diastrous accidents The Catastrophic Downside Risk of Nuclear Oil Gas and CoalEnergy systems need to also be measured according to the potential risks associated with them in the advent of failure. And the actuarial costs of these risks need to be better understood and included into the market price for the energy that these systems produce. This post examines this catastrophic downside risk of nuclear and fossil energy focusing on the recent events in Japan and on the BP oil spill as two recent examples of hugely expensive catastrophes. It poses the question why should the taxpayers and the public bear the burden of these costs in this manner artificially lowering the price these energy sectors are thus able to charge for their products.

Bowing to reality, the Japanese government has belatedly acknowledged the severity of the still unfolding nuclear catastrophe at the Fukushima Daiichi power plant; the government’s nuclear safety agency has decided to raise the crisis level of this accident from 5 to 7, the most severe level on this classification of nuclear accidents. The scale of this slow motion and still unfolding nuclear disaster is now becoming clear and the truly scary thing is that this is far from being over; this thing is going to go on for a long time and it still has the potential to become a lot worse than it already has. Chief Cabinet Secretary Yukio Edano has said that residents in areas between 20 and 30 km around Fukushima would be advised to evacuate due to accumulated radiation exposure levels. It is going to take many years to sort this out and the effects in terms of increased cancer deaths and the long term exclusion zone that seems likely to be required at this point around these plants are going to be with us for many decades to come now.

The term global catastrophe is appropriate to use in this case. This has transcended the category of accident with local only impact and will have far reaching consequences for many decades and possibly much longer than that.

The BP Deepwater Horizon Oil Spill

Just about one year ago our world experienced another huge disaster of another sort. The Deepwater Horizon oil spill that spilled 170 million gallons of crude oil into the waters of the Gulf of Mexico as well as an estimated 1.9 million gallons of the toxic chemical dispersant Corexit, which was injected at the gushing well head in an attempt to prevent a slick from forming on the surface. The long term consequences for the marine ecosystem are still unknown and opinions vary. It is worth noting that after the Exxon Valdez oil spill in Alaska it took four years before the herring population collapsed and that twenty years later these populations have still not recovered. It is also worth noting that just because we cannot see the oil much of it is still there in massive underwater plumes of suspended oil measuring tens of miles long and wide that have been detected.

The Catastrophic Downside Risk

These are two very different catastrophic events and two different energy systems, but they are linked by the common thread of both being characterized by a massive scale and scope of the disasters and by the long term consequences for the regions that they impacted. They both were also not supposed to happen. Of course no accident is meant to happen, but in both cases the energy sectors involved had promoted an aura of competency and robust safety systems. The safety systems in both cases proved to be tragically inadequate.

This catastrophic downside risk is recognized for nuclear power. In fact, nuclear power plants are uninsurable and in the US they are covered by the taxpayers under the terms of the Price-Anderson Act, which has the United States government guaranteeing the insurance of these facilities. The downside risk is huge. For example in 1980 the government estimated that property damage alone for a level 7 accident at the Indian Point Nuclear Power Plant, situated just 30 miles from New York City would be more than $200 billion (and that was in 1980 dollars). The Nuclear Regulatory Commission has now admitted that of all the reactors prone to earthquakes, the Indian Point facility is number one on that list. To those who say it can’t happen here; that’s what they said in Japan too. It can happen here.

Some energy systems are characterized by massive potential catastrophic damages should their safety systems or structural integrity fail. This downside risk is not limited to nuclear energy or deep water drilling for oil. A big huge dam for example if it should ever fail, perhaps as a result of an earthquake caused landslide into its reservoir, will unleash a violent flood downstream. For example the St. Francis Dam Flooding in 1928 killed 450 people and buried the town of Santa Paula under 20 feet of debris.

Is Climate Change a Catastrophic Downside Risk?

I would make the argument that the downside risk of climate change should also be included in this category. The continued burning of carbon based fossil fuels has the potential to drive a process of rapid climate change that will have global impact and will cause unspeakable disruption to ecosystems and human settlements. It is a risk that is seemingly endlessly debated (with much of the opinion minimizing this risk being generated by an archipelago of carbon polluter funded think tanks), but it is a risk that has the potential to transcend our understanding of what catastrophic means if for example the great ice sheets melt.

The Potential Cost of Catastrophic Accident or Consequences Is a Cost, Whether Counted or Not

When I hear anyone mention that nuclear or coal electricity is cheap they are ignoring the catastrophic potential costs that are associated with each of these energy systems. Just because our society chooses to try to ignore these costs and to sweep them under the carpet does not mean that they go away and cease to be a factor in reality. Especially nuclear but also as the BP oil spill has shown deep water drilling can fail in catastrophic ways. AND fossil fuels in general expose the entire planet to the various potentially catastrophic risks associated with rapid climate change.

These costs should be factored into the price of this energy. If I or you were to produce and market a product that had the potential to wipe out an entire region or even to send the entire planet into a turbulent rapid climate change we would at the very least be required to build the actuary risk into the price of our product. It is far far more likely that we would be prohibited outright from ever putting our potentially catastrophic product onto market.

Why is it different for energy? Why can the nuclear sector as well as the coal, oil & gas sectors offload these costs onto our backs and force us to bear them while they continue to pocket the products from their artificially less expensive energy products? Shouldn’t the producer pay the true cost of the product that they produce? Why should we have to own the risk so that a few politically powerful energy oligopolies can continue to make immense profits?

It is vital for us to start making rational and well informed decisions about our energy choices. The energy choices we make now are going to lock our world into to an energy path for many decades to come. The potential risks of accidents and from the consequences of the emissions or waste (long lived high level nuclear waste for example) generated by an energy system need to also be weighed and weighted so that the various alternative energy systems we need to pick from can be compared to each other in a way that does not artificially influence the outcome by ignoring huge costs.

If a large wind turbine fails how many people get hurt? How many tens of thousands of people are going to develop cancer as a result of the nuclear disaster in Fukushima Daiichi power plant? This is a fundamental differentiating quality that separates renewables such as wind or solar from nuclear and also oil, coal and gas. It is one that we ignore at our own peril.