Nuclear Energy

Have you heard that all big energy sources entail risk? I can’t count the number of times in the last few days that I’ve heard some variation on the following: “Yes, nuclear involves risk. But so does oil: Don’t you remember the BP disaster just last year?” Pause for a moment and think about that. For more than a month, people have been following developments in the Middle East with rapt attention, not only because of the inspiring potential for political change, but because of the clear consequences for oil, and hence for the U.S. economy. When President Obama took to the airwaves last Friday, it was not to encourage change in Libya or reform in Bahrain – it was to tell the American people that he was monitoring their gasoline prices and would take all necessary steps to protect them. When Saudi Arabia suppressed protests last week, it might have been a moment for mourning; instead, most Americans looked at the price of oil and breathed a sigh of relief. So why on earth do we reflexively turn to the Gulf oil spill when we want an example of oil-related risk? My hunch is that the nuclear situation sends us into an “environment” and “public safety” world; the Middle East situation, in contrast, fits in the worlds of “economics” and “security”. We seem incapable of thinking about both at the same time. Part of the reason for that, I’d guess, is that many peoples’ concerns – and most experts’ expertise – doesn’t span all the areas that ultimately matter. If you care passionately about the environment, you’re probably not an aficionado of Middle East politics; if you’re focused like a laser on macroeconomics, you’re probably don’t spend that much time thinking about the environmental risks of fracking. It doesn’t help that we don’t have good analytical tools to make judgments that cut across multiple dimensions of energy risk. My 2009 study on the Canadian oil sands attempted to develop one framework; many responses predictably ignored one of the two dimensions I was looking at. This may be the natural state of affairs, but it is an awful foundation for making coherent energy policy. Until we can think about security, economics, and environmental risk at the same time, we’re going to have a lot of trouble developing an energy policy that makes sense.

An extraordinary series of events has caused Japan’s nuclear crisis but it appears backup safety systems were flawed, says nuclear expert Charles Ferguson. He expects the disaster to slow some nuclear projects elsewhere but not cause a wholesale stoppage.

I have quick piece up at CFR.org assessing the potential policy consequences of the ongoing Japanese nuclear disaster. Short version: Take a look at political prognosticators’ track record from the early days of the BP oil spill before you decide to believe anything that’s being predicted right now. I chose not to write about the nitty-gritty of the current technical situation for a simple reason: I don’t really have anything to add to what the honest-to-goodness experts have to say. I know more than enough about the technical ins and outs of nuclear power to speak intelligently about related policy issues, but the situation at the reactors is complex and opaque. Even bona-fide nuclear engineering experts have severe limits to their ability to predict where things are going. A disturbingly large fraction of the people currently opining on television and radio, though, aren’t even experts on nuclear technology. They are policy experts who apparently can’t say no when people ask them to go on TV and talk about the technical ins and outs of the unfolding situation. I’m not naïve: I know that the airwaves are always full with people who don’t quite know what they’re talking about. But the current situation is special. Nuclear incidents are inevitably amplified by fear, and fear is multiplied when people lose trust in their information sources. It is particularly important right now that people get the best information possible, and it’s incumbent on the media to make sure that they go to people who really know what they’re talking about. I’ve said no to more than a few interview requests over the last few days, and have directed producers to real engineering experts instead. I’d be thrilled to see more nuclear policy experts do the same. And there are plenty of people for the media to turn to. I often have policy disagreements with the nuclear skeptics at the Union of Concerned Scientists, but David Lochbaum, in particular, has been great at giving clear technical information in the last few days. Olli Heinonen, formerly of the IAEA and now at Harvard, has been solid; it helps that he spent several years as an inspector based in Japan. The reporters of the New York Times have been doing a stellar job, which isn’t a surprise, particularly given Matt Wald’s deep expertise in the area. Finally, the pro-nuclear World Nuclear Association has been publishing a great series of detailed technical updates.  Bookmark their page and update it frequently; I certainly have been.

I took the picture in this post somewhere outside of Tehran in early 2006. The number at the bottom is the price of gasoline – at the time, a massively subsidized 800 rials (about 8 cents) per liter, equivalent to about 30 cents per gallon. As of a few days ago, the price of gasoline was still 1000 rials per liter for the first 60 liters a month. On Saturday night, though, the Iranian president announced that subsidies would be abruptly slashed. Each of the first 60 liters of gasoline per person will now cost 4000 rials (about $1.50 per gallon), and additional gasoline will go for 7000 rials per liter (about $2.70 per gallon). What’s prompting this price hike, and what will the consequences be? The Iranian government spends tens of billions of dollars each year subsidizing gasoline consumption. That’s money that the financially squeezed government could be spending elsewhere. Press reports have been emphasizing this factor: Iran is also ending subsidies for a host of other basic commodities, and hopes to save as much as $100 billion each year. I’m surprised, though, not to have seen another angle: Iran is struggling to match gasoline supply with demand. Despite being an oil exporter, Iran imported about forty percent of its gasoline until recently, in order to make up for a shortage of domestic refining capacity. U.S. and European sanctions have, however, prompted many of its suppliers to pull back in the last year. Iran has apparently managed to temporarily bridge the gap by switching some of its petrochemical plants to produce gasoline, but that’s undoubtedly even more costly than paying for imports. Higher gasoline prices should help ease the strain by curbing demand. How much? This sort of thing is inevitably very difficult to predict, but we can make a crude estimate. A recent paper by three economists at Tehran University and the University of Surrey surveys estimates of elasticities of gasoline demand in Iran. The short-run price elasticity of gasoline demand appears to be somewhere between -0.1 and -0.15. If that’s right, a fourfold increase in gasoline prices should translate into a cut of approximately 10-20% in gasoline consumption. This would make a material contribution to addressing Iran’s sanctions-induced challenge. Indeed as I write this, the Iranian oil ministry is reporting a 16.6% drop in gasoline consumption from Saturday to Sunday – though it’s impossible to know how much of that is driven by the price hike, and how much is the result of other factors. Setting that aside, there are important caveats, beyond the simple fact that the past studies might not be all that good. Higher gasoline prices normally curb demand in part by shifting it to other products. But because Iran is hiking the prices of a wide range of other products too, that effect might be reduced. Moreover, a fourfold increase in gasoline prices is way outside the range of past experience; it may not be possible for drivers to quickly reduce their gasoline use as much as theory predicts. Regardless, the big question now is how this all goes over in Iran. Police are bracing for violence. It probably won’t be long until we know how this plays out.

I have an op-ed in Wednesday’s USA Today on the New START nuclear arms control agreement. I should note that I’m more than a bit uneasy with the title they’ve given it (“Treaty Hypocrisy: The GOP and New START”); I’d originally called it “A Tale of Two Treaties”, and don’t mean for it to be partisan or political, but rather to illustrate an important lesson. In any case, here’s how it starts: “A U.S. president goes overseas and signs a controversial nuclear agreement. Now, he must get the deal approved by the Senate. While the attitude of his political opponents ranges from skeptical to hostile, these detractors also know that killing the deal would undercut U.S. influence in the world. “This is the dilemma that many Republicans face as they consider the New START treaty, an arms control agreement between the U.S. and Russia that President Obama signed this year. But it also is the dilemma Democrats faced four years ago with the far more controversial U.S.-India nuclear deal, which granted India access to nuclear technology despite its refusal to join the Nuclear Non-Proliferation Treaty. Back then, Democrats held their noses and voted with the president, a Republican. Those Republicans who are threatening to kill the New START agreement should do the same now.” I go on to describe the two agreements – one quite radical and the other much more traditional (you can guess which I think is which) – and why the path taken in 2006 is also the one that should be taken now. You can read the whole thing here.

U.S. concerns over India’s nuclear liability law are likely to come up during President Obama’s trip to India, but expert Ashley Tellis says the trip is unlikely to yield alterations that allow a level playing field for U.S. companies.

I spent the first part of this week in Israel talking to people about the Iranian nuclear program. I thought I’d share a few observations. (While I’m writing about travel: I’ll be in Shanghai and Hong Kong next week to talk about climate and clean energy technology. If you read this blog and live in either of those cities, drop me a line.) Washington was abuzz in late August over Jeffrey Goldberg’s article in The Atlantic about the possibility that Israel might bomb. But Israelis have barely noticed the essay. That doesn’t mean, though, that they haven’t been thinking about the military option. Despite wide-ranging opinions over the wisdom of a military strike (it’s not nearly as popular an idea there as many Americans assume), one theme was consistent: people think that Israel could set the program back by 1-2 years, but that the United States could set it back considerably further, maybe by 6-8 years. (I understand that there’s often an ulterior motive to making such a point: it tends to encourage the United States to execute its own military attack. But I found the underlying arguments for the more basic technical point to be persuasive.) In the United States, setting Iran back by 1-2 years isn’t seen as sufficient to justify an attack. Israelis, though, consistently argued that sharp changes in a country’s leadership, and even basic political structure, can be quick and surprising. Few expected the collapse of the Soviet Union, the 1979 Iranian revolution, or the 2003 invasion of Iraq two years before any of those happened. From that vantage, even a 1-2 year setback has the potential to be decisive. Many Israelis also seem to have a different way of thinking about how far away Iran is from the bomb from their U.S. counterparts. U.S. analyses tend to focus on how long it would take Iran to produce enough weapons-grade uranium for a bomb given its existing facilities and stockpiles of low-enriched uranium. Other steps, like producing the actual weapons, are generally assumed to take very little time. That means that the estimated time it would take Iran to “break out” of its program and produce a bomb gets smaller and smaller. Israelis I talked to, though, emphasized the additional time that would be required to reconfigure an enrichment facility to produce weapons-grade uranium, as well as the time required to convert enriched uranium hexafluoride (a gas) into the specially shaped metal required for a bomb. These factors mean that even if Iran was to accumulate a large stockpile of low-enriched uranium, or to build up a much larger (or more capable) enrichment facility (or both), Israel might continue to judge Iran as being about a year away from a bomb. That said, the time required for Iran to produce enough material for a bomb still matters greatly to Israelis. Fissile material production, while possible to hide, may occur at known facilities. Even if production occurs at covert facilities, it may use material from known sites, and hence be (indirectly) detectable. But once Iran makes enough highly enriched uranium for its purposes, and moves it to another site, it is much more difficult (at best) to track. It’s also worth noting that for many in Israel, one bomb is not the threshold – or, more precisely, many Israelis don’t think that it’s the threshold that Iran cares about. Having one bomb crosses several important lines, and is very dangerous, but it does not yield a military (or second-strike strategic) capability. Many of my interlocutors suspected that Iran would not try to produce weapons until they were in the position to produce 5-10 of them in relatively short order. Finally, several Israelis made a special point of noting the great concern that the small Gulf states (as well as Saudi Arabia) have over the Iranian program. They already see Iran throwing its weight around more than it has in the past, and expect that to only increase as Iran moves forward on its nuclear program. It is difficult, though, for Israel and the Gulf states to cooperate on their approach to Iran, given the highly strained state of relations among them. That’s it for now. I’m spending the rest of the week talking to people in Vienna and Ankara about the Iranian program, and I’ll have more to report next week.

Trevor Houser and his colleagues at the Peterson Institute have a sharp economic analysis of the Kerry-Lieberman energy and climate bill out this morning. Take a look here. (There’s a lot more in it – on emissions, oil consumption, and energy prices – than I discuss here.) This is the first analysis of any climate bill I’ve seen that actually tells a plausible story of the “green jobs” front. Their conclusion is that the bill would add modestly to job growth during the next decade, while depressing it slightly in the decade after, but still leaving a (tiny) net gain over the two-decade period. This is a big deal if it holds up. I’ve been skeptical of green jobs arguments in the past, and still have some big questions about the sensitivity of the authors’ conclusions to a few important assumptions. But the authors make the first serious quantitative case I’ve seen for net job creation from a climate bill. Moreover, they tell a new sort of green jobs story (which will make many environmentalists uncomfortable): the bill, by their estimates, would create 165,000 jobs in the nuclear industry (averaged annually over the 2011-2020 period) but only 19,000 jobs in renewable power. I’ve been quite critical of most “green jobs” analyses for missing the big picture: they normally count jobs created in clean energy and jobs lost in fossil fuels but ignore the negative impacts of higher energy prices and of macroeconomic distortions. They thus tend to inflate job projections, tipping those from negative to positive. Typical economic models, in contrast, incorporate these effects. Those models conclude, I still think correctly, that for an economy at or near full employment, carbon pricing will probably send employment numbers down a smidge. But the problem with those models is that we aren’t anywhere near full employment – and the EIA doesn’t think we’ll be back there until the end of this decade. As Houser and his colleagues argue, this provides an opportunity. If we use carbon pricing to spur replacement of old power plants with new (low-carbon) power generation in the near term, it will create jobs building those plants.  Since there is a lot of slack in labor markets, those won’t necessarily come at the expense of other jobs. The same is true, they argue, for capital: there is a lot of money on the sidelines, and there will be for a while, minimizing the capital market distortions that would normally arise from a big push for new investment in one sector. These arguments have been made at a qualitative level before. But they always needed quantitative analysis to see whether there would be more jobs created than destroyed. Houser and his colleagues conclude that, for 2011-2020, the answer is yes, to the tune of 203,000 on average for any year. For 2021-2030, when the economy is back to normal, the answer reverses (as intuition suggests it should), with an average of 190,000 shaved back off (a number which presumably would increase after 2030). (The authors don’t actually give a number for 2021-2030; they give a net average annual gain of 6,300 for 2011-2030, from which one can infer the 2021-2030 number.) I have one big worry about the analysis: its results appear to be sensitive to some very important assumptions about nuclear power. (I have similar concerns, for roughly the same reasons, about its treatment of carbon capture and sequestration.) Page 12 of the report has an extraordinary plot that shows how jobs are created and destroyed. Here it is: More than half of the clean energy jobs created over 2011-2020 are in nuclear power – the model projects 165,000 average annual jobs added in that sector. (Another 31% are in CCS; CCS and nuclear together yield 85% of the clean energy jobs.) This has a special and potentially big impact on the analysis. Nuclear plants are expensive and take a long time to build. (Ditto for CCS.) The model that the authors use (which is the EIA’s own model) assumes that utilities aren’t allowed to pass on the costs of power plant construction to their customers until the plants are in operation. This means that while construction jobs are created in the coming decade, while the plants are being built, the economy doesn’t feel the hit from higher energy prices until after 2020, when they go into operation. That juices the jobs numbers for the 2011-2020 time period. I can imagine two ways, though, that this assumption might turn out to be wrong. The first is if nuclear construction turns out not to be feasible at the scale and pace that the authors predict. (Same, again, for CCS.) In that case, the bill would presumably need to spur more renewable energy investment (and greater use of offsets). Wind and other renewable facilities are quicker to build. Their costs would thus be passed on to consumers sooner; the net result would be greater near-term job destruction through higher energy prices, and, perhaps, a tipping of the net jobs numbers into negative territory (though one would need to rerun the model to find out). The second way that the nuclear math could prove wrong is if regulators allow utilities to pass on some of their construction costs to ratepayers before the new plants go online. (Yes, once again, this applies to CCS too.) This practice (which is allowed in some states) has been the subject of much debate in the regulatory community. It is also high on the wish list of the nuclear energy lobby. To the extent that it is allowed, higher energy prices would come sooner, just as would be the case with renewable energy investment. The net result would be the same too: bigger numbers in the negative jobs column. Again, it’s impossible to know what the net jobs outcome would be; the authors would need to rerun their model with different assumptions to find out. The biggest take away for me, though, is that you can actually do analysis that acknowledges the investment-pull benefits of carbon pricing in an economy that’s well away from full capacity while respecting the negative effects of higher energy prices, as well as the macroeconomic limits that real labor and capital markets impose. If this holds up to scrutiny by serious economists (a club that I’m not a member of) then it’s an important advance in how we model climate legislation. The EIA, EPA, and CBO need to seriously study this analysis, and make any necessary modifications to their own models, before they pronounce their own judgments on this and future bills.

CFR.org asked me to write up some quick reactions on the nuclear "deal" announced by Iran, Turkey, and Brazil earlier today. I’m underwhelmed: deals that involve only one major party to a dispute tend to leave me cold. Perhaps the United States and Israel will announce their own deal on military options some time in the future. In any case, my take is here.

Those of you who know me may know that I spend a lot of time thinking not just about energy and climate but about nuclear security issues too. And it’s a big couple weeks for that. If you’re interested, take a look at my thoughts on how START affects U.S.-Russian relations at Politico, my interview on the nuclear security landscape with CFR.org here, and my reactions to the Nuclear Posture Review at the Daily Beast.

Interest in nuclear power is increasing, but securing adequate uranium supplies for nuclear fuel faces challenges ranging from a flagging mining sector to fears of nuclear weapons proliferation.