Comment on Oxera’s report “Plugging the Carbon Productivity Gap” April 2005

The UK economics consultancy, Oxera, has published an article in the April issue of its Agenda magazine, entitled “Plugging the Carbon Productivity Gap”. [1] The article compares the £12 billion the government says will have to be spent on renewables – over and above the cost of conventional generation, with Oxera’s calculation of an equivalent figure for a nuclear power replacement programme of similar output to the renewables programme of around £4.4 billion.

The UK’s Independent newspaper [2] leapt to the conclusion that expanding nuclear instead of green energy 'could save billions', and the Daily Telegraph said wind farm costs dwarf nuclear [3]. But, as is often the case with nuclear issues, the newspapers have not reported the full story.

The Oxera article is focused on what it sees as the Government’s failure to be on target for a 60% reduction in carbon emissions by 2050 on current policies, if the economy continues to grow at the current rate. So it is not suggesting subsidised nuclear power as an alternative to the development of renewable energy. It says the deficit in the Government's target could also be met by extra energy efficiency measures (or carbon sequestration). But whichever measures are chosen to meet the deficit would have to be in addition to the planned expenditure on renewables.

What Oxera doesn’t deal with is the fact that renewable energy is a new industry which requires government help to kick-start it. The government's Performance and Innovation Unit (PIU) has said that, once renewable industries are up and running, the scope for cost reductions for are very large, with wind likely to be amongst the cheapest of all generating technologies by 2020. On the other hand nuclear power is a mature technology with a limited scope for cost reductions.

OXERA doesn't say how it has calculated that the nuclear industry would require a subsidy of £4.4bn as part of the financial deal for a replacement nuclear programme - a subsidy that would be in addition to the one the industry is already receiving and will continue to receive for the next 100 years. Nor does the report include costs for radioactive waste and spent fuel management from a new build programme. But it does say that it assumes the first new station would cost £1.6bn (for 1GW) falling to £1.2bn by the third station. Interestingly this is around double the current industry estimate for construction costs for a 1GW AP1000 of £0.6 – £0.8 billion, and much closer to estimates given by the US Congressional Budget Office (CBO) which puts the costs at £1.2 - £1.7 billion.

If the Government is going to have to spend public money, or regulate to force increased electricity consumer spending, to drive carbon out of the economy, it should be ensuring it is spending taxpayers’ and consumers’ money as effectively as possible. The Rocky Mountain Institute in the US - renowned for its work on energy - has estimated that every dollar invested in electric efficiency displaces nearly seven times as much carbon dioxide as a dollar invested in nuclear power, without any nasty side effects. Which is precisely why we should work to maximise energy efficiency to plug any gap in reducing the UKs carbon emissions targets, and forget throwing yet more money at an industry which has already received huge public subsidies and produces dangerous waste which no-one knows what to do with.

[1] The Oxera article (pdf)

[2] The Independent

[3] The Telegraph