Tuesday, November 22, 2011

Is Shutting Down Nukes Economic Suicide?

The fact that nuclear power plants are dangerous is not news. However, despite the many drawbacks of nuclear power, it provided over 13 percent of the world's electricity production in 2010. There were 15 countries that utilized on nuclear energy to supply at least one-quarter of their electricity in 2010.

While the economics of building a new nuclear power plant is a subject of much debate, there is no question that the nuclear facilities that are up and running provide an economical source of energy with minimal contribution to global warming. Further, the environmentalists that advocate replacing nuclear power with wind and solar are ridiculously naive. Despite many of the best locations already being in use after two  decades of development, wind energy only accounts for about 3% of world wide electricity generation. Regardless of all the other difficulties and expense with building out wind and solar, just getting approval for the power lines can take years, if not decades.

Taking nuclear power off the grid results in increased consumption of coal and oil. Japan is now buying six times as much oil to fuel electrical plants as it was before the Fukushima disaster due to their shutting down  nuclear power plants. Even the Germans, who get about a quarter of their electricity from nuclear energy, have realized that shutting all down their nuclear plants is not feasible for at least a decade. (They shut down 7 of their 18 operating nuclear power plants in 2011 and are building coal and oil fired power plants to replace them). It makes that fact that there is strong popular support in France for shutting down their nuclear plants seem ludicrous given the fact that France generates 74% of its electricity from nuclear power. Replacing the power generated by nuclear plants damages a country's balance of trade and increases their emissions of greenhouse gases. In what may be the ultimate irony, if Germany really does go ahead and close down all their nuclear facilities by 2022, the most likely source for replacing the electricity is from nuclear power plants in Russia..

Oil supplies are already tight and OPEC  may decide to cut oil output at its Dec. 14 meeting in Vienna. Given that Iraq's Oil Minister Abdul-Kareem Luaibi has indicated that he expects oil prices to trade between $100 and $120 a barrel in 2012, replacing nuclear with oil for electricity generation is expensive and likely to become even more pricey.

The correlation between GDP and energy consumption indicates that if shutting down nuclear plants reduce total electricity output, the consequences for a country's economy could be horribly negative. Over at the Oil Drum, they show that there is a tight relationship between energy production and GDP. The easiest method of managing declining energy production is to outsource energy intensive manufacturing to other countries, but obviously that has negative impact on employment. Thus, if the GDP and energy correlation holds, economic expansion can not occur if energy production is curtailed.

Japan has already shut down 43 of its 54 nuclear reactors. According to the Japanese government, fuel prices could increase by nearly $40 billion a year—$312 per person, and $770 per household. Further, the export driven economy will suffer dramatically as the high costs of energy put the country's manufacturers at a cost disadvantage and may drive them out of the country.

In 2012, Japan may prove whether shutting down nuclear power is economic suicide. Time will tell whether Japan goes ahead with shutting down their last 11 operating nuclear plants, and if so whether the economy can muddle through it.

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