The Oil and the Glory

Kibosh on nuclear renaissance? Not so fast

The earthquake and tsunami in Japan have made the world rapt, punctuated by a new explosion at the Fukushima Daiichi Nuclear Power Station this morning, and fear of nuclear contamination should the Japanese fail to contain the radioactivity. The probable outcome, given how the world reacted to the 1979 Three Mile Island and 1986 Chernobyl ...

Jiji Press AFP/Getty Images
Jiji Press AFP/Getty Images

The earthquake and tsunami in Japan have made the world rapt, punctuated by a new explosion at the Fukushima Daiichi Nuclear Power Station this morning, and fear of nuclear contamination should the Japanese fail to contain the radioactivity. The probable outcome, given how the world reacted to the 1979 Three Mile Island and 1986 Chernobyl nuclear accidents, is that the much-ballyhooed global "nuclear renaissance" will be much-slowed or perhaps even still-born. That’s the thrust of a piece at Bloomberg. The Financial TimesSylvia Pfeifer reports that the accidents have "cast a shadow over proposals for new nuclear reactors around the world." U.S. Sen. Joe Lieberman has suggested good hard new scrutiny of the industry’s plans.

Yet the tenor of conversations I’ve had with industry experts and investment bankers — the latter who raise money to pay for the reactors – isn’t panic. They suggest that — while the public and regulators will demand far stricter inspection of the safety plans for new nuclear reactors, and financiers will demand higher fees in line with the greater perceived risk — the renaissance will go ahead.

There are 62 new nuclear reactors currently under construction around the world. Another 158 are formally planned, and proposals have been made to build 324 more, according to the World Nuclear Association. China, for example, has 13 reactors, is building 27 more, and plans an additional 160 after that, for a total of 200. India has five now, and wants to add 58. The United States has 104, and wants to build 33 more.

The deciding factor on whether to go ahead with the 482 reactors currently on drawing boards around the world will be the cost of making plants safer against natural disasters — as will probably be demanded after Japan. In particular, the question will be how they stack up in price with competing natural gas plants, said Sharon Squassoni, a senior fellow at the Center for Strategic and International Studies in Washington. Squassoni told me yesterday by phone that "Americans have short memories."

We just need electricity. We didn’t shut down a bunch of reactors after Three Mile Island. The question on new nuclear plants is that they are choosing between nuclear and something else. They will calculate the cost of making it as safe as we want it to be.

In other words, the question is not whether the plants should go ahead. It is what really happens in such situations. In another context last summer, Brad Plumer argued at the New Republic that the human race simply has trouble with risk assessment, so that such accidents can quickly become a distant and less fearsome memory.

Carl Seligson, a New York-based nuclear power consultant, said that the risks of nuclear power will be weighed against the environmental risks posed by the continued use of fossil fuels.

If they are right, then the Japan earthquake-tsunami could go the way of last summer’s BP oil spill in the Gulf of Mexico: It could be an intensely wrenching emotional and political event for months, but then fade a year or two hence; nuclear plant developers may have to pay higher interest-rate charges to the buyers of construction bonds, but the construction may proceed without much of a blip.

Not everyone with whom I spoke said this. Peter Bradford, a former member of the U.S. Nuclear Regulatory Commission, who also chaired the utility commissions of New York and Maine, told me that scenes such as that in the video below, of a fresh explosion today at Fukushima Unit 3, will turn people’s heads.

Suppose you are a banker and you are asked to entrust several billion dollars on building a new nuclear unit, and you are looking at your television screen and see something you have never seen before, meaning an explosion at a nuclear plant. Until then, you thought the problem with nuclear was economic. Would this make you less or more likely to put the money in a nuclear plant?

Ray Perryman, a Waco, Texas-based financial and economic analyst, also said that Fukushima will hinder new nuclear development.

(Update: At CFR.org, Michael Levi writes a sensible piece arguing — as a few people I spoke with did — that the jury is still out; it is early and no one can know with certainty how the nuclear industry will be treated once the immediate crisis is over.)

In the short- and medium-term, as regulators around the world reassess their local nuclear plants, the accident is likely to strengthen the position of traditional fossil fuels, specifically natural gas and perhaps coal. So look for currently low natural gas prices to rise. In a note to clients this morning, Bernstein Research said the accident will increase the global price of liquefied natural gas, which will step in to compensate for a loss of 23 percent of Japan’s nuclear power capability for up to two years, or 15 percent of the nation’s total power supply. Japan already buys about 30 percent of the world’s LNG output, and LNG producers will now divert more supply to the islands.

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