).

fn1. I wasn’t clear about Australia’s involvement, since we don’t export or finance power plants, AFAICT. It appears that the agreement was formally made by the OECD, which requires unanimity. That makes the threat by the US and Japan to go it alone even more significant, I think.
fn2. Despite the impressive sounding name, ultra-supercritical plants still emit a lot of CO2, only about 10 per cent less than the subcritical plants they replace.