Fukushima

With the eighth anniversary of the Fukushima accident having recently passed, I wanted to mention a few Fukushima-related threads.

1.  A Japanese translation of Learning from Fukushima was released in February, making the material accessible to more people within Japan.  Namatame Norifumi was the main translator, with assistance from Suzuki Tatsujiro.  The original volume was edited by Peter van Ness and Mel Gurtov, and covers a wide variety of issues related to the accident and to nuclear power in Asia. 

My chapter focuses on the scale of subsidies and some of the reasons that the most important subsidies to nuclear often get missed. 

The Japanese version can be purchased here.  The English version can be accessed (free PDF downloads) here.

2.  Cost estimates for cleaning up after the Fukushima accident continue to grow; highlight inadequacy of Price-Anderson coverage levels in the US.  The Tokyo-based Japan Center for Economic Research (JCER) has continued to revise its estimates of Fukushima accident costs upwards, with their latest figure from March 2019 of between between 35 trillion yen and 81 trillion yen ($315 billion and $728 billion).  The government estimate by the Ministry of Economy, Trade and Industry, was much lower, though still a sobering 22 trillion yen ($198 billion).

The low-end of the JCER range involves entombing the most damaged plant (Fukushima 1) in concrete and releasing radioactive water to the sea.  The higher cost part of these estimate range includes treating contaminated water and soil.  The implications for nuclear liability coverage globally is instructive:

• The US liability system under the Price-Anderson Act, which provides the largest pool of insurance for nuclear accident damage in the world, will generate a gross insurance pool of less than $12.5 billion.Coverage requirements are periodically adjusted for inflation, and decline as reactors are retired. This estimate reflects mandated coverages and reactor counts as of November 2018.  This assumes all reactors will be able to pay in their retrospective premium in full, and ignores the facts that payments are made over roughly six years so have a significantly lower value in present value terms, and that the pool shrinks as reactors close.
• Even assuming the official Japanese government estimate (i.e., the lowest one) for Fukushima cleanup costs is accurate, liabilities in Japan exceed the maximum US insurance pool by more than 15x.

The implication is that any moderately-sized nuclear accident in the US will quickly exhaust the available insurance coverage and taxpayers -- rather than reactor owners or their insurers -- will shoulder most of the burden.  Because they are too low, the Price-Anderson caps on US reactor accident liability provide a recurring and significant subsidy to reactor operations.

What about Japan?  As of 2016, the government of Japan had lent more than $120 billion to TEPCO, all of it interest free.  The TEPCO long-term borrowing costs listed in financial statements around that time are less than 1 percent.  The values are so low for a firm in distress, strongly suggesting that they are skewed by the subsidized government loans themselves. 

A better proxy is the weighted average cost of capital (WACC) for Japanese firms -- though even those values are likely also to be too low given that TEPCO would be deemed extremely high risk or insolvent absent the government bailouts.

Data from PWC for 2015 provides some benchmarks, with an average WACC of 5.6% for the JPX-400 index of stocks;  6.7% for the electric sector; and 3.0% for the power sector.  The capital subsidy from this loan alone is between $3.6 and $8.0 billion per year.  Normally, interest would compound, resulting in even larger subsidies over time.  Even without compounding, the capital subsidy alone provided by Japan to TEPCO exceeds the total value of the nuclear accident insurance pool in the US every 1.5 to 4 years. 

3.  Fukushima health effects, widely conflicting claims.  Staunch nuclear advocates such as Michael Schellenberger frequently discuss how safe they view nuclear power as being.  Often, a comparison is made to coal.  It is true that the coal fuel cycle does trigger massive numbers of deaths worldwide both through mining accidents and air pollution.  Future-looking comparisons need to look at natural gas and renewables more than coal, however, as coal investments are on a strong downward trajectory and existing plants continue to close. 

Further, the concerns with nuclear are primarily linked to worries about large incidents caused either by accidents at civilian reactor or fuel cycle facilities; or from military activities resulting from proliferation leaking from civilian activities.  This is in contrast to other fuel cycles where deaths associated with extraction and emissions dominate.

Schellenberger argues that even with catastrophic reactor events such as Fukushima, the accidents ain't no biggie.  In an article he wrote for Forbes last month, he says that no radiation-related deaths have been linked to the Fukushima accident.  He argues that health impacts from radiation have been overstated, with cancer incidence even from the Hiroshima and Nagasaki bombs much lower than predicted, the implication being that the impacts of reactor incidents will be smaller still.  And he notes that a financial settlement on litigation involving a worker who died from lung cancer was a political settlement, not one based on good science, and his illness was unrelated to the reactor. 

Tilman Ruff of International Physicians for the Prevention of Nuclear War (and who also wrote a chapter in the Learning from Fukushima book) has a very different take:

By 2017, a total of 40,000 workers had been involved in the extensive decommissioning work which will be required for many decades.  About 8000 work at any one time. Over 90% of these are subcontractors, who have poorer training and conditions and receive on average more than twice the radiation exposure compared with TEPCO employees. Maximum exposures for subcontractors in Jan 2018 were documented at over 10 mSv/month. Thus far 5 cases of cancer among clean-up workers have been officially recognised as occupationally-related – including 3 cases of leukemia, one thyroid cancer, and 1 case of lung cancer...

By Sep 2018, the Japan Reconstruction Agency identified 2202 deaths as related to the nuclear disaster – principally through suicide and interrupted or diminished medical care. However comprehensive long-term prospective mechanisms linked to radiation exposure have not been established to monitor population health impacts of the nuclear disaster. If you don’t look, you won’t find. Given the fragmented and incomplete nature of cancer registries in Japan, it is quite possible that health effects would not be detected.

Tracking of thyroid cancers should have been an area with strong and consistent data, Ruff notes, but it is not being properly tracked by the Japanese government.  Monitoring of animals and plants in the accident area is indicating effects from the radiation as well.

So either the Fukushima accident has caused no cancer deaths, but many deaths from ill-advised evacuation orders by the government in 2011 triggering dislocation, stress, and loneliness; or cancer effects are not so small and yet government actions are pushing people back into radioactive areas that are still not safe and failing, whether on purpose or not, to track critical health data.  Given a lack of transparency on past nuclear sector problems in Japan, I put more faith in Ruff's assessment of the situation.

It was pure coincidence that the release event for my detailed review of US subsidies to nuclear power -- a document a couple of years in the making -- was on March 11, 2011, the day of the Fukushima accident.  I was in DC for the launch, traveling in a cab to the event with David Lochbaum of the Union of Concerned Scientists, who was also releasing a new report. 

Lochbaum's analysis examined 14 "near misses" at US nuclear plants during 2010 and how the NRC dealt with them.   He is also a world-recognized independent expert on nuclear power and power reactors.  His encyclopedic knowledge of the industry was known by many five years ago, and his cell phone rang of the hook as the accident unfolded.  Questions from the press and government flooded in, trying to get context on the event, its causes, and how it was likely to play out over the coming days. 

Over the past fives years, the nuclear sector in some ways has changed greatly, but in others remained remarkably the same.  The sector is still heavily subsidized across the world; still promising innovation will bring costs down to competitive levels; still struggling with delivering on those cost promises on the ground; and still facing little interest in projects by investors. 

Within Japan, the accident is still playing out.  The stabilization and cleanup of the accident area remains fiendishly complex, as this snapshot in today's New York Times illustrates.  And while one silver lining from the accident might someday be a world-class export industry in Japan for advanced robots, at present even the robots are having trouble surviving the harsh conditions.

The human costs of the accident continue to mount -- not just in terms of health, but in broken communities, scattered families, and lost professions.  There are some interesting first-person accounts on the GreenWorld blog, documenting meetings and conversations across the affected regions with people still struggling with the after-effects of the accident. 

Economists (myself included) tend to focus on things that can be measured and quantified.  So before I shift to discuss the numbers, it is important to recognize that much of the suffering that accidents like this cause are not easily quantified.  Quantitative damage estimates are a useful proxy for the suffering an accident has caused, but should be viewed as the lower bound to reflect all of the impacts they miss.

Reasonable questions to ask five years on include how the prospects for commercial nuclear power have changed, whether reactors are safer as a result of post-Fukushima requirements, and what the scale of damages from the accident have been.  It is notable that key details even of critical, world-changing events, may not be known until years later.  A recent article on the Fukushima accident highlights that poor transparency and communications by TEPCO brought the government very close to evacuating tens of millions of people from Tokyo.  That's a pretty big deal.

So what's in play?  Here's a quick synopsis on three areas:  health effects of the accident; costs of the accident; and nuclear economics.

Health Effects

The health impacts from nuclear accidents are always points of contention.  Immediate deaths from accident-associated trauma are fairly easy to tally.  In contrast, morbidity and mortality from exposure to radioactivity play out slowly over time, can be tough to disaggregate from baseline levels of disease, and are subject to data collection challenges.  Because the data matter in terms of political support for current and future reactors, and in terms of the amount and distribution of compensation, getting "clean" data are not easy. 

Here is the World Nuclear Association describing the Fukushima accident in a posting updated this month.  Basically, they conclude that there is no problem from the accident.  But gosh, that government "nervousness" over the accident sure did cause a bunch of hardship and death:

• "There have been no deaths or cases of radiation sickness from the nuclear accident, but over 100,000 people were evacuated from their homes to ensure this. Government nervousness delays the return of many.
• Official figures show that there have been well over 1000 deaths from maintaining the evacuation, in contrast to little risk from radiation if early return had been allowed."

Given that people still don't want to move back to areas designated by the government as safe, WNA's characterization seems a bit simplistic.  Ironically, this same article then states that "[m]ajor releases of radionuclides, including long-lived caesium, occurred to air, mainly in mid-March. The population within a 20km radius had been evacuated three days earlier."  So one might conclude that the evacuation wasn't so dumb after all.

The WNA also points to the the UN Scientific Committee on the Effects of Atomic Radiation (UNSCEAR)'s final report of radiation effects in April 2014:

This concluded that the rates of cancer or hereditary diseases were unlikely to show any discernible rise in affected areas because the radiation doses people received were too low. People were promptly evacuated from the vicinity of the nuclear power plant, and later from a neighbouring area where radionuclides had accumulated. This action reduced their radiation exposure by a factor of ten, to levels that were "low or very low."

Radiation expert Andrew Kadam also sees very little risk to human health or even ecosystems.  End of story?  Probably not.  A Greenpeace review of health effects is not quite so sanguine.  Soil contamination remains a problem, and they discuss the  mental health impacts of the accident and its aftermath.  Many of the people in the affected regions still have no plans to return.  And the workforce used to do the decontamination is often marginalized and shunned; work violations are common.

Damages and compensation

The United States has less than $15 billion in insurance to cover damages to third parties from a nuclear accident, and we are the biggest pool in the world.  The system we rely on, set up by the Price-Anderson Nuclear Industries Indemnity Act of 1957, is actually fairly fragile.  The coverage requirements for the policies each reactor must buy for itself have barely kept up with inflation.  The majority of coverage comes not through these reactor-specific policies, but rather based on commitments for each reactor to pay money into a common fund over five years, should a major accident occur.  

As old reactors close, this pool gets smaller.  And even for operating reactors, there are significant counterparty risks that make the availability of funds far less secure.  Accidents anywhere cause increased oversight and costs everywhere.  Reactor consolidation means that a single parent company could be on the hook for many retrospective premiums at once.  These obligations would arise for corporate managers at the same time costs to maintain the rest of their nuclear fleet would be rising.  This could make it difficult for firms to meet their restrospective premium obligations.  The funds, after all, aren't provided in advance.  One need to look no further than recent coal bankruptcies to see how quickly a system of payments reliant almost exclusively on the financial health and solvency of the payors, can go bad. 

One thing Fukishima made clear is that available coverage under Price-Anderson is insufficient to cover the cost of any significant nuclear accident.  In the US, as in Japan, the taxpayer would end up paying most of the money. 

And if we know the pool is insufficient upfront, yet continue to cap liability requirements, this is very clearly a subsidy.  Industry always claims it's not; that the incremental subsidy is tiny.  If that's the case, end the Price-Anderson cap, and they'll ramp up their policy coverage at almost no cost.  Problem solved.

Here's my review of TEPCO's poor liability coverage from March 2011.  Five years later, how big have the damages been? 

Last year, TEPCO estimated it would pay out $57 billion in compensation costs.  James Conca at Forbes, ever the ardent supporter of nuclear, comes out on the low end here.  Conca reports a total cost of roughly $75 billion over the next 20 years, only $15 billion of which is associated with cleanup and the remaining $60 billion in "refugee compensation."  The biggest cost, he says, is not the accident; its the higher price of Japan's replacement power. 

No doubt this is expensive:  nuclear utilities in the US routinely buy more insurance to cover replacement power and damages to their own plant than they are required to purchase to cover third party damage from accidents to all of the people and property outside their walls. 

But the figures Conca sites need more vetting.  They are quite sensitive to the cost of input fuels, and these have plummeted in the years after the paper he refers to was done.  Further, the baseline price of nuclear clearly excludes some relevant costs -- adequate accident coverage being an obvious one.  

In contrast to Conca, the Financial Times estimates that the nuclear accident has already cost Japanese taxpayers $100 billion, in the form of direct government grants and artificially high power surcharges allowed to make it seem like TEPCO was covering the cleanup costs.  NPR notes that "At the government level, the cost of decontaminating houses and farmland in Fukushima prefecture alone carries a $50 billion price tag." 

Estimates in 2013 by the Japan Center for Economic Research, TEPCO itself, and other experts rose as high as $600 billion.  This included decommissioning of the damaged reactors, compensation to dislocated people, and decontamination of affected lands.   

While the final cost is obviously still unknown, these types of projects tend not to come in under budget.  Expect a long, expensive slog.  And it is clear that post-Fukushima, accident liability systems need not only higher mandated levels of coverage but also a re-think in terms of structure if they are to achieve the dual goals of incenting prudent risk management and operations, and ensuring adequate funds are available to cover the costs of any future accident. 

Nuclear Power Economics

Despite investments and a big shout-out for nuclear coming from people like Bill Gates, nuclear fission has not emerged from the wilderness as a viable solution to world energy needs for low carbon fuels.  Clearly, Fukushima did not help:  a big accident affects the operating environment for everybody else. 

But the pace of innovation and cost reductions are coming faster for nuclear's competitors than for nuclear.  New reactor projects are struggling, not only in the West (see below; slides are from this presentation), but also in parts of the developing world as well.  Competitively, nukes are not doing well. I expect that to continue.