OECD Observer: What role can nuclear energy play in helping countries tackle global warming and in particular meet their commitments under the Kyoto Protocol?
Luís Echávarri: Quite a significant role. The target of the Kyoto Protocol for Annex I countries – meaning developed and transition economies – to reduce greenhouse gas emissions by 5.2% on average from their 1990 levels up to the period 2008-2012 is challenging and will be difficult to meet. Indeed, during the 1990s, global emissions of CO2 – the gas thought most responsible for climate change – increased by almost 9%, in spite of a decrease by some 32% in the economies in transition. If anything, today’s nuclear power plants help keep CO2 emissions down; if the 438 nuclear reactors in operation worldwide (most of them in OECD countries) were to be closed down and replaced by the current mix of state-of-the-art fossil-fuelled plants, world CO2 emissions would rise by some 6%.
Although nuclear energy has been effectively excluded from two of the Kyoto Protocol flexible mechanisms – the clean development mechanism and projects implemented jointly – it remains at the very core of the Protocol. We believe it will play a significant role as a nearly carbon-free energy source in greenhouse gas policies of countries that have chosen to look to nuclear as part of their energy supply.
Don’t forget, the Kyoto Protocol commitment period ends in 2012. The time frame beyond that is critical from a sustainable development perspective. If everyone agrees to address global warming issues by stabilising CO2 concentrations in the atmosphere, then even more stringent emission reduction targets than those agreed at Kyoto will probably be required. Again, nuclear could play a role. Long-term scenarios for energy demand and supply show that expanded use of nuclear energy could reduce CO2 emissions significantly by the end of the 21st century. But a nuclear energy phase-out could result in CO2 emission rates that are much higher than today.
Q: Critics of nuclear energy emphasise the high capital costs incurred for building and maintaining nuclear power plants. How do these costs affect the economic competitiveness of nuclear energy?
LE: First of all, existing nuclear power plants are competitive and perform well in deregulated electricity markets, thanks to their low marginal production costs. Once they have amortised their initial capital costs, such plants become quite an asset for utilities, as well as for governments in the struggle against global warming.
New nuclear units, on the other hand, do require higher initial investments than most alternatives and are seldom the cheapest option in present market conditions, especially those that require quick returns on capital. In some countries, however, such as Finland, France, Japan and the Republic of Korea, new nuclear power plants are expected to be competitive. For example, Finnish economic studies indicate that the capital cost of a new unit would range from € 1.7-2.5 billion, depending on size. It would generate electricity 20% cheaper than gas, the next cheapest option. Perhaps, in addition to climate change and security of supply, it is sums like this that helped persuade the Finnish parliament to give the nuclear industry the green light to go ahead and build a new reactor, which, if it happens, will be the first new reactor commissioned in OECD Europe for several years.
Clearly, there has been progress. State-of-the-art nuclear energy systems of the new generation, reaching commercial deployment stage now or under development for future decades, are designed to reduce those up-front construction costs and additional refurbishment and decommissioning costs. In addition, these new systems are expected to maintain or enhance technical and safety performance compared with existing nuclear power plants. In fact, expected capital cost reductions range between 10% and more than 40% for advanced designs.
Another factor that will affect the competitiveness of nuclear energy versus other sources is the prospect of fossil fuel price escalation. And then there is “internalisation” of external costs associated with atmospheric pollution, climate change and security of supply. Nuclear energy already internalises its external costs associated with waste and plant decommissioning. In other words, when we say it is competitive, we include those costs. Consumers are in effect already covering waste management and decommissioning costs as part of their bill.
Q: So the cost of decommissioning plants that come to the end of their lives is already factored in? What do these costs involve, who pays and how do they compare with, say, decommissioning a gas-fired plant?
LE: Laws and regulations in place in OECD countries ensure that costs of decommissioning nuclear facilities, as well as costs of radioactive waste management and disposal, are taken into account in the total cost of nuclear-generated electricity. These costs are reflected in prices charged to electricity consumers and thus paid by the users according to the “polluter pays principle”. In other words, we are already paying today for future decommissioning, rather than passing the cost on to anyone else.
We already know that decommissioning costs – and this includes not just expenses incurred from dismantling a plant and disposing of the waste, but also restoring the site for other uses – represent some 15-20% of the initial construction cost of a nuclear power plant. The plant operator is responsible for provisioning funds to meet these liabilities. They generally calculate them by spreading out the total decommissioning cost over the estimated life of the plant or some defined shorter period. Schemes in place for guaranteeing that the money will be available when the time comes vary from country to country but, in all OECD countries, the government authorities oversee these matters.
Comparing costs with gas-fired units is easier said than done, since according to current practices in most OECD countries, decommissioning costs of classic thermal power plants, like gas-fired ones, are simply not included in electricity generation costs. This is because operators expect that those costs will be balanced by the benefits of recycling and re-use of materials. But for nuclear facilities, decommissioning costs include extensive cleaning and decontamination treatments of irradiated or contaminated materials before their re-use. The costs may seem higher, but so are the expectations that no burden is overlooked.
Q: Critics argue that by boosting nuclear energy, we will be handing costs and burdens on to future generations. How can we factor in the long-term cost of managing nuclear waste? Will those costs fall or rise over time?
LE: The recognition of financial liabilities through the regulatory framework in place in OECD countries guarantees that future costs are accounted for and that provisions are made to deal with those liabilities in due course. The long-term costs of management and disposal of radioactive waste are treated similarly to decommissioning costs and included in total generation costs. So the view that costs are simply being handed on is incorrect.
As with any technology, scientific research and technological progress are expected to bring significant cost reductions for radioactive waste treatment, handling and disposal. Furthermore, advanced reactor and fuel-cycle systems should reduce fuel consumption and radioactive waste. However, in the light of uncertainties inherent to advanced technologies, provisions for waste management and disposal are based upon realistic, and I would argue conservative, assumptions and generally include a rather wide contingency margin of 10-15%.
Q: Do environmental advantages of nuclear energy, such as low emissions, outweigh the costs of, say, disposal of radioactive waste?
LE: Again, here it is difficult to give a fair assessment, since the environmental advantages of nuclear energy, like low atmospheric emissions, are not yet accounted for in market prices. Yet it is generally recognised that costs of global warming could be very high. On the other hand, the costs of radioactive waste disposal are accounted for and already paid for by consumers.
The cost of radioactive waste management and disposal represents only a small percent of the total cost of generating nuclear electricity – in fact, less than 2% in most cases. To get a feel for the cost of atmospheric emissions of CO2, consider the impact of a carbon value charged on fossil-fuelled electricity generation costs, just as a rough approximation: to increase by some 1% the total generation cost of a gas-fired power plant, a $5/tC value of carbon would be sufficient; for a coal-fired power plant a 2.5 US$/tC value of carbon has the same impact. In short, add a carbon charge to these sources and nuclear energy looks even more competitive.
Q: One of the concerns the public has is the risk, however small, of a nuclear accident. How can we assess not so much the fears, but the possible associated costs?
LE: The costs, as well as the probability of nuclear accidents, are assessed by manufacturers, operators and regulators. International organisations such as ours and the International Atomic Energy Agency (IAEA) based in Vienna have carried out studies reflecting international consensus on this subject. The cost estimates are reflected in the insurance fees paid by operators that, like provisions for future financial liabilities, are included in prices paid by electricity consumers. National laws and international conventions on third-party nuclear liability establish the compensation to be covered by operators and governments in case of an accident.
Cost estimates can always be improved, of course. For instance, they should include health effects on the exposed populations; psychological effects; impacts on economic activity and employment; loss of capital; and long-term social and environmental impacts. Most of these costs are site-specific and vary greatly, but they remain a small percentage of total generation cost.
Much has been made in the media and elsewhere about the possible implications of 11 September for nuclear energy and in particular its costs. The common view among experts is that nuclear facilities in general and power plants in particular are not very attractive targets. They are well guarded and inherently robust. I don’t think that damaging them to a significant extent is feasible.
Q: Several of your member countries do not have nuclear power. In this context, what exactly in your view is the role of the NEA?
LE: The NEA, like everyone, wants the use of nuclear energy to be environmentally friendly, economical and above all safe. We do this by seeking to strengthen its scientific, technological and legal bases. We try to enhance international co-operation for the peaceful and safe application of nuclear energy. The policy and technical work of the agency is carried out by the best specialists from all 28 NEA member countries. We insist that their work be as factual and dispassionate as possible, in keeping with OECD tradition. Furthermore, the agency operates by consensus and does not prejudge the policies of its member countries. Perhaps for that reason our work is highly appreciated by all our members, whatever their policy on nuclear energy.
NEA/OECD (2002), Nuclear Energy and the Kyoto Protocol, OECD, Paris.
NEA/OECD (2000), Methodologies for Assessing the Economic Consequences of Nuclear Reactor Accidents, OECD, Paris.
NEA/OECD (2000), Nuclear Energy in a Sustainable Development Perspective, OECD, Paris.
© OECD Observer No. 233, August 2002