Angela Merkel’s precipitate and wholesale decision to shut down Germany’s nuclear industry by 2020 was a mindless knee-jerk reaction to the Fukushima incident in Japan, and to populist pressure. It threatens Germany with a new kind of nuclear disaster.
There will be four main impacts. First of all, security of supply. 2020 may seem a long way away, but major power infrastructure has long lead-times. They will try to replace real mainstream baseload capacity with wind and other renewables, but they will face the usual problems of cost, intermittency and the need to back-up wind with a similar capacity of gas-fired generation, with all the negative implications for costs and efficiency. So inevitably they will turn to coal to make up much of the gap.
Second, cost. We don’t have a complete European market for energy, but nonetheless there are enough cross-border connections to create a degree of interdependency. So taking out a huge slice of capacity from Germany will have — is already having — a direct impact on European energy prices, even before we factor in the investment in new non-nuclear capacity, and the huge investment needed in the grid to cope with more distributed generation.
Third, emissions. These are no great concern to me, but they are an obsession of EU policymakers. To the extent that Germany replaces nuclear with coal (or worse, brown coal), the EU’s bold (or foolhardy) emissions reductions targets will be blown away. George Monbiot in the Guardian reckons that 100,000 people a year die of respiratory diseases caused by pollution from coal-fired power plants. If so, Merkel’s decision will increase that number by many thousands. Compare this with the figure for deaths from radiation at Fukushima — zero.
But there’s a fourth hit which perhaps Angela Merkel forgot when she reached her nuclear decision. The bane of investors in major infrastructure, and especially nuclear energy, is lack of regulatory certainty. If you’re investing for sixty years (the expected life of a new nuclear plant), you need to be sure that regulators won’t pull the rug from under you after a few years. In this case, an ad hoc decision in response to short-term political pressure will have done huge and quantifiable damage to energy companies in Germany, and they have already got their lawyers working on the case. On top of all the other damage, the German government is likely to face a multi-billion euro bill for compensation.
On Tuesday, I attended a meeting of Giles Chichester’s European Energy Forum, where we discussed the European energy market. (Giles, by the way, had earlier that day been elected as a Vice President of the European parliament — well done Giles).
Our speaker, a major industry figure, lamented that we seemed to have no credible EU energy policy, so that decisions on key issues are made separately by member-states, and he cited the UK as an example. In my response, I recalled that we in the UK had been waiting four decades for a European solution to the common fisheries problem, and were still waiting. I suggested we might be unwilling to wait decades for decisions on energy.
He drew a comparison between the euro, and the European Emissions Trading System (ETS) — or as the Americans say, Cap’n’Trade. Both, he said, were fine concepts that had been undermined by poor implementation and political meddling. I suggested to him that far from being fine concepts, both the euro and ETS were fundamentally flawed from the start, and could not succeed on any terms.
Most economists see ETS as a horse designed by a committee, and believe that if we must have a disincentive to CO2 emissions, a carbon tax would be much more inclusive, comprehensive (and comprehensible), fair and predictable.
As I have often argued, ETS is described by its proponents as a “market-based system”. But it’s a wholly artificial market, in a virtual commodity with no intrinsic value. It can be undermined by bureaucrats at the stroke of a pen. It is riven with anomalies and distortions, with threshold issues and grandfather rights. From a business point of view, it totally lacks predictability, making planning difficult and discouraging investment in Europe.
It has also created a massive industry of hangers-on and rent-seekers, derivative dealers, traders and lobbyists, who contribute nothing to to the real economy but live parasitically in the shadows. It invites spivs and con-men — Europol has published frightening statistics of the level of fraudulent transactions in the ETS. Meantime its international cousin, the “Clean Development Mechanism”, has become a licence for sharp third-world operators to profit from Western guilt and angst.
Is there any upside to this comprehensive nuclear disaster in Germany? I believe that there is, at least for the UK. We are at last starting to replace our ageing nuclear capacity, but we are short of expertise. There may well be a good crop of German nuclear engineers coming available shortly.