Transcript The Future For Nuclear

British Energy Policy and
International Political
Economy in Climate Change
Stephen Stretton
19th April 2006
Judge Institute of
Management,
Cambridge University
Contents
Part I) The Problem: Global Warming and
international political economy
Part II) Positive Feedback in Climate and
Society. Increasing Returns to scale.
Part III) British Energy Policy. A Plan: Zero
Carbon through Nuclear Energy.
Part I: The Problem
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Climate Change
Impacts
The Long View
Should We Worried
Why We Must Aim to ‘Overreact’.
Institutions
Welfare Economics Perspective
Management Perspective
Impacts of Climate Change
• Extent of anthropogenic Climate Change:
– 0.6C warming already.
– 2-5C over next century
• Impact increases rapidly as temperature rise
exceeds 2C:
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Collapse of Global heat Circulation system
Collapse of Ecosystems (e.g. Amazon Rainforest)
Acidification of Oceans
Irreversible melting of Greenland (final 7m final sea
level rise) and West Antarctic (also~7m) ice sheets
– Massive changes in precipitation and temperature
leading to increased water and food stress;
refugees, war.
Impacts of Climate Change
• Widespread
Desertification for a 5C
increase in average
global temperatures:
Global Warming:
The long view
Hottest time in Earth’s History: “Paleocene-Oeocene
Thermal Maximum”
• 55m years ago.
• Cause: Perhaps a massive volcanic eruption releasing
greenhouse gases?.
• Release of frozen Methane?
• Increase in atmospheric CO2 concentrations to 30004000ppm
• Temperatures rose to 20C in Arctic Regions
• Acidification of oceans
• Widespread extinctions including large mammals
• Takes Earth 100,000 years to recover
Should We be worried?
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GW is major threat.
Rational ranking of risks: GW ranks above nuclear power risks.
Still uncertainty over final emissions, final warmth, final outcomes
‘Russian roulette with our children?’
Collective action problem
Mancur Olson (1982): “... If we finally get the information that the
ecosystem can’t take any more, then it is important that we have
the open-mindedness needed to change our views and policies
the moment decisive information arrives. Those who shout wolf
too often, and those who are sure there are no wolves around,
could be our undoing”
•
(Olson, M. Environmental Indivisibilities and Information Costs: Fanaticism, Agnosticism and Intellectual
Progress The American Economic Review Vol 72, No 2. Papers and Proceedings of the Ninety Fourth Annual
Meeting of the American Economuc Association (May 1982) 262-266)
‘Aim to Over-react’
• Threats to earth are severe
• To solve the problem requires a large change in
behaviour across earth
• Everyone needs to change (unfortunately each
has particular circumstances)
• Current trends going in opposite direction fast
• Need to show self-interested actors can convert
their economies.
• Only by ‘aiming to overreact’ do we have a
chance of making a sufficient difference.
Institutions
• Utilitarian or cost-benefit analysis assumes perfect
institutions.
• This is far from the case. There is no global
government.
• Need to look where we already have institutions
• National self-determination, and national
ownership of future is key, except where there are
intrinsically global issues, like global warming.
Welfare Economics
Perspective
• Have a Environmental Externality
• Need a Binding International Agreement so that
private costs = social costs e.g.:
– Global Carbon Tax or
– Global Emissions Trading
BUT
• No global government – no taxation
• International agreement difficult
• Agreements are in any case not enough
• Incentives for countries to defect
Management Perspective
1. Have a Problem
2. Need to find Solution
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Keep it simple!
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Importance of leadership.
Part II: Positive Feedback
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Climate
Society: War
Society: Hysteria
Environment, Society & ‘Collapse’
Local and Global Environmental Problems
Can we substitute?
Technology
Increasing Returns to Scale
‘Tipping Points’
Positive Feedbacks in
Climate
Negative Feedbacks:
• CO2 increases rate of growth of plants
Positive:
• Increased temperature causes collapse of
ecosystems, so sinks become sources
• Reduction in albedo (so Earth absorbs more
heat directly from Sun)
• Release of frozen Methane (greenhouse gas)
• Reduction in oceanic mixing due to changes in
thermohaline circulation
Positive Feedbacks in
Society: War
• Benevolence of Nation-state for last 50
years in the West is the exception
rather than the rule. In the Congo,
mineral wealth fuels a Hobbesian war.
• Escalation in international conflict
Positive Feedbacks in
Society: Hysteria
• Rational elements within society are
fragile. Existing order can be
overthrown.
• Perceived inability of governments to
protect people could lead to mass
panic.
• Panic further stretches government
resources.
Positive Feedbacks of
Society AND Environment
• World is potentially already overpopulated for a +5C
world. (Land, Water & Energy shortages).
• Massive time delay (50 years) between decisions
and their effects.
• At each stage, future environmental constraints do
not bind existing behaviour.
• Existing needs, however, will become more
pressing at each future time.
• Democratic governments will be more pressed to
service needs of existing generations in the future.
• Air-conditioning and desalination require more
energy in a hotter climate rather than less.
Local and Global
Environmental Problems
• Local environmental problems require local
knowledge and local institutions
• Impossibility of central planner having
sufficient knowledge to solve them
• Hence we rely on local institutions,
including but not limited to property rights
• Global environmental problems require
global knowledge and global institutions:
CO2 is a commodity.
• Ecological Macroeconomics?
Can we substitute?
Can we substitute physical capital for natural capital?
…Perhaps not:
There are critical commodities with limited
substitution possibilities e.g.:
• Water
• Land
• Energy
Property rights require peace which may be lacking if
critical commodities become short.
What is technology?
A set of patterns used to solve
problems.
• Technological improvement produces
economic growth
• Technologies can be copied
Positive Feedback in
Technology
• ‘Learning by Doing’ effects: Increasing
Returns to Scale
• Adoption of technology reduces
uncertainty for future investors
• Network externalities: advantage of
having a unique standard
Constraints on CO2
emission
• Conventional oil & gas production
constrained by monopolistic
behaviour and by finite reserves
• (Non-clean) coal produces local
environmental problems (SO2 NOx)
• Governments require a secure source
of energy.
A ‘Tipping point’?
• Increasing price of oil will encourage
investment in:
1. Extracting unconventional oil and gas
2. Non-carbon technologies
• Government needs to do enough to
ensure that option (2) is dominant
Part III: British Energy
Policy 2006
• Background: DTI Energy Review
• Main Goals:
– CO2 Reduction Target
– Security of Supply
– Economic Efficiency
• Future Energy Mix
– Fossil Fuels
– Renewables
– Nuclear
CO2 Reduction Target
• UK Target: CO2 emissions 60% reduction on 1990
levels by 2050
• Sweden recently adopted same target
• Significant progress (30% reduction) by 2030
• Aim is that such cuts, if adopted worldwide, would avoid
‘Dangerous’ Climate Change
• Follows recommendations of Royal Society
• More recent evidence suggests even deeper cuts may
be required
• Some countries may not cooperate, so perhaps UK
cuts need to be even deeper to compensate/lead?
• Is a near-zero carbon economy economically feasible?
Security of Supply
• North Sea oil and gas are running down.
• Natural Gas provides a large and
increasing proportion of our supplies
• Britain now net importer of gas
• Possible Fuels:
– Natural Gas from Algeria, Russia...
– Oil from Middle East…
– Coal: reserves are local (but most mines have
closed; environmentally very damaging).
– Uranium from Australia and Canada.
Economic Efficiency
A solution that maintains material prosperity:
a) People wish to maintain a comfortable
standard of living
b) British policy will be more influential if we are
seen to be prosperous
c) Balance of payments
d) Sustainability and demographic transition
requires ‘genuine saving’ (capital investment).
UK is uniquely placed to
lead
• Strong Scientific Community
• Member of EU & so called ‘Transatlantic
Alliance’,
• Historical & Cultural links with China & India
• International Outlook
• Amenable Philosophical tradition
• Large Economy
• London as a global city
• Needs an Energy Policy for national selfinterest, independently
A Plan to Save the World?
Go fully nuclear!
• 100 GW of new nuclear capacity in UK
• Cost: £10bn pa over 10 years
• Electricity market design to
encourage private investors in
nuclear.
• Some direct public investment?
British Energy
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British Energy currently de facto nationalised
Since social benefits of new build greater than
private benefits, public ownership and control is
no bad thing.
National industries capable of greater investment.
Problem: Cost Control in Nationalised industries
Solution: Duopoly in public provision: e.g. also
consider Advanced CANDU
Conclusion: Positive Effects
of this Plan
a) Economies of scale ensure investment would be
repaid
b) Britain would have secure sufficient low cost
energy for 40-50 years
c) ‘Learning by doing’ would reduce price of nuclear
worldwide. In particular, nuclear would become
more attractive to market investors in US.
d) Britain would give a moral example on CO2
emissions to the rest of Europe and world.
(Sweden has adopted same CO2 target already).
e) Market Design innovations would aid US policy
makers