Pendulums swing in public opinion and hence in public policy. Right now the pendulum seems to be swinging in the direction of nuclear generation of electricity.
About two decades ago, in the wake of the 1979 incident at Three Mile Island and the 1986 Chernobyl disaster, the swing was in the opposite direction. There was little controversy among the general public in Minnesota about a ban on further nuclear power development in the state.
Now, with Chernobyl nearly a quarter-century in the past and rising concerns about climate change, interest in nuclear power is returning. The new Republican majority in the Minnesota Legislature is proposing an end to the ban.
As we consider the implications of such a move, economics can provide some useful perspectives, if not definitive answers.
Nassim Taleb’s 2007 book “The Black Swan: The Impact of the Highly Improbable” sparked interest in evaluating the effects of irregular and unpredictable events with major impacts such as the outbreaks of wars, attacks like 9/11, massive earthquakes and nuclear disasters. Taleb warns that we ignore such improbable events at our peril.
Economics deals with weighing the costs and benefits to society of different ways of using resources. It cannot always provide definite answers, since putting a dollar value on some intended or unintended outcomes often is highly subjective. But economics does provide a framework for analysis to the extent that information is available.
That availablility of information — or lack of it — is the rub. We can tabulate the direct cost of constructing nuclear power plants, the cost of fuel and so forth. We can make estimates of the eventual cost of decommissioning the plants at the end of their economic life. We can compare these costs to those of alternative energy sources, like coal, wind, hydro or solar.
But we cannot make reliable estimates of the expected likelihood and costs to society of accidents anywhere in the whole nuclear fuel cycle. These fall into what Frank Knight, a founder of the “Chicago school” of economics, classified as “uncertainty” rather than “risk.”
Risky events are ones that happen frequently and regularly enough so that actuaries reliably can estimate both their statistical frequency and magnitude. The likelihood of a St. Paul driver having a fender bender on an icy street and the expected damages are an example of risk, as is the chance that an overweight 60-year-old pundit will have a heart attack or that a tree will be blown through the front windows of his house.
But in practical terms, no one knows when we will have an earthquake near New Madrid, Mo., that will kill thousands in Memphis or a North Korean nuclear attack on Seoul, Tokyo or Seattle. It might happen tomorrow and it might not happen for 10,000 years. This is uncertainty, and nuclear accidents of one variety of another fall into this category.
We do know that engineers have come up with reactor designs that are inherently safer than the ones constructed from 1950 to 1990. We know that countries such as France generate high proportions of their power in nuclear plants with no major accidents to date. We know that the U.S. Navy has accumulated thousands of reactor-life years without a major accident.
We also know that, using old technology, both the United States and USSR had accidents that should not have happened. The damage in Pennsylvania was small. That in Ukraine and Belarus was catastrophic but much less than what might occur under worst-case scenarios.
Engineers calculate from mathematical models that new-design reactors might experience a significant “event” once every 3 million years. Similar mathematical modeling by economists predicted that major financial crises should occur only at intervals of centuries. These models are accurate only to the extent we can rely on the truth of their underlying assumptions, many of which are essentially unknowable.
Every energy-production technology has external costs, some of which we know about at the outset and some of which we learn about only over time. We know many of the costs of burning coal, but can only estimate others. We think we know most of the costs of wind power (in which I have a financial stake), but history tells us we may learn some unexpected lessons even with such an apparently benign technology.
The uncertainty surrounding the external costs of nuclear power coupled with the enormous magnitude of possible adverse events, no matter how unlikely, means that few people want a power plant or waste storage site in their community. The fact that in a half-century we have not been able to construct a permanent waste site indicates the depth of public misgivings about the technology.
But in a world where the demand for power is increasing, we have to weigh those factors against the alternatives. Which has the greater cost to society, the damage to the environment from burning coal in modern plants, or the potential for an adverse nuclear event? There is an element of subjectivity to this.
In this case, allowing power companies to do engineering work and cover its costs in customers’ bills is reasonable. But I personally am skeptical.
© 2011 Edward Lotterman
Chanarambie Consulting, Inc.