#NuclearCommissionSAust willing to pass huge costs on to future generations

we are bequeathing a stream of costs to our successor generations. They will be poorer as a result, and will have reason to curse their forebears for selfishly making themselves better off at their expense.

Nuclear waste dump confounds cost-benefit analysis, In Daily, 23 Feb 16 The proposal for a South Australian high level nuclear waste dump places too much risk on future generations, argues economist Richard Blandy.

The Nuclear Fuel Cycle Royal Commission delivered its tentative findings on 15 February. It is seeking responses to these findings up until 18 March. I intend to submit this article to the commission for its consideration.

The only aspect of the nuclear fuel cycle that received the Royal Commission’s support in its tentative findings was the storage and disposal of used nuclear fuel, entirely from overseas, obviously. The Royal Commission described such an integrated storage and disposal facility as “likely to deliver substantial economic benefits to the South Australian community”.

I believe that the Royal Commission has got this wrong and that South Australia should not use part of its land mass as a dump for highly radioactive used fuel from overseas nuclear reactors (called “high level waste”) which, in the Royal Commission’s own words, “requires isolation from the environment for many hundreds of thousands of years”.

The reason why South Australia should not allow a nuclear dump within its borders goes to the heart of cost-benefit analysis involving many generations of people, literally tens of thousands of generations, in this case. Cost-benefit analysis works well when the costs are up front and the benefits accrue into the future. But it falls apart when the benefits are up front and the costs accrue into the future.

This is the case with the proposed high level nuclear waste dump. We are promised an up-front bonanza, after 30 years of construction of the facility, with a net present value of “more than $51 billion (at the intergenerational discount rate of 4 per cent)”.

It would generate $5 billion per year for the first 30 years of its operation, which is about the size of the farm sector, the retail sector, the education sector, the professional scientific and technical services sector and the public administration and safety sector. Effectively, we would add a substantial sector to our economy.

But not in employment terms: the dump would add only about 1500 full-time jobs during construction and 600 jobs once operations began, compared with 800,000 jobs presently in South Australia.

The capital intensity of the dump is very, very high. The dump would require an investment estimated at about $27 billion, to be financed by a pre-commitment by contracted users of the dump rather than the State Government.

But associated with the dump is a risk that lasts for many hundreds of thousands of years.

A normal investment project, like building a bridge, for example, has its investment costs up front and a stream of net benefits (benefits in excess of operating costs) flowing into the future. If the present value of this stream of net benefits into the future exceeds the present value of the cost of the bridge, we should build the bridge. If not, we should not build the bridge. That is how cost benefit analysis works in assessing whether a project should go ahead, or not.

The problem with the high level nuclear waste dump is the inescapable risk … of severely adverse outcomes that we might be passing on to tens of thousands of future generations of South Australians.

But how can we compare the value of net benefits 20 years or more into the future with costs that we are having to meet immediately? Clearly, distant events have less value to us now than immediate events do: the promise of $100 in 20 years’ time is worth less than $100 in your hand right now (if you don’t believe this, I would like to borrow $100 from you today and repay you $100 in 20 years’ time!)……..

what happens if the benefits are up-front and there are costs that accrue into the future? In this case, the costs are “discounted”. At some point, the present value of the costs becomes zero and they don’t matter so far as we are concerned. We may decide to proceed with the project because the present value of the benefits exceeds the present value of the costs, even though we are imposing costs on the generations to follow us.

In other words, we are bequeathing a stream of costs to our successor generations. They will be poorer as a result, and will have reason to curse their forebears for selfishly making themselves better off at their expense.

It is like the South Australian Government borrowing to fund current Government spending rather than Government investment in long-lived assets – the interest and repayment bills will fall on future generations while all the benefits are received by us.

Some examples of this problem being dealt with in other contexts are worth providing……….

The problem with the high level nuclear waste dump is the inescapable risk (the Royal Commission says that “it is not possible to know the geological and climatic conditions in the distant future”) of severely adverse outcomes that we might be passing on to tens of thousands of future generations of South Australians.

If we rate their outcomes equally to our own (as we do with climate change, in fisheries management and bringing up children, for example), we should not proceed with constructing such a facility within our borders, whatever the up-front bonanza that we are promised, which may, indeed, be correct.

We should think of what we will leave to our descendants – and not do it.

Richard Blandy is an Adjunct Professor of Economics in the Business School at the University of South Australia. http://indaily.com.au/business/analysis/2016/02/23/nuclear-waste-dump-fails-the-cost-benefit-test/