Friday, March 18, 2011

The Environment vs. the Economy, After Fukushima Daiichi

-- Posted by Neil H. Buchanan

Even in these early stages of the unfolding disaster at the Fukushima Daiichi nuclear plant in Japan, it is becoming clear that countries both rich and poor will be forced to reassess their policies with regard to nuclear power. France derives three-quarters of its electrical power from nukes, and many rapidly developing countries (such as Chile) have been planning to use nuclear power to fuel their development. In the U.S., the political reaction has thus far been tentative, in large part because both President Obama and his fiercest political opponents have long been advocates for licensing and building new plants. Obama did not utter any exquisitely poorly timed comments regarding nuclear power, as when he declared deepwater drilling to be safe shortly before the BP spill -- although his recently-released budget does include $36 billion in loan guarantees for building new nukes. Still, there is little appetite in the U.S. to do anything but talk vaguely about cautious reconsideration of our safety measures.

As I pointed out yesterday, any reasonable assessment of the new reality would have to conclude that the risks of nuclear power are higher than we thought they were before last week’s earthquake in Japan. This, moreover, is a reasonable conclusion even before we consider that no satisfactory solution has been found for dealing with nuclear waste. Consider this shockingly casual description of the views of pro-nuke policymakers in the U.S. (emphasis added): "Nuclear power, which still suffers from huge economic uncertainties and local concerns about safety, had been growing in acceptance as what appeared to many to be a relatively benign, proven and (if safe and permanent storage for wastes could be arranged) nonpolluting source of energy for the United States’ future growth." The only thing to say is: Wow!

If I am also right that the mainstream acceptance of nukes is based on denial about the potential costs of a nuclear disaster -- not a risk-adjusted, clear-eyed assessment of the actual devastation of various nuclear nightmares, but instead a belief that the supposedly low risks make it unnecessary even to think about (much less accurately predict) the costs – then we are likely to see some frantic dancing on both sides of the political aisle. Abandoning their giddy plans for a ramped-up nuclear future is well-nigh unthinkable for some of these guys, much less considering the possibility of shutting down existing plants.

Last year, I argued that a choice between nukes, oil, or coal -- which, I should point out, is a false choice in many important ways -- should come out in favor of coal. With oil increasingly difficult to find, and nukes being nukes (which seemed pretty obviously a bad idea, even at the time), coal’s admittedly awful combination of mining dangers and various environmental damages seemed the less-terrible choice. My opinion was based in part on the idea that the high costs of nukes could be visited upon us any second, and oil had also been revealed as more of an immediate large-scale danger. Coal, on the other hand, imposes fewer lightning-strike disaster scenarios (at least to the general public, as opposed to miners), and the dangers and damage from coal can be mitigated over time as we intensify conservation efforts and reach efficient scale in green energy technologies. In a world of no good immediate choices, coal is the ugly winner.

Coincidentally, yesterday's news included an announcement by the EPA that it has issued -- after an excruciating, decades-long political and legal battle -- new regulations under the Clean Air Act to reduce emissions of mercury, arsenic, and other pollutants from coal-fired power plants. Opponents of regulating coal emissions immediately attacked the plan, of course, even though some in the industry admitted that complying with the regulations will be relatively easy and cheap.

This raises an interesting question: Now that coal seems to be the default winner in the bad-energy-source sweepstakes, should we tell the EPA to lay off? After all, if we need more coal power (at least in the short and medium term), should we not keep the costs of producing coal as low as possible?

Absolutely not. As I argued last year, Americans' lifestyles are a lot more expensive than we think. Imposing regulations such as those just proposed by the EPA would make it more obvious to people just how much damage they inflict on the environment. In fact, given that the regulations are estimated to increase monthly electric bills by only $3-$4, these regulations come nowhere near reflecting the true costs of coal. That EPA's estimate of the environmental and health benefits is $100 billion annually -- against only $10 billion in annual costs -- is truly astonishing, especially when one considers the shortcomings of such cost/benefit analyses, and their bias toward understating benefits and overstating costs.

Still, even if the benefits will outweigh the costs, what about the effect on the economy of these regulations? (Actually, the regulations are being phased in over the next few years. If the economy strengthens in the meantime, this concern goes away. For the purposes of argument, however, I will stipulate that my preferred coal clean-up regime would be more aggressive, more costly, and more immediate.) Actually, the costs of complying with the regulations are largely job-producing, with an estimated 31,000 new jobs to be created by companies as they conform to the new rules. The short-term effect, in other words, is a net positive for the macroeconomy.

In the long run, however, the $100 billion in annual benefits is not included in GDP, whereas the $10 billion in annual costs will reduce coal burning and thus GDP. This is a good thing. To be clear, it is a good long term policy to reduce GDP below where it will otherwise be. As I have argued many times, the projected increases in GDP due to technological growth are so large that there is plenty of room to reduce future GDP growth while still leaving future generations much richer than we are. Even if that were not true, however, it would make sense to recognize the costs of coal and deliberately reduce GDP for our grandchildren, while improving the air that they will breathe.

In short, it is sensible and consistent to argue both that we need more coal and that we need less coal. We should reduce reliance on oil and nukes (reducing nuclear power to zero as soon as possible), while simultaneously forcing ourselves to face up to the costs of coal. That is the market-driven approach to conservation. We can then enhance that beneficial behavioral change with direct incentives to use less fuel and to produce clean energy.

There have long been good reasons to do all of these things. With nuclear power now exposed as the unconscionable choice that it is, we have all the more reason to stop denying and start adapting.


Funny Games said...

But even if the benefits outweigh the costs, the effect on the economy of these regulations? (In fact, the regulations are phased in over the coming years. If the economy is growing at the same time, this concern disappears. For the purposes of argument, however, told me that my favorite cleaning regime would be more aggressive coal more costly and more immediate.) In fact, the costs of compliance are largely the work of production, with an estimated 31 000 new jobs created by companies that comply with the new rules. The short-term effect, in other words, is a net positive for the macroeconomy.WOW GoldWOW Items GoldBuy WOW ItemsCheap WOW ItemsTera Goldbuy tera goldTera GoldBuy WOW Gold

johnson said...

I wish you'd included two of the worst disincentives of the current Medicaid system that get totally ignored in the discussion.
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