The economics of nuclear power and climate change mitigation policies

The events of March 2011 at the nuclear power complex in Fukushima, Japan, raised questions about the safe operation of nuclear power plants with early retirement of existing nuclear power plants being debated in the policy arena and considered by regulators. Also the future of building new nuclear power plants is highly uncertain. Should nuclear power policies become more restrictive, one potential option for climate change mitigation will be less available. However, a systematic analysis of nuclear power policies, including early retirement, has been missing in the climate change mitigation literature. We apply an energy-economy model framework to analyze the interactions and trade-offs between these two policy fields. Our results indicate that early retirement of nuclear power plants leads to discounted cumulative global GDP losses of 0.07% by 2020. If, in addition, new nuclear investments are excluded, total losses will double. The effect of climate policies imposed by an intertemporal carbon budget on incremental costs of policies restricting nuclear power use is small. However, climate policies have much larger impacts than policies restricting the use of nuclear power. The carbon budget leads to cumulative discounted near term reductions of global GDP of 0.64% until 2020. Inter-temporal flexibility of the carbon budget approach enables higher near-term emissions due to increased power generation from natural gas to fill the emerging gap in electricity supply, while still remaining within the overall carbon budget. Demand reductions and efficiency improvements are the second major response strategy.