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George H. Blackford, Ph.D.

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 Email: george(at)rwEconomics.com

 

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On the Economics of Nuclear Power

George H. Blackford © 5/29/2013 (updated 10/17/15)

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The basic economic problem with nuclear power is that there are huge tradeoffs between safety and cost, much larger than with any other source of energy. The potential disaster caused by a core-meltdown accident can be devastating to a large geographical area, so much so that the affected area can be made uninhabitable for decades, if not centuries.  There have already been two such disasters in the 59 year history of the industry, Chernobyl and Fukushima, and two near misses in the United States, one at the Enrico Fermi breeder reactor in Monroe Michigan and the other at Three Mile Island--not to mention the host of other serious accidents that have occurred at nuclear facilities over the years.  At the same time, the cost of building and operating a nuclear power plant that can be operated safely is astronomical.

The magnitude of the potential disaster caused by a major accident and the huge cost involved in making a nuclear power plant safe make it impossible for unregulated companies to build, own, or operate nuclear power plants safely. Those that scrimp on safety in an unregulated nuclear industry will always be able to produce electricity at a lower cost and higher profits (until something eventually goes wrong) than those who don't, and it is inevitable that the level of safety in an unregulated nuclear industry will fall far below what would be acceptable to the communities that have to face the risk of the disaster that could result from a major accident.

The problems raised by government regulation of this industry can be seen by examining the following statements from the World Nuclear Associationís website:

One mandated safety indicator is the calculated probable frequency of degraded core or core melt accidents. The US Nuclear Regulatory Commission (NRC) specifies that reactor designs must meet a 1 in 10,000 year core damage frequency, but modern designs exceed this. US utility requirements are 1 in 100,000 years, the best currently operating plants are about 1 in 1 million and those likely to be built in the next decade are almost 1 in 10 million.

This website also notes that:

There have been three major reactor accidents in the history of civil nuclear power - Three Mile Island, Chernobyl and Fukushima. . . . These are the only major accidents to have occurred in over 14,500 cumulative reactor-years of commercial nuclear power operation in 32 countries.

These statements are supposed to be reassuring, but they are not.  After all, there have already been three or four major accidents, depending on how we count the Enrico Fermi meltdown, in the 59 year history of the industry.  What difference does it make if modern designs meet a calculated 1 in 100,000 year standard and the best plants meet a calculated 1 in 1 million year standard when the current governmental mandated standard is 1 in 10,000 years, and the actual history of the industry worldwide is 1 in 4,833 reactor-years (14,500 / 3) or 1 in every 3,625 reactor-years (14,500 / 4) if we include the Enrico Fermi meltdown?  And even if the US government were able to achieve its calculated 1 in 10,000 reactor-years accident rate, there are 104 nuclear power plants in the US today that produce 20% of our electricity.  If we were to increase to the 520 plants it would take to obtain all of our electricity from nuclear power (104 / 0.2) this accident rate would imply, on average, a Three Mile Island type accidentóor worseóonce every twenty years (10,000 / 520). 

It is fairly obvious that an acceptably safe nuclear power industry cannot be achieved with a calculated 1 in 10,000 year mandate, but even if the government were to mandate the calculated 1 in 1 million year rate that the best plants are supposed to be operating at today, there is no reason to believe this would solve the problem because there is no reason to believe that the calculated numbers scientists and nuclear engineers come up with in theory with regard to the safety of nuclear power will actually be achievable in practice

How effective can we reasonably expect the government to be in enforcing the requirements of a 1 in 1,000,000 standard in a situation in which millions of dollars are at stake and companies can increase their profits by ignoring these requirements and avoiding regulation as much as possible?  This problem is particularly daunting in an industry where the calculated probabilities of an accident are exceedingly low and the consequences of ignoring a regulation are seemingly unlikely and distant while the benefits to be gained appear to be large and immediate.

The situation with nuclear power today is very much the same as it was with the financial system leading up to the crisis in 2008. The scientists and financial engineers were able to convince the government and its regulators that, in theory, sophisticated financial innovations and allowing financial institutions to regulate themselves would make the financial system more efficient and productive. In practice, it didnít work out that way as the government and its regulators failed to implement and enforce the regulations that would have been necessary to keep the financial system from melting down in 2008. (See Where Did All the Money Go?)

If the government canít even regulate something as seemingly benign as a bank safely in this kind of a situation, why would we believe the government can regulate something as dangerous as a nuclear power plant safely?  And itís not just the construction and operation of nuclear power plants that have to be regulated by the government. The production of nuclear fuel, disposal of nuclear waste, and the decommissioning of nuclear power plants all pose serious health threats to the public that require strict government regulation to keep the public safe.

The governmentís record has not been particularly stellar in this regard as the experiences at West Valley, Hanford, Three Mile Island, and innumerable nuclear waste sites throughout the country will attest.  Nor has it been particularly stellar in dealing with the problems of toxic waste in general as the experiences at Love Canal and tens of thousands of hazardous waste sites throughout the country today will attest.  It would take an unimaginable faith in government regulation and government regulators in the face of overwhelming evidence to the contrary to believe that the government, through its regulatory power, can or will make the production of nuclear power safe.

Not only is there no reason to believe that government regulation can make the production of nuclear power safe, there is also no reason to believe that, in the absence of government subsidies to defray the extraordinary costs in the nuclear power industry, nuclear power can be produced at a lower costs than various sources of renewable energy that can be developed.  In fact, there is no reason to believe that very many, if any, of our current nuclear power plants would have been built without being subsidized by the federal government through the Price-Anderson Act of 1957 which provides limited liability protection against catastrophic loss by nuclear power companies in the event of a serious accident. 

The importance of the Price-Anderson Act to the development of nuclear power is spelled out in the following statement from the World Nuclear Association's website:

By limiting the amount that operators would have to pay, the risks of an accident are effectively socialized. Beyond a certain level of damage, responsibility is passed from the individual operator either on to the State or a mutual collective of nuclear operators, or indeed both. In essence this limitation recognizes the benefits of nuclear power and the tacit acceptance of the risks a State takes by permitting power plant construction and operation, as with other major infrastructure.

In other words, the Price-Anderson Act means that, by federal law, nuclear power companies do not have to pay the total cost of insuring against all of the damages that may result from a catastrophe these companies cause.  They only have to pay the cost of insuring against damages up to a cap.  The cost of insuring against catastrophic damages that occur above the cap are shifted to the taxpayer.  It is fairly safe to say that without this government subsidy that allows nuclear power companies to shift these costs to taxpayers there would be far fewer nuclear power plants in the US today. 

Finally, I would note that even though there are huge tradeoffs between safety and cost in nuclear power industry and other problems that make it virtually impossible for the government to regulate this industry safely, there are at least three things that can be done to make the production of nuclear power safer. 

The first is to junk the current NRC theoretical standard limiting a serious accident to 1 in 10,000 years and mandate a 1 in a million year standard instead.  This will not make nuclear power safe in practice, but it will at least set the theoretical standard above one where switching over to nuclear power implies a Three Mile Island type accident or worse every twenty years. 

The second is to repeal that portion of the Price-Anderson Act that subsidizes nuclear power companies.  Eliminating the insurance caps and forcing nuclear power companies to pay the full cost of insuring against all potential damages that may result from their negligence will have the effect of making the true cost of nuclear power better reflected in the market price of electricity.  This will lower the expected profits that can be made by building nuclear power plants and will lead to far fewer nuclear power plants being built. 

The third is to provide stiff criminal penalties for the willful violation of any NRC safety regulation.  This will simplify the decision-making process in the nuclear power industry from one in which those in charge are forced to chose between:

following the rules and costing the company a lot of money and, perhaps, damaging their chances for promotion within its management structure or ignoring the rules and risking a serious, though highly unlikely, accident

to one in which their choice is between:

following the rules or going to jail. 

This, of course, will not solve the problem, but it will, at least, make the enforcement of government regulations somewhat more effective by adding a further incentive for those in charge of producing nuclear power to follow the rules.

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