Hamish McRae: A nuclear rejection that invites others to follow

Economic Studies

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So Germany will dump nuclear power. Europe's largest economy – and the world's second largest exporter of manufactured goods – reckons it can manage without it, closing all nuclear power stations, which at present produce a quarter of the country's electricity, by 2022. Given German thoroughness and attention to detail, they will presumably succeed. What might it mean for us, the rest of Europe and indeed the world?

Nuclear power generates such strong opinions on both sides of the argument that it might be helpful to start with some rough numbers to see the role it plays in the world's energy supply. The most glaring and often overlooked point is that it supplies only a small amount of the world's primary energy, about 6 per cent. It is slightly less important than the other main source of energy other than fossil fuels: hydropower, which is about 7 per cent of the total. All the renewable sources of energy – biofuels, wind, solar and the rest – account for less than 2 per cent. So at the moment the amount of energy that comes from the three main fossil fuels – oil, coal and gas – is more than 85 per cent of the total.

How might that change? BP produced a thorough study of energy outlook to 2030 earlier this year. There were two dramatic conclusions. One was that more than 90 per cent of the growth in energy consumption over the next 20 years would come from the emerging world. In the present developed world, energy use would be flat or falling. Our economies would carry on growing but they would do so without using significantly more energy.

The other was that the world would remain heavily dependent on fossil fuels. BP accepted that by far the fastest-growing sector would be renewables. But BP's base case concluded that these would still only reach about 7 per cent of the total by then, with nuclear and hydro maintaining their shares too. So, in 20 years' time, we will have a little over 20 per cent of the world's energy coming these three sources and nearly 80 per cent from fossil fuels. Within the fossil-fuel mix, oil will tend to go down a bit but coal and particularly gas will come up.

It looks most unlikely that nuclear's share of the total will grow, and the probability is that it will tend to shrink. But – and this I find really fascinating – it would not change the global picture very much. Assume nuclear power goes into a slow, but steady, decline: few new stations are built and existing ones are gradually closed. So instead of supplying 7 per cent of the world's energy, nuclear supplies only 4 per cent. If everything else stayed the same the share of fossil fuels would rise from, say, 80 per cent to 84 per cent. That would be a move in the wrong direction in that it would increase carbon emissions, but in the context of world energy supply it is not that huge. It is equivalent to about three years of trend growth in energy demand.

It's not what you are not supposed to say but what we do here in Britain about our nuclear power stations does not, in world terms, matter one jot.

So what would change things? There seem to me to be two potential game-changers. One would be some radical advance in energy production that is just round the corner but which at the moment we cannot see: an energy revolution as far-reaching in its consequences as the communications revolution. It would be nice to think this might be there but, well, we can't count on it. The other would be much faster-than-projected advances in energy efficiency.

In the developed world we are increasing energy efficiency by about 2 per cent a year: that enables us to carry on growing without any significant increase in energy consumption. In the emerging world things vary vastly from country to the next but, on average, energy efficiency is also improving by a similar amount. But because both population and economic growth is much faster, energy use is rising by close to 3 per cent a year. If, however, the world was able to improve its performance at energy conservation, say to 4 per cent a year, then we would be able to go on increasing living standards without putting such a huge additional burden on the planet.

Now where might the technical advances occur that would help us along this path? I would look first to Germany and Japan, two sophisticated manufacturing countries under the most direct pressure to reduce dependence on nuclear power. To the extent they succeed, China will follow. That is why this German decision is so important for the rest of the world.

Fancy taking a bet on Greece?

So there will be a rescue package for Greece before the end of June, according to Jean-Claude Juncker of Luxembourg, who leads the group of eurozone finance ministers who are putting it together. Quite what it will be is unclear but the hope that things will be patched up for a bit longer was enough to push the euro up against the dollar and perk up stock markets, too.

There is one disreputable and one reasonable reason for wanting to tide things over for as long as possible, though the eventual default of Greece on its debts is now accepted as inevitable. The bad reason is that politicians have short-time horizons and they may have gone on to some other job by the time the ouzo hits the fan. The good reason is that the longer the problem is postponed the longer there is for everyone, especially banks that hold Greek debt, to adjust.

And if you really believe the markets are wrong and Greece will indeed pay its debts in full there is a great opportunity. You buy 10-year debt, which is currently yielding 16 per cent. A wonderful interest rate and, in 10 years, you get all your money back. Well, perhaps not.


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