In this week's blog post, we discuss how reductions in healthcare costs more than justify the expense of subsidies for nuclear power and support our assertion that the Federal and State governments should subsidize the construction of nuclear power. The immense up-front CAPEX is a significant hurdle (perhaps even a deterrent) to construction of new nuclear power plants. Subsidizing these investments would reduce the financial risks undertaken by plant owners and would be financially beneficial to the U.S.
First, we review the established links between air pollution and the maladies they cause, and we discuss the costs associated with treating such diseases. Next, we discuss the ability for commercial nuclear power to displace the pollution associated with the diseases. And finally, we take a basic balance-of-cash-flows approach to compare the costs and benefits of subsidizing nuclear power.
While the causal linkage between air pollution has long been intuitively suspected, research findings over the last few decades have supported this hypothesis, even going so far as to assign value or, more appropriately, the costs of air pollution related diseases, both in terms of direct spending on healthcare and in the opportunity costs of wages lost to sick time, reduced productivity, and accelerated mortality. It was estimated that in 2013 alone, $150 billion was spent worldwide on air pollution related illnesses (Source: http://www.annalsofglobalhealth.org/article/S2214-9996(16)30808-6/pdf). In 2011, the Environmental Defense Fund estimated that the Clean Air Act would yield over $500 billion in annual economic benefits in the United States alone, including a reduction in pollution-related healthcare spending of $82 billion over the next 10 years (Source: https://www.edf.org/sites/default/files/saving-lives-and-reducing-health-care-nov2011.pdf). Considering how important access to electricity is to the overall quality of life, it is clearly evident that reducing electrical consumption is not a viable solution to the country's (or world's) air pollution problems. The following figure shows the relationship between Electricity Consumption Rate and Quality of Life index.
Using greenhouse gas emissions as a proxy for air pollution (i.e., assuming the ratios of greenhouse gas emissions by source is about the same as the ratios of air pollutants), we see that roughly 31% of air pollution in the United States results from power plant emissions. (Source: https://www.epa.gov/ghgemissions/sources-greenhouse-gas-emissions).
Since nuclear power is a zero-air-pollution form of electricity generation, as nuclear power plants produce more electricity, less air pollution is emitted, and fewer health problems and lost economic activity are incurred. If that same $500 billion economic impact from air pollution is applied to the above graphic, then one can conclude that $150 billion per year of economic impact would be saved by generating 100% zero-air-pollution electricity generation.
The U.S. Energy Information Administration estimated that about $2.5 billion in subsidies were granted for nuclear power (Source: http://www.aei.org/publication/renewable-energy-sources-received-25-times-more-in-taxpayer-subsidies-per-energy-unit-produced-than-fossil-fuels-in-2010/). In 2010, about 3,886 billion kWh of electricity was consumed in the U.S. With nuclear power making up about 20% of the U.S. electricity generation, that works out to be about 311 kWh / $1 of nuclear power subsidy. If 100% of U.S. electricity generation were to come from nuclear power, then the associated subsidies would be about $12.5 billion per year. That's $12.5 billion per year in subsidies to create $150 billion in economic benefits.
In summary, the linkage between air pollution and negative health effects is clear, as are the associated costs. The ability of nuclear power to supplant air-polluting forms of electricity generation is also clear. Finally, the economic benefits attributable to clear air are clearly greater than the costs of subsidies to nuclear power generation. Considering the societal importance of access to electricity and reductions in air pollution, it is evident that nuclear power subsidies are far more valuable than their costs.
The blog correctly brings out the relevance of social costs associated with power generation and how the funds directed towards fighting GHG emissions and health treatment could in fact be diverted to finance nuclear power. My blog too focused on ways to popularize nuclear energy and this post gives us another method in making nuclear power a profitable model which could attract private investment.
ReplyDeleteYou mention that the Clean Air Act would yield over $500 billion in annual economic benefits in the United States alone. I would go a step further by saying that as per EPA by 2020 the benefit to cost ratio of clean air act is expected to be 26 to 1 i.e a staggering gain of approximately $2 trillion in benefits, at a cost of $65 billion. In my blog i have brought out that a nuclear plant in the U.S. would probably cost around $9 billion to build. This seems like pocket change given the potential health benefit savings envisaged due to clean air act. Not to mention that churning out small nuclear reactors (more savings) is the way forward. According to Bloomberg, air pollution may reduce the size of China’s economy as much as 2.5 percent by 2060. Its evident that cost of air pollution on health and economy in general is immense and there lies the relevance of nuclear power. The blog talks about quality of life directly related to electricity consumed per person. Seven U.S. states including Pennsylvania increased taxes on gasoline by 26 cents recently to curb air pollution. Well i am sure that this has impacted some car buyers and happiness index went down. Probably nuclear power plants by reducing air pollution and could indirectly prevent such taxes by the state governments. Overall the blog is informative and it is great to know the link between health and nuclear power plants
This blog very well highlights the significance of understanding health from a cost perspective and how good health can be economically feasible for the society. Since nuclear energy is currently under the microscope and continues to be scrutinized because of its high capital requirements and environmental concerns, it is interesting to read a piece which correlates the health benefits with encouraging nuclear subsidies.
ReplyDeleteIt has been well argued in the post that there is scope for considerable economic benefits with reduction in air pollution, in which reduction in healthcare costs play an essential role. From a long-term perspective, it is difficult to predict whether nuclear energy would continue to hold the 20% share that it currently maintains in the US energy mix. This is because one can argue that renewable energy sources have seen aggressive expansion in the market, and with the established policy and incentives in place for both residential, commercial as well as industrial customers, the state governments are inclined towards pushing their renewable portfolio agenda. The social acceptability of nuclear energy tends to remain low compared to renewables as a result of the nuclear hazard risk and fear of extensive environmental and health damage in case of a disaster. This leads to investors being tempted to become stakeholders in renewable sources which are predicted to take a much larger share over the next two decades and heavily influence the near future federal and state energy policy. Though nuclear power has its own advantages over renewables such as a much more reliable supply, it struggles in competition with renewable sources, as long-term taxpayer subsidies for nuclear power plants may not be feasible for many states, considering their challenging generation portfolio standards they are required to meet.
To conclude, the article is really informative and a further economic analysis to study the flow of the healthcare savings into nuclear subsidies would be interesting to see, as it could quantitatively support the argument better.
Akhil,
DeleteI share your perspective on public opinion relative to renewables and nuclear. I did not want to touch on that in this post and make it a "nuclear vs. renewables" battle, as such discussions sometimes become.
I genuinely believe that a national energy policy dedicated to replacing all fossil fuel power generation with a combination of nuclear and renewables would be a prudent long-term position for this country and many others. And I truly believe that when the long-term health and other environmental effects, these investments would prove economically beneficial to everyone.
I also recognize that a firm, any firm, has fiduciary responsibility to its shareholders, which further necessitates government intervention. After all, the government's shareholders are the people it represents.
My personal "hunch" is that renewables are many decades away from being able to provide consistent, reliable baseload capacity, whereas nuclear can provide that capacity now. Further, because of the economics of power plants, and the physics of nuclear plants in particular, my hunch is that it makes the most sense to design the national grid to run nuclear as baseload and renewables for peak and other load-leveling as necessary.
Just my $0.02.
Full disclosure: I am (or at least was) a nuclear engineer for over 10 years, so I might be biased, or at least better informed regarding nuclear issues than renewables.
Interesting discussion Trey. Nicely done. I seem to hear more and more about the immediate air pollution costs of fossil generation these days. My colleague Jay Apt makes a very strong case that one doesn’t have to take a super strong position on climate change to be against coal and your case supports his. Question: should you be including all CO2 emissions, or focusing more on coal? I think that that natural gas is much better for air quality and the associated health implications (but I’m no expert) and it’s more economical than coal (and I read that “clean coal” is going nowhere fast as Southern Co. is concluding with its Kemper disaster). So if you refine the near term health argument to ask whether the health benefits from nuking coal (pun intended!) can pay for lots more nuclear, I suppose that the argument isn’t as strong.
ReplyDeleteGraphs hard to understand … I get the point, but it’d be nice to be able to interpret the graph
You write “If that same $500 billion economic impact from air pollution is applied to the above graphic, then one can conclude that $150 billion per year of economic impact would be saved by generating 100% zero-air-pollution electricity generation.” I don’t see this in the graphs?
Spelling mistake in the title!
Provocative position.
Grading Rubric (badly formatted because comments don’t allow formatting)
Possible “grades:” Excellent (E), Very Good (VG), Good (G), Could be Better(CBB)
Takes a clear position: VG
Substantiates the position: G
Informs the casual reader: G
Clarity/quality of exposition: VG
I might have been unclear about the $150 billion. The graph shows 30% of greenhouse emissions come from electricity generation. The assumption is that air pollution follows greenhouse gasses. So if you switch all electricity generation to nuclear, then the 30% of air pollution would be displaced, and 30% of $500 billion of economic activity would not be impaired, or $150 billion.
DeleteI thought about going after greenhouse gases, too, but to keep it simple, I decided just to stick with air pollution, i.e. aerosolized particulates, which are inherently a different "threat" than greenhouse gases. I'm sure, in fact I know for a fact, that similar types of analyses have been performed. It might have been easier to take that route and steal, I mean plagiarize, I mean paraphrase one of those analyses.
You provide an interesting perspective in advocating Nuclear power. As you mentioned in your post the social costs associated with fossil fuel based power generation technologies are staggering, and should be accounted for while comparing the costs of two power plants. I did an analysis last semester to compare natural gas, coal and nuclear power plants by including the additional social costs. Surprisingly (or not so) even after considering the time frame for construction of a nuclear power plant (which may be more than 10 years) the cost of electricity was least for nuclear and the highest for coal power plants. Economically you are right nuclear power makes a lot of sense.
ReplyDeleteThere are some other challenges that Nuclear Power face though. biggest of which is disposal of consumed fuel rods. This is a big issue that must be dealt with before mass scale development of nuclear power as cooling ponds are not a sustainable option. Secondly, there is a big uncertainty in CAPEX of a nuclear power plant. Why? It takes more than a decade to build a plant and any incident worldwide (say Fukushima) might make the authorities to update the standards and codes, which would affect the CAPEX as you would be paying for something you did not consider before. Third challenge is the inertia of power plants. As much as we hate them, fossil fuel power plants are not going to go away in blink of an eye. There are thousands of families whose livelihood depend on those plants and the government has to consider such externalities before making a big decision. Development of new renewable capacity to power our needs will take time, and till then the government has to invest in cleaning the existing power plants, or they will fail to meet the global emissions targets set under national policies or COP21.
I agree nuclear energy is a clean energy source and will play a great role in a future world powered by clean energy, but your recommendation, even though is financially beneficial for the economy, is hard to be accepted in the current scenario. We need a breakthrough in SMR technology to make this proposed model a reality.
You did a great job overall, and I look forward to your next post.