Economics 331b The Dilemmas of Nuclear Power 1

2 - Electricity is the shmoo* of the energy world. - It can do (just about) everything. - Nuclear power was forecast to be “too cheap to meter.” (Lewis Strauss, chairman Atomic Energy Commission, 1954) “Shmoos are delicious to eat and eager to be eaten. If a human looks at one hungrily, it will happily jump into a frying pan, after which they taste like chicken, or into a broiling pan, after which they taste like steak. When roasted they taste like pork, and when baked they taste like catfish. Raw, they taste like oysters on the half-shell.” (Wikipedia)

The rising share of electricity in energy 3 Source: EIA. Primary energy in electricity as share of total.

Prices of different energy carriers 4 Source: EIA and other.

Electricity generation, US,

Key uncertainties in nuclear power 6

Projected costs of different generation types IEA, Projected Costs Generation Electricity, 2005, Paris, p. 46. Note: highly dependent on assumptions about discount rate and fuel cost. These also exclude all external costs (externalities). 7

How to calculate “levelized costs” Levelized cost = constant cost that would lead to required return on investment LC = p fuel * fuel rate + O&M + (r + δ + ρ)* p kwe * capacity factor where p fuel * = price of fuel fuel rate = quantity of fuel per kwh O&M = operations, maintenance, storage, other r = real riskfree interest rate δ = depreciation rate ρ = risk premium p kwe = price per kilowatt electric capacity capacity factor = fraction of year in operation 8

More Detailed on Financial Calculations There are two different approaches in calculating costs: 1.Social costs (using some normative discount rates): used in Stern Report, cost-benefit analyses for government programs, IEA estimates, etc. 2.Private costs (using market rates, tax rates and depreciation, risk premiums, etc.): uses in MIT Report, by bank analysts, some energy modeling. The private costs approach: -Assume some traditional leverage ratio, market interest rates, current depreciation practices, etc. -Then calculate a “break-even price” that just makes hurdle return. 9

The corporate finance of the private approach 10 Assume a debt ratio of λexponential depreciation of δ, no inflation. Risk - free (T - bond) rate is r, risk premium on utility debt is ρb, required return on utility equity is ρb, profits tax rate is τ. We want to calculate a capital recovery factor, z, which is the equivalent of the user cost of capital in macro. The present value of the investment is zero when z is given by: This means that the annual rental per dollar of capital is 19 cents.

External costs Major issue is that pollution and other external costs of electricity production are inconsistently regulated and prices: -Air pollution (SO2, …) -Climate change (differs by country) -Routine releases -Catastrophic accidents (Three Mile Island, Chernobyl, liquefied natural gas [LNG], …) 11

12 Overview of estimating externalities 12 Energy consumption Emission (pollution of SO2, CO2, release of radioactivity, …) Energy services (kwh, vpm, …) Distribution in atmosphere, carbon cycle, climate system, … Exposure (human health, agriculture, structures, ecosystems Valuation: Lives lost x p(life) + Illnesses x p(illness) + Ecosystem harms x p(eco)

13 Source: Muller, Mendelsohn, 2007; Muller, Nordhaus, Mendelsohn, External cost and wholesale price, power, US Wholesale price of power External costs of generation (air pollution, mining accidents, reactor meltdowns, …)

14 Source: Climate priced at $30 per ton C. Electricity at 8.4 cents per kwh. Muller, Nordhaus, Mendelsohn, Ratio of External Costs to Electricity Price, Different Generation Types, With and Without Climate Charge

Energy Resources by Type 15 Source: Energy Primer

Nuclear basics 16 U n → fission + 2 or 3 n MeV

Controlled nuclear fission for a power reactor 17

Fuel Cycle of Nuclear Power 18 Source: MIT Study

“Connecticut Yankee” nuclear power station 19

20 More of the system for a PWR

Major issues in nuclear power 21 Source: MIT Study

22 Energy TJ * Asteroid collision at K-T boundary1 x Large nuclear exchange US-Russia5 x10 6 Earthquake 9 Richter scale4 x 10 6 Thunderstorm (kinetic energy)6 x 10 2 Hiroshima sized nuclear weapons8 x10 1 Gasoline in planes hitting WTC1x10 0 The most unhappy scenarios 10 8 TJ = world energy consumption

23 Major nuclear fatalities Multiple sources

Bomb basics 24 Source: Global Fissile Material Report 2008

25 Uranium Enrichment Source: Global Fissile Material Report 2008

26 The role of enrichment in criticality Source: Global Fissile Material Report 2008

27 Making Plutonium Source: Global Fissile Material Report 2008

Assembling the critical mass for weapon 28 Source: Global Fissile Material Report 2008

29 Source: Global Fissile Material Report 2008

Map of nuclear programs 30

31 Key to map

32 Source: Global Fissile Material Report 2008 Sufficient for 50,000 warheads.

Nuclear winter Early studies suggested that nuclear exchange would lead to global cooling and threaten civilization. These were discredited. A new round of studies in 2007 used more up-to-date modeling. Conclusion was that even limited nuclear war (say Pakistan-India) could have devastating global effects: Fires ignited by nuclear bursts would release copious amounts of light- absorbing smoke into the upper atmosphere. If 100 small nuclear weapons were detonated within cities, they could generate 1 to 5 million tons of carbonaceous smoke particles, darkening the sky and affecting the atmosphere more than major volcanic eruptions like Mt. Pinatubo (1991) or Tambora (1815). Indirect effects on surface land temperatures, precipitation rates, and growing season lengths (see figure) would be likely to degrade agricultural productivity to an extent that historically has led to famines in Africa, India, and Japan after the 1783–1784 Laki eruption or in the northeastern United States and Europe after the Tambora eruption of Climatic anomalies could persist for a decade or more because of smoke stabilization. 33 Owen B. Toon, Alan Robock, et al., “Consequences of Regional-Scale Nuclear Conflicts,” Science, March 2, 2007,

Change in growing season from small nuclear exchange 34 Owen B. Toon, Alan Robock, et al., “Consequences of Regional-Scale Nuclear Conflicts,” Science, March 2, 2007,

How to minimize diversion of weapons-grade materials 1. Reduce stocks of weapons-grade materials -Technical way is through reducing fissile stocks -Only serious long-run way is nuclear abolition 2. Safer reactor designs and fuel cycle: -Safe fuel cycles are either “battery type” is hub-and- spoke, once-through fuel cycle, or complete new fuel cycle. -To prevent widespread dissemination of “dangerous facilities” and knowledge (particularly enrichment), need international control over fuel cycle and mandatory intrusive inspections. 3. Withering away of nuclear power -This would leave no large-scale non-fossil technology, with the almost certain prospect of major increases in CO2 emissions and global warming Red items are either highly controversial or perilous. 35