Economic Impacts of Swedish Nuclear Phase-Out Christoph Bhringer a,c - - PowerPoint PPT Presentation

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Economic Impacts of Swedish Nuclear Phase-Out

Christoph Böhringera,c, Bengt Kriströmb,c, Per-Olov Johanssonc

aUniversity of Oldenburg, bUniversity of Umea, cCentre for Environmental and Resource Economics (CERE)

Presentation at the 2016 SAEE, Luleå

Policy Background

 Nuclear power has been controversial since the very beginning:

• Nuclear referendum in 1980 after Harrisburg (1979): nuclear phase-out in 2010
• Further nuclear disasters in Chernobyl (1986), Fukushima (2011)

 Pros and Cons:

• Pros:
• Low-cost energy source (industrial competitiveness)
• Supply security (oil independence)
• CO2-free energy source (climate change)
• Cons:
• Risk of large-scale accidents
• Long-term waste storage
• Proliferation

 Phase-out policies:

• Direct legislation (referendum, parliament vote)
• Economic disincentives (security standards, external cost pricing)

Policy Background

 Breakdown of electricity production by source, 2015 (in %):

• River protection: Hydro is no large-scale substitute for nuclear power.

Source: Eurostat (online data code: nrg_105m)

Policy Background

 Electricity prices for industrial consumers, 2015s2 (EUR/kWh)

Source: Eurostat (online data code: nrg_pc_205)

Research Value-Added

 Literature review:  Our contribution:

• Bergman (1981), Mills (1990), Nordhaus (1995), Andersson&Haden (1996),

Nyström&Wene (1999):

• Impact assessment of 1980 referendum with phase-out in 2010
• “The economic and environmental rationale for a nuclear phaseout is very thin.”

(Nordhaus 1995)

• Update to business-as-usual (bau) in 2030 starting from 2011 base year data:
• EU climate and energy package 2030 (ETS and non-ETS targets)
• BaU projections on GDP, fuel prices, energy demands, and CO2 pricing
• Comprehensiveness quantitative impact assessment:
• Price-responsiveness of supply and demand: general equilibrium
• Structural change and international competitiveness: multi-sector, multi-region
• Technology foundation: bottom-up representation of Swedish power supply
• Caveats:
• Uncertainty of exogenous bau projections
• Omission of transitional adjustment cost (lstatic analysis)
• No treatment of risk (aversion)

Economic Impact Drivers

 Endowments, technologies, preferences:  Direct and indirect impacts:

• Endowments: How does regulation affect the productivity of factors, i.e., factor

earnings (e.g. rents on nuclear capacity)?

• Technologies: How easy can production adjust to policy constraints?
• Preferences: How much does regulation interfere with consumer choices?

Nuclear Hydro Coal

supply Price (MC) demand quantity

Gas Wind

Price (MC)

Hydro Coal

supply demand quantity

Gas Wind

Loss in economic surplus due to shift from lower-cost to higher-cost supply option Loss in economic surplus due to increased market price

• Indirect:
• Spillover effects to other markets
• Economy-wide reallocation of resources
• Direct:

Analytical Framework

• Comprehensive incorporation of market interactions
• Origination and spending of income (income closures)
• Calibration of technologies and preferences based on empirical data

RAr^ = Representative agent in region r Yir = Production of good i in region r Lr = Labor in region r Cir = Consumption demand for good i in region r Kr = Capital in region r Air = Armington production of good i Mir = Imports of good i from region r

 Computable general equilibrium (CGE):  Generic model structure:

Data

• National input-output tables and bilateral trade flows
• Energy flows and CO2 emissions

 Base-year data (2011) for 140 regions and 57 sectors by GTAP(9):

• International energy outlook (IEO): GDP, energy demands, international fuel prices
• EU commission: CO2 emission budgets and prices
• CERE: electricity generation mix and merit-order

 Business-as-usual data for 2030:

• GTAP: trade elasticities, value-added elasticities
• Interfuel substitution elasticities: Steinbuks and Narayan (2014)
• Fossil fuel supply elasticities:: Graham, Thorpe and Hogan (1999), Krichene (2002)

 Elasticities:

Regions and Sectors in the Model

 Regions: Sweden, Rest of the EU (incl. Norway), Rest of the World  Sectors:

• Energy carriers: crude oil (cru), coal (col), gas (gas), refined oil (oil), electricity (ele)
• Energy- and trade-exposed (EITE) industries based on electricity intensity, export

intensity, EU-ETS coverage (trade intensity and additional CO2 cost)

v_f Vegetables, fruit, nuts nmm Cement, concrete, plaster tex Textiles ppp Paper products, publishing crp Chemical, rubber, plastic products b_t Beverages and tobacco products

• mn

Other mining ehi Other electricity-intensive sectors (>AVE) AVE average nfm Metals lea Leather products elo Other electricity-extensive sectors (<AVE) i_s Iron&steel lum Wood products eis Other ETS sectors

Phase-Out Scenarios

 Central case simulations:

• Gradual reduction of nuclear power from business-as-usual (bau) to

− 75% (NUC75) − 50% (NUC50) − 25% (NUC25) − 0% (NUC0)  Sensitivity analysis on technology options:

• Expansion of renewable power: scaling of supply elasticities (0.5; 1; 2)
• Expansion of fossil fuel-based power generation: yes, no

 Results :

• Electricity market (price, output, generation mix, imports)
• Impacts for Swedish EITE industries (output)
• Macroeconomic adjustment cost (change in real income)

with bau capacity bounds on hydro, gas and coal.

Electricity Market

• Producer prices (PY) – domestic generation (Y_q) – domestic consumption (C_q):
• Power generation mix (% share of production)
• Filling the nuclear gap (in %):

Electricity- and Export-Intensive Industries

• Production (% from bau)
• Export (% from bau)

Economic Welfare

• Real income losses (% from bau GDP)

GE: CGE model calculation PE: simplistic partial equilibrium calculus of loss in economic surplus due to nuclear phase-out

Sensitivity Analysis

• Welfare impacts for total phase-out (NUC0):
• Filling the nuclear gap (in %) for total phase-out (NUC0):

Renewable supply elasticity (1, 0.5, 2) Fossil fuel expansion (no, yes) Renewable supply elasticity (1, 0.5, 2) Fossil fuel expansion (no, yes)

Concluding Remarks

• Nuclear phase-out implies non-negligible welfare cost

(Caveat: external cost estimates for nuclear risks).

• Partial equilibrium estimates of direct cost are a poor proxy for
• verall economic impacts.
• Technology characterization of renewable and fossil-fuel-based

power generation is a key driver of economic adjustment (beyond the scope for electricity imports).

All_TWh 197 NUC_TWh 69 Out_bnSEK 139 PP-Öre/KWh 71 NUCrent-Öre/KWh 38 NUCrent-SEK 26 GDP-SEK 3423 Loss%GDP (in %) 0.773

Simplistic PE Calculation of Welfare Losses in 2030 (NUC0)

Power Generation in 2030 (in TWh)