John Deutch and M.I.T. flunk energy economics

The former CIA director, along with Ernest Moniz, professor of physics at MIT and former Department of Energy official, open their op-ed in today’s New York Times with the following two grafs:

The world needs both more electricity and less pollution. The goals are not incompatible, but the solution will require better management of demand, smarter use of coal as well as renewable energy sources, and increased use of nuclear power. As Congress considers an energy bill when it returns from recess, it will be under pressure to expand or limit the use of nuclear power. The issue, however, is not simple. More nuclear power will be necessary — but more nuclear plants will be built only if more safeguards and incentives are put in place. The challenge is to make nuclear energy safer, cleaner and more economical.

OK, sounds reasonable so far. Then I read the next three grafs:

We built a model to compare the costs of producing electricity from new nuclear, coal and natural gas plants. The model focuses on economic cost, not regulated or subsidized cost. According to our study, the baseline cost of new nuclear power is 6.7 cents per kilowatt-hour, compared to 4.2 cents for coal and natural gas (when the price of gas is $4.50 per thousand cubic feet). Plausible, but unproved, technology could reduce nuclear costs to those of coal and gas. However, if a cost is assigned to carbon emissions — either through a tax or some other way, as in a current Congressional proposal that would limit emissions but allow companies to buy and sell the right to discharge more pollutants — nuclear power could become an attractive economic option. For example, a $50 per ton carbon value, about the cost of capturing and separating the carbon dioxide product of coal and natural gas combustion, raises the cost of coal to 5.4 cents and natural gas to 4.8 cents. Even under these favorable circumstances, the regulatory uncertainty threatening the large-scale investment needed for a nuclear plant will require some government assistance. A production tax credit, similar to that extended to wind power, is a good idea. It would give private investors an incentive to complete a plant. If no plant is built and operated, no public money is spent. If the first plants are indeed built and operated competitively, more will follow and the possibility of reducing greenhouse gases increases. (emphasis added)

So, in other words, even after one factors environmental externalities into the cost of energy production, coal and gas are still more efficient energy choices than nuclear power. Bear in mind that the op-ed suggests that this calculation does not include the cost of disposing nuclear waste, so in all likelihood the gap in efficiency is even greater. The conclusion I draw from this cost-benefit analysis is that compared to coal and gas, nuclear power is an inefficient substitute and should not be taken seriously. Deutch and Moniz argue that the government should just subsidize nuclear power and make vague allusions to reducing greenhouse gases. They ignore that their own analysis suggests nuclear power should be rejected in any comprehensive energy plan. This op-ed was borne from a cross-disciplinary MIT-sponsored study. Having just read the chapter on “Nuclear Power Economics,” I’m even more skeptical of the boosterism for nuclear power. Here’s an optimistic assessment on p. 41 of the report:

These results suggest that with significant improvements in the costs of building, operating, and financing nuclear power plants, and continued excellent operating performance (85% capacity factor), nuclear power could be quite competitive with natural gas if gas prices turn out to be higher than what most analysts now appear to believe and would be only slightly more costly than coal within the range of assumptions identified.

Let me rewrite this a bit:

If all of our optimistic assumptions about nuclear power are true and all of our pessimistic conclusions about alternative energy sources are also true, nuclear power will still be less energy efficient than coal and barely on par with gas.

I certainly could be missing something here, but I don’t think so. MIT has one of the best economics departments in the country. How did they sign off on this?