Governments should use markets and infrastructure to achieve their phase-out targets.
I recently spent a week with executives from Electricite de France (EDF). That meant I heard a lot about nuclear energy. In 2016, 78% of the company’s electricity generation was from nuclear. The company operates more nuclear reactors than any other by more than a factor of two. Coincidentally, that same week, France’s new energy and environment minister told the Financial Times that EDF needs to provide a plan to cut the share of nuclear energy in France from 75% to 50% within 15 years. Nuclear needs to be phased down to make room for renewable energy, according to the minister.
Phase-outs and phase-downs of unwanted generation are all the rage in Europe. Advocates are pointing to models that show a rapid and complete phase out of coal is essential to meet the region’s obligations under the Paris climate agreement. Proponents of nuclear phase-outs point to the risk of environmental calamity. The anti-nuclear movement that has its roots in the 1970s has been reinvigorated by the view that renewable energy can now replace it one-for-one.
The popularity of phase-outs with politicians and the public may be due to their perceived simplicity. Identify an undesirable type of power generation, then pick a date certain when it is required to go away. No complex regulations required.
It’s as simple as a no-carb diet. Just stop eating carbohydrates, and you lose weight. But what replaces carbohydrates in your diet? Taking the replacements into account will you still lose weight?
Phase-outs raise similar questions that policymakers need to carefully consider as they develop the details of the announced phase-outs.
The History of Nuclear and Coal Phase-Outs
Europe has a history of dramatically closing down power plants in response to political pressures. Nuclear power has been the main target due to public concerns about safety and waste disposal.
Italy led the way following the 1986 Chernobyl nuclear accident. A popular referendum caused the closure of the country’s nuclear power plants and the shelving of a nuclear expansion plan. More recently, Germany joined in, abruptly shutting down eight nuclear reactors in 2011 following the Fukushima nuclear accident. The remaining plants are to be shut down by 2022. Max Auffhammer discusses the German policies in more detail here. Switzerland and Belgium have also announced plans to phase out nuclear.
The phase-out trend has expanded to coal power plants. Total phase-outs by a date-certain have been announced by France (by 2023), Italy (by 2025) and the UK (by 2025). In the case of coal, the stated goals are reducing greenhouse gas emissions in order to meet national commitments, and reducing health impacts from local pollutants.
While the term “phase-out” is thrown around for all of these cases, the details can vary, or, in some cases, have yet to be determined. These details are important. The way in which a phase-out is approached can dramatically affect the environmental and economic costs and benefits.
The Impact of Sudden Power Plant Closures
One approach is to quickly shut down the objectionable power plants and count on alternatives to show up and fill the gap. The impact of this approach is hard to predict, but there’s good reason to worry about unintended consequences.
For a cautionary tale, one can look at the impact of California’s closure of the 2,200 Megawatt San Onofre Nuclear Generating Station in 2012. The Energy Institute’s Lucas Davis and Catherine Hausman (an Energy Institute alum) carefully examined the impacts of the plant closure. They found that over the next year, generation costs to serve California increased by $370 million and carbon dioxide emissions increased by an amount equivalent to putting over 2 million additional cars on the road. The low cost, low carbon dioxide nuclear power was replaced by electricity from natural gas-fired power plants. And it wasn’t from the most efficient gas plants. Because transmission lines into the region were being fully utilized, nearby, higher costs plants had to run instead of lower cost plants outside the region. If the closure had been anticipated and transmission capacity had been expanded, more efficient gas plants and renewable energy outside the region could have played a bigger role.
The emissions impact of Japan’s sudden closure of its nuclear fleet following the 2011 Fukushima disaster is another stark example. Natural gas- and coal-fired generation have increased dramatically since the closures. As a result, between 2010 and 2015, greenhouse gas emissions from electricity generation increased by 16% even as electricity consumption decreased by 10%. Japan faces unique challenges as an island, but the impacts could have been far less severe if the closures had been rolled out less abruptly.
Harnessed Markets to Phase Out Coal or Nuclear
Closing plants through dramatic proclamations isn’t the only way a country can eliminate unwanted forms of generation. Markets can lead to equally dramatic outcomes, likely at a lower cost. Look at the US as a case study.
Electricity production from coal-fired power plants in the US has dropped by one-third since 2010. This reduction in US coal generation is four times the total amount of coal generation in the three European countries that have announced coal phase-outs.
Natural gas has been able to displace coal as a fuel partly due to geological happenstance (lots of gas in the ground) and technological development (fracking), but the transition has been helped along by the existence of mature, competitive markets for the buying and selling of natural gas, and an extensive transportation network. Competitive, regional electricity markets in much of the country has also helped the lower cost option, natural gas, compete and win out over coal.
Coal in the US is still too cheap. Some of the harms caused by coal, such as the contribution to climate change, are not reflected in prices. If policy makers tackled this, the phase-out of coal would be even more rapid.
European countries can also look for ways to harness markets to achieve their phase-out goals.
Maintaining fair, competitive electricity markets, strengthening greenhouse gas cap-and-trade markets, and pricing of all the negative externalities are important ingredients. More directive policies with market features, such as renewable energy auctions, could also play a role. Facilitating the development of robust infrastructure networks – transmission lines, natural gas pipelines – will also be important for the lowest cost alternatives to enter the market. Ending existing subsidies for coal and nuclear would also help.
A robust set of market-oriented measures, instead of abrupt closures, could move European countries well on their way to meet their nuclear or coal phase-out goals, and at a lower cost to consumers and the environment.