Do low external costs justify support?

1 May 2005

The nuclear industry accepts that it has received substantial public funding for research and development (R&D), even thought most of this occurred in the past and was justified at the time by society’s needs. But it remains quite difficult to separate military from civilian R&D in the nuclear fuel cycle. Just think of enrichment technology, for example. The civil industry today is clearly benefiting from a great deal of previous R&D expenditure that was clearly, initially at least, intended for military applications.

In more recent years, R&D expenditure from public funds has spread increasingly to the renewables sector, which has also received substantial funding from private industry. Whether all this investment in the future will eventually be rewarded remains an open question – only time will tell. By its very nature, such funding often achieves little obvious direct benefit, but is something that society clearly ought to do if it has a keen interest in the future. Even a few seemingly small breakthroughs may lead to great things.

Renewables also receive substantial additional direct subsidies from the state. These are justified partly on the grounds that they need assistance in the early stages of development but mainly because they avoid greenhouse gas emissions. The subsidies take various forms, but have been large enough in countries such as Denmark and Germany to make wind power generation an important element in power generation. In the USA, wind power receives a production tax credit of 1.5¢ per kWh, which is also inflation-linked. In the UK, the combination of the Renewables Obligation and the Climate Change Levy is currently worth around 5 pence per kWh to wind power stations, which is more than double the average power production cost across all generation technologies.

The nuclear industry argues that it is also very environmentally-friendly, as it has always had to incorporate its own waste management and disposal costs in prices charged (equivalent to about 5% of generation cost, with a further similar sum for decommissioning) and doesn’t emit greenhouse gases. Fossil fuel producers, on the other hand, receive implicit subsidies as the main waste product of their generation is simply dumped. If nuclear has such small external costs, surely it should receive similar benefits as the renewable sources of energy? On the other hand, the industry’s critics doubt that it is so beneficial, mentioning radiation exposures and hidden costs that are avoided.

Questions such as this can be addressed by life cycle analysis (LCA). My article in the October 2004 edition of NEI, asking whether nuclear power creates a net energy edition, touches on this subject as does the report on a recent study by the World Energy Council (WEC) in the same edition.

An important component of LCA is the study and possible quantification of external costs. The ExternE report, a major European study of the external costs of various fuel cycles, focusing on coal and nuclear, was released in 2001 and further figures have emerged since. The European Commission (EC) launched the project in 1991 and it was the first research project of its kind "to put plausible financial figures against damage resulting from different forms of electricity production for the entire EU".

The external costs are defined as quantifiable ones incurred in relation to health and the environment, but not built into the cost of the electricity to the consumer and are therefore borne by society at large. They particularly include the effects of air pollution on human health, crop yields and buildings, as well as occupational disease and accidents. The 2001 data excluded effects on ecosystems and the impact of global warming, but these are now included despite the high range of uncertainty in their evaluation.

The methodology measures emissions, their dispersion pathways and ultimate impact. Exposure-response models lead to evaluating the physical impacts in monetary terms. With nuclear energy, the (low) risk of accidents is factored in along with high estimates of radiological impacts from mine tailings and carbon-14 emissions from reprocessing (waste management and decommissioning being already within the cost to the consumer).

The report shows that in clear cash terms nuclear energy incurs about one tenth of the costs of coal. Nuclear energy averages under 0.4 euro ¢ per kWh (0.2-0.7¢), less than hydro, coal is over 4.0¢ (2-10¢ averages in different countries), gas ranges 1-4¢ and only wind shows up better than nuclear, at 0.05-0.25¢ per kWh average. The EU cost of electricity generation without these external costs averages about 4¢ per kWh. If these external costs were in fact included, the EU price of electricity from coal would double and that from gas would increase by around 30%.


The battle is to persuade society to be more rational in its decision-making

The report proposes two ways of incorporating external costs: taxing the costs or subsidising alternatives. Due to the difficulty of taxing in an EU context, subsidy is favoured. EC guidelines published in February 2001 encourage members states to subsidise "new plants producing renewable energy… on the basis of external costs avoided", up to 5¢ per kWh. However, this provision does not extend to nuclear power, despite the comparable external costs avoided. EU member countries have pledged to have renewables (including hydro) provide 12% of total energy and 22% of electricity by 2010, a target which appears unlikely to be met. The case for extending the subsidy to nuclear energy is obvious, particularly if climate change is to be taken seriously.

The EC is undertaking a follow-on study to ExternE called NewExt to examine particular environmental costs and risks, mostly associated with fossil fuels. Another study will look at the external costs of various modes of transport.

Consideration of external costs leads to the conclusion that the public health benefits associated with reducing greenhouse gas emissions from fossil fuel burning could be the strongest reason for pursuing them. Thousands of deaths could be avoided in urban areas each year by reducing fossil fuel combustion in line with greenhouse gas abatement targets. The World Health Organisation (WHO) in 1997 presented two estimates, of 2.7 or 3 million deaths occurring each year as a result of air pollution. In the latter estimate, 2.8 million deaths were due to indoor exposures and 200,000 to outdoor exposure. The lower estimate comprised 1.85 million deaths from rural indoor pollution, 363,000 from urban indoor pollution and 511,000 from urban ambient pollution. The WHO report points out that these totals are about 6% of all deaths but the uncertainty of the estimates means that the range should be taken as 1.4 to 6 million deaths annually attributable to air pollution.

A particularly interesting area is that of accidents related to energy production. This should be an area that is particularly obvious to the general public, allowing them to make accurate projections of risks and rewards. Unfortunately it is not so simple.

A November 1998 study from the Paul Scherrer Institut in Switzerland drew on data from 4290 energy-related accidents, 1943 of them classified as severe, and compares different energy sources. It considered over 15,000 fatalities related to oil, over 8000 related to coal and 5000 from hydro. Considering only deaths and comparing them per TWy, coal has 342, hydro 883, gas 85 and nuclear power only 8. Given that nuclear power annually delivers some 2500 TWh per year to the world, these 8 deaths would be spread over 3.5 years, so on average 2.3 deaths a year. Coal produces slightly more than double nuclear’s share of world electricity and the average works out at 216 deaths per year. In terms of number of immediate deaths per event from 1969 to 1996, hydro stands out with about 550 compared with coal at around 40. Nuclear power has, of course, only experienced one accident of such magnitude, namely Chernobyl, despite the common perception that it is so dangerous.

One only has to look at the coverage received by the incidents in the Japanese nuclear industry in recent years to appreciate the problem the industry faces. A small number of deaths in the nuclear industry receive huge headlines, even if they are not attributable to the nuclear part of the plant, as was the case with the Mihama accident. Yet frequent coal mining disasters in China, sometimes with hundreds of deaths, receive little attention. Yet both are related to similar kilowatt hours of power received by the consumer.

The recent studies, nevertheless, show that nuclear power is certainly not a bad citizen and in fact, to the contrary, is very safe to work in and has very limited impacts on the external environment. The battle to achieve acceptance of these important facts is a very slow and hard one, but it is one that the industry appears slowly to be winning. The battle is to persuade society to be more rational in its decision-making after people are given the correct information and necessary price signals. The external costs of power production should certainly be incorporated in electricity pricing, but it is maybe over-optimistic for this to happen in such a way as to give nuclear a substantial economic advantage. At least for some time yet.

One alternative is for new nuclear plants to receive some direct assistance from the state, such as production tax credits, loan guarantees and speedier regulation. Anything which gets new nuclear plants over the hurdle of the heavy initial capital investment cost will clearly be helpful and could be justified by helping the environment and maybe also securing a greater balance in power supply.

Nevertheless, the first stage is to achieve the widespread recognition that nuclear is benign. This in itself would go a long way towards countering the problem that nuclear still has with general public acceptance.

Steve Kidd Apr '05
If fossil fuel use is significantly penalised by carbon taxes or emissions trading regimes, the competitiveness of nuclear clearly improves, particularly against coal, but also gas

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