To Phase Out or Not to Phase Out: That is the Question
By Per Ola Bosson, Partner, JKL, MSLGROUP EMEA
Japan’s surprise announcement on phasing out nuclear power has done nothing but increase uncertainty. As MSLGROUP’s dedicated energy team tracks this latest development, it is clear that lobbyists, businesses and executives are missing out on PR opportunities to begin conversations with stakeholders, and gain public trust.
Japan’s prime minister Yoshihiko Noda announced on September 14th 2012 that Japan will phase out nuclear power. In concrete terms, this means that existing nuclear plants will be assigned a fixed useful life of 40 years and that no new reactors will be built. Accordingly, most of the country’s 50 reactors will be closed during the 2030s, with the last one closing in 2040.
Before we discuss what this means for the global nuclear power debate, it may be appropriate to highlight a few basic facts about the Japanese energy system.
A Comparative Overview Of Japan’s Energy Sector
Nuclear power accounted for 27 per cent of electricity production in 2009, though this fell off following the Fukushima disaster on March 11th 2011. The Japanese electricity demand is enormous – more than twice the size of Germany’s. The country has few domestic natural resources but a large population. Energy imports were already high prior to Fukushima, and Japan is the world’s largest oil importer.
Unlike countries like Germany, Japan is not connected to neighbouring country grids. Neither does it have an integrated domestic transmission network. Overproduction of wind power in eastern Japan cannot be distributed to the western part of the country, and vice versa. In comparison, Germany’s connection to French nuclear power and Nordic hydropower is a great help in evening out fluctuating domestic production.
Around the same time as the Japanese prime minister’s statement, French president François Hollande announced his intention to keep his election promise to reduce the proportion of nuclear power in electricity production from the current 75 per cent to 50 per cent by 2025. Germany, Switzerland and Belgium have all previously taken similar approaches to phasing out nuclear power.
Does this mean that the positive nuclear power trend that began when the climate issue entered the global agenda has been broken?
What we can say is that both India and China are moving full steam ahead with their nuclear plans.
Paradoxically, the non-Japanese nuclear industry is not concerned about a Japanese phase-out. On the contrary, they argue that the competitive situation for nuclear power is improving, since they expect that gas, coal and oil prices will rise as Japan is forced to import a growing share of its fuel requirements. Since the Fukushima disaster, Japanese greenhouse gas emissions have increased 60 million tonnes – and this during a period of sharp economic contraction and stagnation within many industries. Global coal and gas prices also headed up as Japan replaced nuclear power with more fossil-based electricity production.
Quite apart from the issue of the pros and cons of nuclear power, Japan’s announcement was surprising and failed to provide a clear roadmap for implementation of the phase-out. Neither was anything said about the status of financing. We are therefore forced to speculate on how the phase-out will be implemented.
Energy Policy Logic
It is often said that non-renewable types of energy should finance renewable types. This works well when the proportion of renewable energy is relatively low – but when this proportion increases, tax funding is required. With rising gas and oil prices the scope is also reduced for financing energy policy measures with high taxes on fossil fuel. A tax-financed energy revolution seems increasingly less likely given the grim fiscal situation of many OECD countries.
In this context, a not entirely irrelevant observation is that the Japanese governing party’s approval ratings are down and elections are expected this year or next year. In the increasingly fast-paced interplay between politics, the media and public pressure, it is relatively risk-free for a politician to promise reforms that will be carried out in 20-30 years. The goal is to survive until the next election.
Sweden held a referendum on nuclear power in 1980. Voters chose between two main options: complete the reactors already under construction and then phase out “reasonably”, versus a phase-out in the near future. The referendum was complicated by two versions of alternative one: with or without a nationalized power industry. These two alternatives received a majority of the votes, but it was difficult to interpret the results. Two reactors were closed, 19 and 25 years after the referendum, respectively.
With the closure of two reactors, politicians no longer considered themselves bound by the referendum results. Thanks to the partial closure, Sweden also got rid of its two reactors that were poorly located – close to population centres. Nearly three decades after the referendum, parliament decided instead to allow the replacement of old reactors with new ones. This is an excellent example of energy policy logic: when an industry with extremely long time horizons runs up against current politics focused on transitory expressions of opinion, the disparity increases between what is feasible and what has been promised.
Impact On Business Sector
The business sector also invested heavily in public opinion creation regarding the significance of electricity production for jobs and economic welfare. This is partially responsible for the change in public opinion on nuclear power, which was also affected by the fading collective memory of the 1979 nuclear accident in Harrisburg, the event that triggered the referendum.
In the absence of exceptionally good natural conditions for renewable electricity production, economic realities have forced many countries and governments to back away from ambitious plans for a carbon- and nuclear-free energy system. Energy policy is simply too big a part of the economy to defy the laws of gravity. In this context the German phase-out decision is more concrete than the Japanese and French statements, given that the last German reactor will be closed as early as 2021.
Control over energy resources, considered by most countries to be of vital national interest, has become a key part of foreign and security policy. This is especially true for rapidly growing countries that came to the table late and found that the party was already over. Today’s oil and gas resources are far less accessible than they were during the 1900s and are, above all, much more expensive.
This makes it even less likely that countries will want to experiment wildly in the energy area.
Finally, we can state that the Japanese decision has not contributed to anything other than increased uncertainty. Staking out a political intention will only be perceived as credible if there is also scope for a plan and for financing. So far, this is lacking. Prime Minister Noda’s statement should therefore not be viewed as the end of the Japanese nuclear era, but mostly likely merely as the end of the beginning of a long, long Japanese nuclear debate.
Per Ola Bosson is an expert in lobbying and with over 10 years experience at JKL Group. Previously he worked within the Swedish parliament for the Moderate Party, a role he took after gaining earlier experience in the pulp and paper industry.
Read his article: Why Politics Will Control Energy