Week 16: Is nuclear part of our sustainable future?

In this issue: ▸ A week of new reduction targets ▸ The EU taxonomy and a motto ▸ Nuclear power is a Rorschach test ▸ The state of nuclear power ▸ And much more!

Apr 25, 2021

Dear all,

I hope everyone is well and ready for this edition of ‘ESG on a Sunday’!

A week of new reduction targets

This week we’ve entered into the new world of 2030, 2040 and 2050, and of CO2 reduction targets from the leading, or shall we say heavy, CO2 emitters.

It’s all about the percentages and the reference years. U.S., EU and China, well, most of the world has now set and communicated targets. It’s serious business and it’s crucial that we get the systemic changes that these targets require.

This is not only monumental. We are late, very late. Today, emissions are the 2nd highest ever measured in human history.

However, I can’t help thinking about the woman I buy newspapers from in my local shop in Zurich, and the expression on her face when I announced, just before picking up the newspapers yesterday morning, that “the world is ready to tackle the biggest challenge ever!”

She looked at me, amused by my announcement, and replied:

“2050. No one here will be around to hold them accountable. It’s easy for politicians to say what people want to hear right now. Besides, will it mean that my living costs get lower because of this?”

I left the shop thinking about the billions of people around the world that ask themselves the very same question. Yes, it is good, but what does it mean for my life right now?

It is certainly not easy to navigate all these numbers and percentages, but a couple of things are clear:

EU’s newly communicated target is not even close to 1.5 degree Celsius as agreed in Paris, rather just above 2 degrees Celsius.
The effects of these commitments – if and when implemented – will take years. But given they are or will be taking place simultaneously around the world, they can give results, faster than ever before.

This is very good, no doubt about it. Next stage, the implementation stage, is the one that will by all means determine the future of generations.

The EU taxonomy and a motto

One of the prerequisites for the transition is, as I’ve written before, related to energy, and in that space the new EU taxonomy has been struggling with the definition of both nuclear and gas energy under the banner of sustainability.

Most of the trouble has to do with the political play between France and Germany, two of biggest economies in EU. France loves nuclear and depends on it – around 70% of their energy comes from nuclear.

Germany on the other hand despise nuclear, but needs gas since they’ve closed down their nuclear power plants (the gas comes from Russia via North Stream 1 and 2).

Meanwhile, Sweden and Finland have been lobbying, cajoling and forcing EU to classify energy derived from biomass (forest) as sustainable. Read more here.

EU was forced to do this since losing support from the Nordics would create a block of resistance similar to what EU is already facing with Poland, Hungary and the Czech Republic.

You sort of get the picture. The new EU taxonomy is, as expected, a big compromise. It’s NOT a “man on the moon” moment for EU.

The motto seems to be: We do what we can. And under this motto the EU economies will shift their business models into a more sustainable mode within next 10, 20 or 30 years.

One thing that is completely out of scope for EU, U.S. and the rest of the world – and is not even mentioned – is putting a price on CO2.

We still don’t have a price on it, and as such numbers can mean many things in different ways depending on who looks at them.

Nuclear power is a Rorschach test

But let’s have a look at one of the energy sources that puzzles not only countries and their politicians, but also many people in the investment community: The nuclear dilemma.

Nuclear power is dead. Long live nuclear power. Nuclear power is the only way forward. Nuclear power is too dangerous. Nuclear power is the safest power source around. Nuclear is nothing. Nuclear is everything.

When I started looking at this I was stunned by how the same numbers and indicators can be interpreted in so fundamentally different ways.

The same basic data set – nuclear plants currently in existence, those under construction, the status of new technologies, the history of costs and delays, and a few striking accidents – produces totally contradictory opinions and predictions.

Nuclear power is a Rorschach test: You see what you want to see, a rosy nuclear future or an old-world dinosaur in a slow-death spiral. It’s a reflection of your own views on the energy present and future.

In all likelihood, no one will be proven right or wrong for decades.

The state of nuclear power

Nuclear power today accounts for around 10 percent of the total electricity generation around the world.

This varies sharply by country. In the U.S. the rate is about 20 percent, in Russia and Germany it is a bit lower than that, while some other European countries get 40 and 50 percent from nuclear reactors.

France has long led the way proportionally, at more than 70 percent (it has the second most total reactors, behind the U.S.). China, though building rapidly, drew less than 3 percent of its power from nuclear in 2014.

There are 442 reactors currently in operation globally, and the International Atomic Energy Agency says that 66 are currently under construction. Twenty-four of those are in China; no other country is currently building more than eight.

Nuclear is very expensive

Nuclear power is the single largest source of low-carbon electricity in the United States. When it comes to any energy source, cost sits at the root of the discussion. Adding more nuclear to the grid could reduce some of the burden on renewables and storage, but the economics of nuclear itself could prove an insurmountable roadblock.

In general, the more experience accumulated with a given technology, the less it costs to build. This has been dramatically illustrated with the falling costs of wind and solar power.

Nuclear, however has bucked the trend, instead demonstrating a sort of “negative learning curve” over time.

According to the Union of Concerned Scientists, the actual costs of 75 of the first nuclear reactors built in the U.S. ran over initial estimates by more than 200 percent. More recently, costs have continued to balloon.

Extending the life of existing reactors

The nuclear industry’s main hope for future expansion lies in a new generation of small modular reactors (SMRs) that generate less than 300 MW each and are amenable to assembly-line construction.

These are still under development, however, with none licensed or under construction.

A middle path between new plants and no plants is lifetime extensions for existing reactors. The IEA estimates the costs for maintenance and improvements needed to continue operating an existing nuclear reactor for an additional 10–20 years would be between $500M million and $1.1B per gigawatt, an amount the IEA says is comparable to constructing a renewable – solar or wind – system of the same size.

The result would be effectively 1 GW of new, low-carbon electricity without the delays involved in siting and building a new solar field or wind farm.

However, more than one-third of U.S. nuclear plants are unprofitable or scheduled to close, and closing unprofitable and marginal at-risk plants early could result in a 4 to 6 percent increase in U.S. power sector emissions.

Without new policies, natural gas and coal would probably fill the void. In Europe the situation is similar.

Here you can find out how old the existing nuclear power is.

Is it worth the cost?

The industry, for its part, argues that the benefits of nuclear are worth the price tag. The Nuclear Energy Institute, which represents plant owners, builders, designers, suppliers and related companies, notes that in the U.S. nuclear power generates as much as $50 billion each year from electricity sales and revenue, and provides around 100,000 jobs.

The lack of carbon emissions, of course, only adds to the benefits. Supporters of nuclear power hold out hope that new technologies will improve the economics and reduce the fear factor.

Many argue the fearful reactions and phase-outs are not entirely logical in the context of climate change. Fukushima clearly did result in a drop in global support for nuclear energy, but public opinion continues to vary sharply by country. In the U.S., a Gallup poll on nuclear favorability has shown a decline since Fukushima, but not a dramatic one.

SMRs vs renewables – what would you prefer in your backyard?

A handful of companies and governments are working to develop small-scale nuclear reactors (SMRs) that proponents say are safer, cheaper, and more compatible with renewables than traditional nuclear power.

But critics contend the new technology doesn’t address concerns about safety and radioactive waste. Proponents say the time is ripe for this new wave of nuclear reactors for several reasons.

First, they maintain that if the global community has any hope of slashing CO2 emissions by mid-century, new nuclear technologies must be in the mix.

Second, traditional nuclear power is beset with problems. Many existing plants are aging, and new nuclear power construction is plagued by substantial delays and huge cost overruns. Large-scale nuclear power plants can cost more than $10 billion.

Finally, advocates say that as supplies of renewable energy grow, small modular reactors can better handle the variable nature of wind and solar power as SMRs are easier to turn on and leave running.

Small modular reactors — nuclear reactors using novel technologies to fit into much smaller and mass-producible packages than the behemoth nuclear power plants of today — are presented as a way of rapidly decarbonizing the grid in the face of an ever more pressing need to meet climate targets.

Small reactors already exist. They occupy a very niche zone, which is military marine, mainly.

Critics of nuclear power, however, contend that small modular reactors suffer from many of the same problems as large reactors, most notably safety issues and the unresolved problem of what to do with long-lived radioactive waste. And opponents say that even in a smaller form, nuclear power is expensive — it’s one of the costliest forms of energy, requiring substantial government subsidies to build and run, not to mention insure.

The nuclear waste dilemma

The dilemma of how to manage nuclear waste, radioactive materials routinely produced in large quantities at every stage of nuclear power production, from uranium mining and enrichment to reactor operation and the reprocessing of spent fuel, has taxed the industry, academics and governments for decades.

Along with accidents, it has been a major reason for continuing public opposition to the industry’s further expansion despite substantial interest in nuclear status as a low-carbon power source that can help mitigate climate change.

In 80-odd years of nuclear power, in which more than 450 commercial reactors, many experimental stations and tens of thousands of nuclear warheads have been built, great stockpiles of different levels of waste have accumulated.

Depending on how countries classify waste, only about 0.2–3% by volume is high-level waste, according to the World Nuclear Association, a London-based industry group that promotes nuclear power.

Mostly derived from civil reactor fuel, this is some of the most dangerous material known on Earth, remaining radioactive for tens of thousands of years. It requires cooling and shielding indefinitely and contains 95% of the radioactivity related to nuclear power generation.

Further 7% or so by volume, known as intermediate waste, is made up of things like reactor components and graphite from reactor cores. This is also highly dangerous, but it can be stored in special canisters because it does not generate much heat.

The rest is made up of vast quantities of what is called low-level and very low level waste. This comprises scrap metal, paper, plastics, building materials and everything else radioactive involved in the operation and dismantling of nuclear facilities.

The consensus is that around 22,000 cubic meters of solid high-level waste has accumulated in temporary storage but not been disposed of (moved to permanent storage) in 14 western countries, along with unknown amounts in China, Russia and at military stations.

A further 460,000 cubic meters of intermediate waste is being stored, and about 3.5 million cubic meters of low-level waste.

Some 34,000 cubic meters of new high-level and intermediate waste is generated each year by operating civil reactors, says another nuclear industry group, the World Nuclear Association (WNA).

In the early days of nuclear power, waste of any sort was barely considered. British, U.S. and Russian authorities, among others, dumped nuclear waste, including more than 150,000 metric tons of low-level waste at sea or in rivers.

Since then, billions of dollars have been spent trying to identify how best to reduce the amount produced and then store it for what may be eternity.

Many ideas have been investigated, but most have been rejected as impractical, too expensive or ecologically unacceptable. They include shooting it into space, isolating it in synthetic rock, burying it in ice sheets, dumping it on the world’s most isolated islands, and dropping it to the bottom of the world’s deepest oceanic trenches.

Vertical boreholes up to 5,000 meters deep have also been proposed, and this option is said by some scientists to be promising. But there have been doubts because it is likely to be near impossible to retrieve waste from vertical boreholes.

Yet, as of now, it seems as that the bitter reality is that there is no scientifically proven way of disposing of the existential problem of high- and intermediate-level waste.

Some countries have built repositories, some plan them. But given the huge technical uncertainties, if disposal does go ahead and anything goes wrong underground in the next millennia, then future generations risk profound widespread pollution.

The truth is that whatever efforts are made to bury and forget it, it will not go away.

So a nuclear ESG scorecard then?

How important is nuclear in the worldwide transition to a more sustainable future? It stands for 10% of world energy supply, not much really. For some countries – U.S., China and France, for example – it plays a bigger role, and in U.S. and China particularly, given their emissions, the transition will most likely be dependent on nuclear.

Otherwise, given the costs and the safety issues (including the waste aspect), I’m doubtful that the traditional nuclear power expansion will increase. SMR’s will likely gain more attention and more investments since they provide a shortcut to some of the CO2 targets mentioned above. And, although costly, they will likely be subsidised by governments.

However, I do think that the existing nuclear capacity will be stretched into the future as long as possible given the stability of energy supply generated by nuclear power in some countries.

Nuclear power has low CO2 emissions, but generates environmentally hazardous waste for thousands of years.

One of the conclusions is to keep what we have and make it safe or as safe as possible and focus on other far more sustainable sources of energy instead.

This also tells us that “a sustainable solution” does not mean same thing everywhere. There is no right and wrong. It is far more complex than that.

If you want to read more on nuclear, I’ve listed some further reading at the very end of this newsletter.

Which countries lead on ESG?

In other news, I did an “ESG around the world” series a few months ago, and now Morningstar is following suit… Read here.

The Netherlands is the world's most sustainable stock market.

Meanwhile, France has overtaken Sweden and Finland for second place in the rankings. This is primarily due to big companies like luxury goods firm LVMH and electrical equipment supplier Schneider Electric, both classified as ESG outperformers.

Finland ranks third thanks to companies such as Nokia, a leader within the global technology hardware industry.

Hong Kong ranks fourth and is the most sustainable non-European market. Insurance company AIA Group—by far the biggest name within the benchmark—combines low risk exposure with strong management.

Taiwan also lands in the top five, thanks to the big role played by Taiwan Semiconductor Manufacturing, a global ESG leader.

At the same time, several big Asian markets score poorly on sustainability, with Japan, China and South Korea all further down the pack.

The weakest performers, however, a number of Middle Eastern, Latin American, and Eastern European emerging markets, including Russia and Brazil.

That’s it for now. Have a great weak!

Best regards,
Sasja

ESG on a Sunday