Nuclear Energy

Micah Zenko and I have an op-ed on nuclear terrorism today in USA Today. The opening paragraph captures the theme pretty well: “President George W. Bush called it his ’ultimate nightmare.’ Sen. John Kerry, running for president in 2004, said that it was ’the greatest threat that we face.’ They were both talking about the terrifying possibility that a terrorist group could acquire a nuclear weapon and attack the United States. Yet this year, over the course of three presidential debates, the issue barely surfaced. That is dangerous: Nuclear terrorism remains one of the very few vital risks to America, and the next president, whoever he is, will need to work vigilantly to prevent it.” We trace the history of shock and trance on the issue (not the only area where that occurs) back through the 1970s, warn against crying wolf but emphasize that the threat is still vital, and offer some thoughts on what to do. Since the piece is short, those ideas are presented only briefly, so I thought I might expand on them a bit more here. The first is to continue the removal of weapons-useable nuclear materials from as many states as possible in order to consolidate them in more secure locations. This is an old idea but one that hasn’t fully run its course yet. You can find some early thinking on it here. Another related idea – continuing to convert civilian reactors that use highly enriched uranium so that they operate using lower grade materials – didn’t make it into the piece, but remains important. Here’s a paper (PDF) about that scheme. The second strain of policy we emphasize is the need to deal with insider threats to facilities. We’ve done a decent job improving the “guns, guards, and gates” at nuclear facilities around the world; we still need to step up our game, though, when it comes to preventing thefts by facility employees. This is a particularly challenging problem for countries like Pakistan where extremist movements are strong. Our third emphasis is the need to extend the basic agreement underlying Nunn-Lugar cooperation with Russia. This challenge, which has emerged as a concern in recent weeks, deserves its own op-ed. For now, take a look at this, this, and this for more information. The starting point for any of this, though, is a serious recognition of the continuing threat. Take a look at the full op-ed here for more on that.

Last week the Obama administration tightened its oil-related sanctions against Iran. This was followed by new congressional legislation that promises to extend those sanctions further. Yet less than a year ago, most observers found such stringent sanctions against the Iranian oil sector unthinkable. What has happened to so fundamentally change the picture? It’s worth looking at three things. A Change in Politics There is no question that the Obama administration was initially less enthusiastic about oil sanctions than Congress was. But political power moved in ways that gave Congress more control. Ultimately, the administration struck a bargain rather than try to defeat sanctions legislation. It got language that allowed it to exercise extensive discretion in applying the sanctions: it could hold off if the economy would be put at substantial risk; it could also exempt other countries that were making solid efforts to wean themselves off Iranian crude. The decision to cooperate with Congress was critical – it opened the door for other factors to push the United States further down the sanctions road. A Change in Philosophy For years the basic debate over oil market sanctions was simple. One side said that the Iranian threat was so great that any tool that could put pressure on Tehran should be used. The other side said that the price was too high: blocking crude shipments from Iran would tighten world oil markets, raising prices for gasoline and diesel, and threatening to bring the economy down. Both arguments gained strength over time: the Iranian nuclear threat advanced, increasing the urgency of raising pressure; meanwhile, a weak economy made policymakers allergic to anything that might threaten recovery. In any case, many agreed, sanctions could easily be undermined, since China would continue to buy Iranian crude. In late 2011 another strain of thinking rose in prominence. The logic was straightforward. Most countries would shun Iranian crude. A few, though, would continue to buy it. Since Iran would now be desperate for customers, though, it would be forced to offer the crude at a discount. Iranian revenues would fall but world oil supplies wouldn’t; as a result, world oil prices would remain stable. Chinese purchases of Iranian crude had become a selling point rather than a flaw. This theory hasn’t quite played out in practice. China has been able to extract discounts, but Iranian exports have also been slashed in half. Regardless, the change in philosophy was essential to getting the sanctions rolling in the first place. A Change in Markets Over the long run oil markets tend to do a good job of balancing supply and demand. Over the short run they’re considerably quirkier. A central question when people debated Iran oil sanctions a year ago was whether Saudi Arabia could quickly make up for lost Iranian crude. If they did, markets would remain well supplied, without prices needing to rise; if they didn’t, all hell could break loose. Indeed even a strong response from Saudi Arabia was not without potential problems, since a surge in output would have left Riyadh without much spare capacity left in case of other problems. But two big market trends came to the rescue. The first was a surprisingly weak global economy, which left oil demand below the levels that many had expected. The second was the surge in U.S. oil production, which has risen by nearly a million barrels a day over the last year. Over the long run, that much extra production has limited consequences for world oil markets and prices, which adjust considerably to compensate. Over the short run, though, it’s critical. Surprise gains in U.S. output have largely offset surprise falls in Iranian exports. The result for markets has been nearly neutral, something that crude oil prices reflect. Each of these three factors hold lessons as the sanctions proceed. Politics will continue to shape U.S. decision-making. Expectations that China can absorb Iranian oil at a discount seem to be on the wain. Sustained gains in U.S. oil supplies no longer come as a surprise to markets – and continued weakness in the global economy isn’t much of a shock either. All of these factors may make ever-tighter sanctions an increasingly challenging task. And it’s important to keep the big picture in mind. Sanctions alone will not solve the Iranian nuclear problem. They need to be combined with effective diplomacy to have a real chance of success. Pulling that off is a far taller task than imposing the sanctions in the first place.  

The Wall Street Journal delivered some disturbing news yesterday: South Korea “sharply boosted imports of Iranian crude” in April, buying 42 percent more than a year before, and 57 percent more than in March. Analysts have speculated as to whether Seoul was attempting to sneak in extra oil before European sanctions begin to bite. A more careful look at the data, though, suggests that the spike in Korean imports is less peculiar than meets the eye. Oil imports naturally fluctuate from month to month. The big question, then, is how anomalous the jump in Korean imports from Iran is. The figure below shows monthly Korean oil imports from Iran going back five years (all data in this post is from Korean customs). It is clear that month-to-month import levels are volatile. The next figure plots absolute month-to-month changes in Korean oil imports from Iran. One can immediately see that there are several other month-to-month changes that exceed what happened between March and April 2012. We can quantify this: the average month-to-month change is 1.7 million barrels, with a standard deviation of 1.2 million. The upshot is that we should expect to see a month-to-month change of at least 2.7 million barrels – i.e. what we saw from March to April – about twenty percent of the time. If we look only at jumps of 2.7 million barrels or more, we should expect roughly one a year. One can, however, ask the question another way. South Korean imports from Iran have been on a downward trend. April imports, then, should have been lower than March ones. Working from this baseline, the actual April figure looks like a bigger jump. I looked at the absolute difference between monthly oil imports and what one would have expected had the previous six months’ trend held up. Korean imports in April now look a bit more anomalous. Had imports followed their six month trend, we’d have expected them to hit 3.4 million barrels in April; instead, they clocked in at 7.5 million. Our data suggests that this sort of aberration should happen four percent of the time, or once every two years. There’s a risk in doing too many statistical analyses (one of them will invariably deliver a phantom result), but let me give you one more way of looking at the trend. Korean imports from Iran dropped by four million barrels between September 2011 and March 2012, or about 700,000 barrels a month, before rising by 2.7 million barrels between March and April. That jump, then, was four times the monthly trend, in the reverse direction. That looks big, but it turns out to be pretty common: it occurred in 20 of the preceding 53 months. The big test will be what happens in May and June. The Korean government announced earlier today that it expects to report that imports decreased in May. If it does not, and imports stay high, it will be much more difficult to dismiss the April data as an anomaly. After all, very loosely speaking, the odds of something that happens four percent of the time happening twice in a row is about one in five hundred.  If imports do drop, though, the current kerfuffle should go away. But be warned: normal statistical noise means that this sort of scare will be repeated as the sanctions continue. Better and more timely data, along with a clear sense of what constitutes an acceptable import pattern, would go a long way to keeping the sanctions on track.

One year after the Fukushima nuclear crisis, Japan is facing a dilemma of how to clean up the disaster and how to meet current and future energy needs, says expert Charles D. Ferguson, even as the global nuclear industry continues to face the accident’s aftershocks.

Richard Haass and I have an op-ed in today’s Wall Street Journal in which we outline a strategy for U.S. diplomacy with Iran. The basics are simple: Neither war nor containment is an attractive option. Moreover, with economic and military pressure on Tehran rising, Iranian leaders may be gaining greater incentives to do a deal, and the United States may be gaining more leverage. At the same time, there’s little chance that the Iranian regime could give up enrichment entirely and survive; meanwhile, on the U.S. side, no deal is worthwhile if it leaves Iran too close to the bomb. We thus outline a mix of inspections and physical limits on the Iranian program that the United States should put on the table; if Iran accepts, the newest sanctions (including impending ones) should be dialed back. Until that happens, the current sanctions should stay in place, and the ones coming down the pike should proceed apace. Many have reacted to this proposal by arguing that the United States shouldn’t tolerate any enrichment on Iranian soil. But the most interesting response we’ve gotten so far comes from the other side: is there really any chance that Iran would accept this sort of agreement? The only honest answer is that we don’t know. The value of a U.S. offer to dial back the newest sanctions depends on how much pain they’re causing in Tehran, something that’s impossible to measure. But it’s entirely plausible that that pain in large and growing. The only way to find out if the pressure is enough to pay real dividends is to try.

If analysts and reporters know one thing about sanctions, it’s that if you don’t have complete international cooperation, they don’t work. That instinct has been on full display in recent discussions of oil market sanctions targeted at the Iranian nuclear program. Yes, the United States and Europe might refrain from buying Iranian oil, but so long as China and India are willing to buy the surplus crude, won’t the sanctions be toothless? Some recent research that has been shaping policy discussions suggests that that’s the wrong way to look at the problem. As buyers disappear from the market for Iranian oil, those that remain gain a stronger bargaining position, potentially allowing them to extract large discounts. That is not as effective as a complete cutoff in choking off Iranian oil revenues, but it does get you part of the way. It’s important to recognize that this dynamic is highly nonlinear: it is at its most pronounced as the number of potential buyers gets closer to one. In particular, discounts might become much deeper if India exited the market than if both it and China remained. It’s also worth noting that the decision to extract big discounts would ultimately be a political one: if Beijing decided that it did not want to crank up pressure on Tehran, it could instruct Chinese buyers to pay world prices (or close to that) for Iranian oil. There’s also something more subtle going on. If all Iranian crude suddenly vanished from the world market, the impact on oil prices could be huge. That possibility would deter policymakers from pursuing sanctions in the first place. The existence of China and India as alternative markets for Iran is what assuages policymakers’ fears and lets them pursue sanctions to start with. That dynamic is critical. It makes no sense to compare partial sanctions that are flouted by China and India with airtight sanctions that have no chance of existing. The fact that one or two big countries won’t go along with oil sanctions is precisely what makes those sanctions politically possible. Sanctions that are flouted by China and India are better – and potentially quite a bit better – than no sanctions at all. Until we try them, of course, we won’t know how much the sanctions will bite. For now, though, we know enough to try.

In the not so distant future – indeed perhaps only months from now – the United States and Europe may enact a mix of sanctions against the Central Bank of Iran (CBI) and Iranian oil exports as part of an effort to stall the Iranian nuclear program. Sanctions against the CBI would leave many current Iranian oil customers without any way to pay for their crude, effectively triggering a partial boycott on Iranian oil exports. Explicit sanctions would, of course, do the same. This prospect has elicited a flood of market impact analyses. The ones I’ve seen are proprietary, so I won’t post or quote them here, but they appear to have one important thing in common. Parts of each analysis look country-by-coutnry to see who is currently most dependent on Iranian oil. They then suggest that those countries are at greatest risk in the event a cutoff. Other parts of each analysis estimate the rise in world prices that sanctions would provoke as a way of explaining how bad the consequences would be. This is, quite literally, incoherent. To argue that each country will be affected differently depending on its level of imports from Iran, one must conceive of the world oil market as a place where geography matters deeply. This is inconsistent with thinking about a single world price for oil. It’s easiest to understand this with an example. Spain imports roughly fifteen percent of its oil from Iran, while France imports only three percent. The first type of analysis I’ve cited would lead one to conclude that Spain would suffer more than France from an oil embargo on Iran. Since both countries import essentially all their oil, that would have to mean that they would experience substantially different oil prices. Think of it this way: if Spain needs to cut consumption by fifteen percent in order to balance its internal market, but France needs to cut its consumption by only three percent, Spain will need to experience a much larger rise in prices. This is, of course completely inconsistent with any calculation that treats the world as an integrated market with a single price. If, on the other hand, Spain imports oil from France to balance its market (or buys oil that France would have purchased otherwise), leading prices to converge, then the fact that Spain was initially more dependent on Iran than France was will be irrelevant. One can take this a step further. There is actually some reason to believe, at least in the short term, that a disruption in Iran could affect different consumers in different ways. (It can take time to rearrange shipping logistics and the like.) But for every country that is hurt more than a simple global calculation would suggest (because it can’t simply replace its supplies at the prevailing world price), there is another that doesn’t feel the full brunt of the disruption. To see how this works, take another caricatured example. Let’s imagine that there are two suppliers in the world, A and B, each of which export one million barrels of oil each day, and two consumers, C and D, each of which import a million barrels a day. C buys its oil from A; D buys its oil from B. Now the world cuts A off entirely. There are two extremes at which one can analyze the outcome. In the first, markets are ultra-rigid, so C is toast. But in that case, D is sitting pretty, since it keeps importing the same amount of oil as before from B, and the market balances at the same price as before. In the second, markets are fully flexible. Both C and D reduce their consumption to half a million barrels a day each, splitting the total output from B. The world experiences a uniform price rise in order to trigger these cuts, and both countries suffer equally. The fact that C was importing from A before the cutoff is irrelevant. Of course, one can imagine cases that lie in between these two extremes. Here, there is not one global price; C isn’t as badly damaged as in the first case, but it’s worse off than a simple global price estimate would suggest. D, meanwhile, is worse off than in the first case, but it’s better off than simple global price estimates would indicate. What matters here is that simultaneously applying the two modes of analysis – one that makes geography central, and one that assumes it away – leads to incoherent results. If we want to really understand the likely impacts of an embargo on Iran, we need to square these two ways of thinking about the world, rather than pretending that they can coexist.

Frank von Hippel had a smart and sensible op-ed on nuclear power in the New York Times last Thursday. Alas the letters to the editor in response, published this past Saturday, make me doubt that serious discussion will emerge from the current situation. I wasn’t entirely surprised to see Scott Peterson, Senior Vice President at NEI (the nuclear industry association), respond critically. Frank is skeptical of nuclear power; he used to refer to himself as “anti-pro-nuclear”, which is accurate. But the details of the response are maddening. Peterson writes that “America’s nuclear power plants are well equipped to handle the impacts of severe events, whatever the cause”, but adds that “our industry is taking steps to make nuclear energy facilities even safer”. Well, which is it? If the facilities are already invulnerable, what could make them safer? Perhaps they aren’t actually invulnerable? I’ll hazard a guess that people would trust the industry more if it admitted that it wasn’t perfect. Instead, we’ve seen an increasingly defensive approach, which only hardens peoples’ views. That said, the anti-nuclear letter is even more frustrating. James Quigley, a university lecturer, bizarrely labels von Hippel an “advocate for nuclear power”, presumably because he admits that nuclear power isn’t 100% evil. Quigley asks “Are we to take seriously Frank N. von Hippel’s argument that the ultimate deaths of a mere 10,000 people as a result of Chernobyl, compared with the tens of thousands of people killed by particulates from coal, suggest that the nuclear industry is ‘remarkably safe’?”, but ignores the fact that Frank describes that as “one point of view” and notes that “for most people [presumably including himself] this kind of accounting is beside the point”. Quigley also criticizes von Hippel for his correct assertion that “running nuclear power plants is ‘relatively cheap’ once construction costs have been paid”, arguing that that “conveniently ignores the costs of decommissioning, security for the plant post-closure and radioactive waste storage in perpetuity”, which it doesn’t. Here we have, in two letters, everything you need to know about why the debate over nuclear power is so painful. Most advocates can’t admit that there are any downsides to nuclear power. Most opponents can’t accept that nuclear power has anything going for it. When someone like Frank steps in to offer up some moderate proposals, he gets savaged from both sides. That does not augur well for U.S. efforts to learn new lessons from Fukushima, rather than to just relitigate old debates.

First it was radioactive material in milk and spinach near the Fukushima reactors. Now it’s radioactive iodine in Tokyo tapwater that exceeds limits for infant consumption. All of which makes me think back to some work that I did in 2002 on dirty bombs. (Even if you aren’t interested in dirty bombs, read through; there’s a lesson for the current situation here too.) My colleagues and I wanted to estimate the consequences of a dirty bomb attack. To do that, we simulated the dispersal of radioactive material and then determined the area over which contamination levels would exceed established safety limits. The results were disturbing: large swaths of a city could be put off limits by a relatively modest attack. Some smart people pushed back. Contamination was considered unacceptable under existing regulations if continued exposure raised the risk of death from cancer by more than one-in-ten thousand. But the background rate of death from cancer was already one in five. If a large area became contaminated in a dirty bomb attack, they asked, wouldn’t authorities relax the limits? Faced with a choice between abandoning chunks of a city and accepting, say, a one-in-a-thousand increase in the cancer fatality rate, wouldn’t people pick the latter? Over the years, I became somewhat sympathetic to that argument, but I wasn’t entirely convinced. In particular, I was pretty sure that changing the safety thresholds after an event (rather than developing a set of alternative rules in advance) would be tough. Few people have the technical knowledge to judge for themselves what’s safe or not. In the aftermath of an ugly incident, they may also lose trust in authorities, which means that they won’t trust revisions to the rules either. Authorities may be stuck with the preexisting guidelines even if there’s a more rational alternative. That dynamic may come into play in Japan. I don’t want to claim any authoritative knowledge of the situation in Tokyo. That said, to the best of my understanding, the levels of iodine being seen in water exceed the threshold for chronic exposure. [UPDATE: After some more research, this is even more of a muddle. The thresholds seem to be consistent with FDA limits for chronic exposure through drinking water, but much more lax than EPA limits for the same. Like I said, I don’t want to claim any authoritative knowledge.] No one is yet at risk of chronic exposure. But authorities are still telling people not to drink the water. That may not be a rational response to the actual threat to public health, but it is a perfectly reasonable response given the existing rules. We will probably learn a lot in the coming months about exactly how much radioactive contamination people are willing to live with. The initial lesson I take away is that once you reach the point in a crisis where the radiation rules have become potentially counterproductive, it’s probably too late to change them.

I have a new piece in Slate that looks at the consequences of moving away from nuclear power. The climate policy analysis has attracted some thoughtful pushback. Let me address a few of the more important concerns. I noted that DOE and EPA simulations of the next couple decades tend to find that a moderate carbon price boost nuclear significantly but does little for other sources. I also observed that we basically have three (not exclusive) options for near zero carbon power generation, which is what we’ll eventually need: nuclear; carbon capture and sequestration (for coal or gas); and renewables with storage. (Over the nearer term – lets say a couple decades – we also have gas without CCS.) I argued that if the United States eventually adopts a serious carbon constraint, the choice will ultimately be “between the devil [we] know and a technological prayer”. The first line of opposition was to the DOE and EPA modeling of the Waxman-Markey bill (which I used as a proxy for a generic price on carbon). In particular, many argue that DOE modeling consistently underestimates plant construction costs. Alan Nogee of the Union of Concerned Scientists posted a helpful chart of DOE nuclear cost assumptions versus actual costs of real nuclear plants. I have a couple thoughts. First, the chart suggests that real costs could be lower or higher than the ones used in EIA 2010, though I’d agree that the high-end risk seems more substantial. Second, as Alan notes elsewhere, the EIA 2011 model is better. Yet the early release of the 2011 AEO suggests that the nuclear projections are similar to those from 2010. (The modelers see five new nuclear plants by 2035 rather than six, though it’s impossible to tell how much of this is due to higher capital costs, and how much is due to the assumption of cheap natural gas.) To really dig into the full consequences of the capital cost updates, of course, you’d need to remodel a carbon price using the 2011 NEMS code. The second line of skepticism came from George Hoberg at the University of British Columbia. (Yes, for those of you who are clicking on these links, I now conduct all of my serious technical debates over twitter.) He flagged a paper from Energy Policy that suggested ways to get all global energy from wind, water, and solar by 2050. That paper does not rely on centralized energy storage to match supply to demand. Instead, it argues that a combination of demand management, hydropower for gap filling, long-distance grid integration, and the use of surplus power to produce electrolytic hydrogen would probably suffice. It also notes that the use of electric vehicle batteries for storage might be necessary – and that centralized energy storage might even be required. Relying on a hydrogen economy to materialize, or betting that centralized energy storage either will be possible or won’t be necessary, strikes me as qualifying for the label “technological prayer”. That is not to say that I dismiss the possibility – far from it – but it’s far from something we can count on. The last challenge comes from David Roberts at Grist, who asks whether, in a world of limited resources, “variety” and “all of the above” are actually real options. (He points me to a thoughtful recent article in which he fleshes out his ideas.)  I have mixed feelings about this. My guess is that the answer depends on a few things. If we have a hard, black and white emissions goal, where if we hit it all will be ok, but if we miss it we’re doomed, we might want to concentrate all our (limited) firepower on one technological bet and hope that it turns out ok. If, on the other hand, various degrees of success all count, we might want to adopt a more resilient investment and innovation strategy, even at the expense to lower odds of delivering a big bang. The answer also depends on exactly how constrained the innovation budget is. And it depends on the timelines we have in mind for steering money into the system: yes, there are increasing returns to scale up to some point, but beyond that, simply pumping more money into one area will yield declining results, and perhaps even backfire through cost inflation. (For more on all that, this paper by Varun Rai and colleagues is great.) Bottom line? I certainly wouldn’t put all my bets on nuclear, but I’d be wary of putting all my bets on some other technology too.

The scramble for energy alternatives has brought new focus on nuclear power in the United States, but its revival faces political and practical obstacles.

I have a new essay up at the Washington Post that challenges five myths about nuclear power and provides some basic facts. (It will be published in print on Sunday.) I discussed it in an online chat on Tuesday; you can find the transcript here. The myth that seems to attract the most pushback is this one: “Nuclear power is the key to energy independence”. I argued that oil is largely for transport while nuclear is for electricity. A large number of people have responded by insisting that electric vehicles change that equation. Once we can plug our cars in, they argue, we can fuel them with nuclear power. Let me explain quickly why that logic is wrong. Imagine three worlds. In the first, we have affordable electric vehicles, but don’t generate nuclear power. In the second, we generate acceptable and affordable nuclear power, but we don’t have electric vehicles. In the third, we have both. The first and third cases would lead to lower oil consumption. The second? It’s hard to see why. It’s the electric car that’s the key element of the equation here, not the place that it gets its power from. I guess if I push myself I can see two other arguments against my bottom line. One might argue that nuclear plants could be used to make hydrogen for fuel cells (a point that has been around for decades). One might also claim that nuclear can back out natural gas in the power sector, freeing it up for use in transportation. I think that these are both big stretches, but it’s worth flagging them.