Japan

Earth Track Blog Post

Kayla Ente at Ente Consulting has recently released a summary of current subsidies to nuclear power in the UK (summary discussion - full report).  The analysis joints a number of other recent studies (US, France, and Japan) that tabulate government subsidies to the civilian nuclear industry around the world.  A general overview of common subsidy features to the nuclear fuel cycle globally is included as Section III.6 of World Nuclear Industry Status Report 2009.  Section III.6.4 in particular (page 81), written by economist Steve Thomas at the University of Greenwich, provides a historical review of nuclear subsidies within the UK.

Highly capital intensive industries are often global, with similar attributes throughout the world.   Primary metals refining, for example, tends to be co-located to inexpensive sources of energy even if that location is not rich in the ore being processed.  Often, as in the case of primarily aluminum production, the inexpensive power source is a publicly-owned, taxpayer subsidized, large scale hydroelectric dam.

For civilian nuclear power, other factors matter more.  These include large scale government-provided subsidies to financing, plant decommissioning, and uranium mining and enrichment, as well as shifting of key risks of the fuel cycle relating to accidents and long-term management of highly radioactive wastes. 

Ente's review of the UK government's role in the nuclear sector highlights problems similar to those I've found in the US.  Government-owned assets are not run well, resulting in substantial operating losses over time and large legacy costs.  Government-intervention in markets to regulate civilian enterprises, decommission facilities, or manage radioactive wastes have resulted in large losses to taxpayers even in cases where industry is charged some user fees.  For example, the Office for Nuclear Regulation claims that fees on industry cover 98% of its costs.  However, Ente notes that review of new reactor designs is being entirely financed by taxpayers, at a cost of 62 million British pounds/year.

Losses related to the Sellafield MOX reprocessing plant were estimated at 90 million pounds/year in June report.  This is largely the result of a very capital intensive process built to handle 560 mt of waste per year actually processing only 15 mt -- a capacity utilization rate of less than 3 percent.  Any capital-intensive private facility, be it in timber, paper, metals,  or energy, with such an abysmal utilization rate would have been shuttered long ago.  However, Sellafield announced it was closing only last month, a result of the Fukushima accident in Japan.  As Fiona Harvey notes, the Japanese were the only customers of the Sellafield plant, and that demand has been significantly reduced and may never recover now that the Japanese are rethinking their reliance on nuclear power.  

Harvey notes that the potential closure of the UK's Thorp reprocessing facility (receiving much larger subsidies according to Ente at 500 million pounds/year) due to similar market pressures is being denied.  Stay tuned.

(Thanks to Simon Carroll for the link to Ente's analysis)

Earth Track Blog Post

The Japanese Parliament has just passed a new law that pumps the equivalent of $26 billion into a fund to pay for damages caused by TEPCO's Fukushima disaster.  This is an "initial" contribution, so more could be on the way.  Rather than viewing this massive bailout to nuclear power as a failure in all dimensions of the regulatory oversight and financial assurance system of Japan, the payment is characterized as a "major step forward" by Yukio Edano, the chief cabinet secretary.

From the perspective of victims of the accident, it is a step forward -- since otherwise they would have received virtually no compensation for the damages the accident has caused to their health, their jobs, and their lives.  But this should not by any means obscure the fact that clearly nuclear power has been wildly mispriced in Japan; and that had it been properly priced their energy system could well have evolved in very different ways.  Further, other countries ought to look to this example as Exhibit A on why they need to fix their own nuclear liability regimes.

This type of bailout certaintly won't change the minds of "see-no subsidy" groups who can rationalize any level of pork as somehow not really a subsidy-- here's the World Nuclear Association ("Nowhere in the world is nuclear power subsidised per unit of production.  In some countries however it is taxed because production costs are so low.")  But the hope is that more open-minded folk will look a bit more realistically at the economics of various energy options inclusive of subsidies, and adjust policy and investment decisions accordingly.  

According to the US Energy Information Administration, Japan generated roughly 6,650 billion net kWh of nuclear power for the time period covered by EIA's data (1980 through 2009).  This single bailout contribution is equivalent to a subsidy of 0.39 cents/kWh for the entire period, a value that provides a rough proxy for what an actuarily-fair insurance premium should have been.  While there was some generation outside the range captured in the EIA time series (which would reduce the subsidy/kWh), the errors are more likely to understate the subsidy than to overstate it.  First, this calculation assumes break-even; real insurance operates to earn a return and would have set premiums higher in line with that objective.  Further, this "initial" contribution is well below the cost estimates of the accident. 

To provide a more robust range for the liability subsidy, we can use as a ballpark figure for the liability subsidy the $246 billion estimate put forth by the Japan Center for Economic Research (JCER) for the cost of the Fukushima accident.  The Center is an institution that, according to the Economist magazine, "is heavily financed by a federation of electricity utilities, all but one of which use nuclear power," so would not seem likely to unnecessarily inflate the cost of the accident.  This massive cost will not be financed by TEPCO, which is struggling to survive.  Instead, it is quite likely to be paid by taxpayers.  The full bailout would translate to a subsidy of roughly 3.7 US cents for every kWh generated in Japan between 1980 and 2009.  Clearly, proper pricing of liability alone would have greatly altered the energy landscape of Japan.

(Thanks to Ron Steenblik for the original article link)

Earth Track Blog Post

Japan's Mainichi Daily News has a very interesting article looking at the price of Japanese nuclear power.  Like in the US and many other countries, government sources and reactor owners have long touted nuclear as the least expensive source of power in Japan.

However, Kenichi Oshima, a professor of environmental economics and policy at Ritsumeikan University, has done some calculations and has reached a completely difference conclusion. Oshima says that the cost for a kilowatt-hour of electrical power between fiscal 1970 and fiscal 2007 was 10.68 yen for nuclear, 3.98 yen for hydroelectric, and 9.9 yen for thermal generation, with nuclear-generated power coming out as the most expensive. These calculations were even presented at a meeting of the government's Atomic Energy Commission last September.

What did Oshima include that the others did not?  Large government subsidies, for one.  Oshima estimates that 70 percent of the subsidies given out by the national government have gone to nuclear.  He also used actual data on operating levels (closer to 70% than the 80% assumed in government costing), and on plant construction and operating costs (which were also higher in actuality than in the pro-forma examples often cited).  Costs of nuclear waste management were also left out of the government's estimates; and they overestimated the costs of power competitors such as hydro by assuming a shorter asset life than reality (40 rather than 60 years or more).

A counter-position is presented by Takeo Kikkawa, a professor of business history at Hitotsubashi University.  He points out that the lowest power costs in Europe are in France, which embraced nuclear energy; and the highest are in Italy, which abandoned nuclear energy.  I'd suggest some prudence in taking this ancedotal comparison too seriously.  Many things in Italy cost more; it has among the most expensive petrol in the world, for example.  But the efficiency and intervention of government plays a big role here; it is not simply which mix of power sources they have chosen.  Further, the costs of French nuclear power are hardly an open book either.  Kikkawa is worried that rising power prices on the Japanese mainland will make domestic industrial firms uncompetitive.  An important concern, to be sure; but not one that has any bearing on the real price of Japanese nuclear power.

(Thanks to Henry Sokolski at NPEC for forwarding the Mainichi article).

Earth Track Blog Post

1,000,000 - Number of years for there to be a radiation-related fatality at a Japanese nuclear plant according to the goals put forth by the Japanese Nuclear Safety Commission in 2003.1

8 - Number of years into the million year period before the Fukushima accident in Japan.

$2.1 billion - Maximum amount of liability borne by Tokyo Electric Power Company (Tepco) for an accident at one of its reactors under Japan's nuclear liability laws.  (WSJ pegs this figure at only $1.5 billion).2

$0 - Actual amount Tokyo Electric Power will likely have to pay in damages to people and property, including its own workers, since accident was caused by an earthquake.3 Update:  There are competing views on Tepco liability, and the ultimate exposure remains uncertain.  Merrill Lynch has prepared a good overview of this.  Japanese politicians have stated that they did not think the accident would be characterized as an "exceptional disaster" that would exempt Tepco from liability.  However, that same article by Reuters notes that:

Insurers of the stricken nuclear plant have already cited Japan's 1961 Act on Compensation for Nuclear Damage to signal that claims would be unlikely.  Chaucer, one of the world's leading nuclear-risk insurers, has said it expected the act to absolve the operator of liability.  Nuclear Risk Insurers, the underwriting agent for all UK nuclear insurers, has also cited the 1961 act in stating that it did not "anticipate significant losses from this event."

Tepco has indicated it expects financial distress.  However, there are many elements of the liability, some of which are purely business-related such as damage to the plant and power interruption.  In addition, were Tepco to be nationalized (as has been discussed), the accident liability would also rest with Japanese taxpayers.

$17.5 billion - Current Japanese government estimate of compensation to businesses and individuals for damages from the nuclear accident.  This estimate does not include direct government response costs to the accident.  Estimates in the Japanese media put costs much higher, and more than $30 billion has been erased from Tepco's market capitalization since the accident.

$40.9 billion - BP loss reserve to cover its estimated costs from the Horizon blow-out in the US Gulf of Mexico, an accident that had a small number of fatalities and occurred far from human population centers. 

$386 billion - Estimated mortality costs from a nuclear accident near New York City in a 2009 paper by economists Geoffrey Heal (Columbia University Business School) and Howard Kunreuther (Wharton School, University of Pennsylvania).  Business interruption costs would be an additional $50-100 billion.

$12.7 billion - Gross value of insurance pool to cover off-site damages to people and property from an accident at a US nuclear power plant under the Price-Anderson Act.  Amount is paid in over nearly seven years.4

$8.5 billion - Present value of Price-Anderson pool to cover losses offsite for a nuclear accident in the United States.

5 - Number of hurricanes since 1990 where US insured losses (total losses were much higher since not all damage is insured) exceeded the $8.5 billion pool available for a nuclear accident.5  Hurricanes obviously involve no radiation.

$2.1 billion - Maximum amount of liability coverage available outside the United States to compensate for a nuclear accident under the main international conventions on nuclear liability (Table 13-1).

$453 million - Total present value at-risk amount for each reactor to cover third party liabilities from an accident at its own plant, as mandated under Price-Anderson.   US operators routinely purchase more than 10x this level of coverage to protect their own assets in an accident, including both property coverage and replacement power.

$1,123 - Total available insurance payment (present value) for each person in the Baltimore-Washington metropolitan statistical area under the terms of the Price-Anderson Act, should there be an accident at the Calvert Cliffs plant in Lusby, MD.  Funds would need to cover mortality, morbidity, and property damage.   Allowability of pool to compensate for economic losses and natural resource damages is less clear.

$60 - Portion of the $1,123 in per capita coverage that will be paid by the accident-affected plant itself under the terms of Price-Anderson.  Price-Anderson provides the largest private insurance pool in the world to cover offsite damages from a nuclear accident.

$12 - Value per resident of the "payment for their troubles" offered by Tokyo Electric Power to the town of Naime, severely affected by the Fukushima accident.  Tepco has insisted this is merely an initial payment and not instead of compensation for damages the accident has caused.  However, the town as rejected the payment as being far to small to make up for the drastic reduction in their quality of life and ability to earn a living since the accident.

(Thanks to Simon Carroll for providing links to the Japanese nuclear liability laws)

  • 1. The specific wording used by the NSC was "The mean value of acute fatality risk by radiation exposure resultant from an accident of a nuclear installation to individuals of the public, who live in the vicinity of the site boundary of the nuclear installation, should not exceed the probability of about 1x10-6 per year. And, the mean value of fatality risk by latent cancer caused by radiation exposure resulting from an accident of a nuclear installation of individuals of the public, who live in the area but some distance from the nuclear installation, should not exceed the probability of approximately 1x10-6 per year."  Nassim Nicholas Taleb, author of The Black Swan and professor of risk engineering at NYU, notes that "...we are incapable scientifically of measuring the risk of rare events. We tend to underestimate both the probabilities and the damage."
  • 2. The WSJ cites Ower Brown noting that the $2.1 billion payment (120 billion yen) is not a formal cap. Section 16 of the Act on Compensation for Nuclear Damage states that "Where nuclear damage occurs, the Government shall give a nuclear operator (except the nuclear operator of a foreign nuclear ship) such aid as is required for him to compensate the damage, when the actual amount which he should pay for the nuclear damage pursuant to Section 3 exceeds the financial security amount and when the Government deems it necessary in order to attain the objectives of this act." The "and" clause does suggest such a payment is not mandatory, and indeed the government must be "authorised to do so by decision of the National Diet." However, the language indicates such payments are likely.
  • 3. See section 3 of Act on Indemnity Agreements for Compensation of Nuclear Damage (Act No. 148 of 1961, as amended in 2009).
  • 4. This statistic and the following ones are from Doug Koplow, Nuclear Power: Still Not Viable Without Subsidies, February 2011. See pages 80-82.
  • 5. Scroll down page to reach table titled "The Ten Most Costly Catastrophes, United States."