The total world demand for oil reached 85.71 million barrels per day (mbd) in 2005. The main consumers were North America that accounted for 30.6 percent (or 25.65 mbd), the Pacific and Asia, including China, that accounted for 29 percent, and Western Europe for 19.5 percent. The remaining 21 percent of the total demand came from Africa, the Middle East, countries of the former Soviet Union, and Latin America. At this point, the demand is growing most rapidly in the Pacific and Asian region (due to the resurgence of China) and in the Middle East (due to wars), whereas demand growth has slowed down in Eastern Europe (due to deindustrialization) and in Western Europe (due to conservation and the use of alternatives to fossil fuels). Thus, in 2005, world demand grew at about 2 percent over the previous year.
Meanwhile, the declared world refining capacity stood at 85 mbd in 2005. Taking into consideration the likelihood of bad weather events, additional wars, and oligopolistic shenanigans, negative supply shocks appear more likely than demand shocks. This means that by the end of 2006, there will probably be severe pressure on the price of oil, already oscillating around $65 a barrel.
As dictated by orthodox economics, our world is obsessed with economic growth. The average person firmly believes that a 4 percent growth is always preferable to a 2 percent, and that economic growth is environmentally cost free. That credo is largely untrue, but it is vehemently pushed by governments, multinational firms and by the international punditry in the evening news. While it is true that at this point, growth depends on oil, as it is a key input in world economic activity, and so for the foreseeable future. Hence, higher crude oil price is to be expected. What is rarely emphasized, however, is that increasing oil price has many direct implications for economic growth itself. First, higher price affects global aggregate demand for goods and services by transferring income from consumers to oil producers, which on the average have a lower propensity to consume such goods and services. Pumping more inaccessible oil means higher production costs and lower profit margins. These in turn will drive the rise in inflation, depending of course on the response of monetary policy as well as that of consumers and producers in view of offsetting the decline in income and profits. Increases in price may also lower consumers’ confidence and, at the same time, reduce investors’ willingness to undertake long term capital projects.
The consumption of oil is also taking a heavy toll on the environment. Last year, the consumption of fossil fuel poured some 7 billion metric tons of CO2 into the atmosphere, driving the rise in the world mean temperature; that is to say global warming. I remember the first time I called economists’ attention to the seriousness that matter (see Unfettered Globalization , Praeger, 1999), the world oil output was 73 mbd, while the carbon concentration in the atmosphere was 374 parts per million by volume (ppmv). In 2005, world output rose to over 85 mbd and is still increasing, while the concentration of CO2 had reached 380 ppmv. As a direct consequence, the cost of bad weather events, in terms of lost assets and lives, has surpassed increases in the world GDP; just uninsured losses amounted to some $40 billion. Climatologists estimate that a concentration of 400 ppmv is a tipping point for many things we take for granted; while at 550 ppmv global warming might become irreversible.
Actually, the level of carbon concentration at which global warming might become irreversible might even be overestimated, due to the recently discovered phenomenon called “global dimming”. Soot and other particulate matters in the atmosphere, coming from volcanic eruptions, coal burning, high flying aircrafts, etc., are blocking and reflecting the sunlight bound for the earth surface. The resulting air pollution is killing people directly through various ailments, and indirectly by shifting the rain belt northward, thereby causing drought and famine in Africa and flooding elsewhere. A reduction in air pollution is now a necessity, but that will also the increase in the world mean temperature. Over the last century, the mean temperature has gone up by anywhere between 0.6° to 0.8°C, but scientists did not know about the forced cooling brought about by pollution. If a rise of that magnitude is melting the ice caps and sheets, what would a rise of 1.2°C that would have been observed in the absence of pollution do? What I mean to say is that we are trapped between a rock and a hard place. Air pollution must be reduced, but that will accelerate global warming. Hence the point of no return will probably be reached at carbon concentration levels lower than 550 ppmv. To avoid that day of reckoning, we must reduce air pollution and halt the carbon concentration at less than 400 ppmv.
Oil use intensity and higher price have cornered politicians and industry leaders. The consensus is that they do not dare shirk their responsibility in this matter any longer. But, quite astonishingly, instead of providing incentives to turn to safer options, such as biomass, solar, wind, tide, hydrogen, etc., they proposed the nuclear option as a solution.
The Federal Government in the US, concerned with its dependence on Middle East oil, launched 4 years ago a campaign to encourage U.S. utilities to build a new generation of nuclear reactors by the end of the present decade. Politicians, vendors of nuclear reactors, warriors, and pundits applauded the decision; even a chairman of the Federal reserves got into the act, saying that it was the right direction to take. There are now 103 nuclear reactors operating in the US, but they provide only 20 percent of the country’s electricity need. It is then reasonable to ask: how many more reactors would the US builds in order to reduce that dependence?
One hears the same refrain elsewhere. France is a close second in terms of the number of nuclear reactors in operation. Its 58 reactors supply 78 percent of France’s electricity need, but electricity represents only 20 percent of the country’s energy consumption; oil represents 49 percent.
In England, the nuclear industry accounts for 27 percent of the country’s electricity need, but Mr. John Browne, the Chief Executive of BP, estimates that England needs an additional 7 gigawatts (one gigawatt (GW) = 1 billion watts) to sustain economic growth. However, the biggest and most modern nuclear plant is able to produce about 1.6 to 1.7 GW. So, Mr. Browne is telling that England needs at least 6 more reactors just to sustain economic growth; he does not consider the elimination of fossil fuel consumption, of course. As 25 percent of England’s nuclear plants will have to be replaced by 2016, according to a recent report, Mr. Blair said that he will press for a new generation of nuclear plants despite a highly critical report from MPs.
Finland is another European country that could not wait to jump on the nuclear option. The country now has two nuclear plants producing some 3.4 GW, but it has just undertaken the building of the Olkiluoto complex, the first nuclear reactor to be built in Europe for more than a decade. Together, the three plants are supposed to boost Finland’s need for electricity to only 37 percent, but the first two plants will have to be replaced within 25 years.
Many countries that do not now have nuclear plants are thinking of their oil dependence and contemplating the nuclear option. Others that already have them are arguing that the present situation is far from satisfactory. Such is the case of Brazil. Up to the 1980s, the military government had great nuclear ambitions. These were scrapped in 1990. However, the nuclear fever has returned. The present government seems decided to join the nuclear club so as to boost its international status and perhaps to gain a seat in the Security Council of the United Nations. Brazil’s two nuclear plants are capable of enriching natural uranium to about 5% uranium-235, but International Atomic Energy Association’s inspectors are not permitted to see the Brazilian-designed centrifuges. Maybe Brazil is afraid of industrial espionage, but what is not clear is why seven new nuclear plants are planned when the country is less dependent on petroleum than any other in Latin America?
At this point, nuclear reaction satisfies 81 percent of Lithuania’s electricity need, 60 percent of Belgium’s, 47 percent of Ukraine’s, 46 percent of Sweden’s, 41 percent of Switzerland’s, 40 percent of Hungary’s, 36 percent of Germany’s, 35 percent of Japan’s, 33 percent of South Korea’s, 29 percent of Spain’s, 14 percent of Canada’s, and so on until we reach China with 0.5 percent. In all, there are now some 440 nuclear reactors operating around the world, but they produce only 16 percent of the overall electricity needs. Even, if we omit the replacement need, some 2750 additional reactors would be needed to really satisfy world demand for electricity, even though that in itself would not eliminate the need for oil.
To think that the nuclear could be the solution to oil dependency is pure folly. First, the economics of nuclear plants are not favorable compared with other options. They all must be heavily subsidized by governments in order to stay in operation. And when the environmental cost is added, it becomes clear that nuclear generation has never made sense, and never will. More importantly, contrarily to claims, and compared with other industrial complexes, nuclear plants are far from being safe. Leaks and near misses are not regularly reported, but they are frequent. The big accidents are known because they could not be hidden. The Three Mile Island in the US is one such case. The 1970 incident at Shellafield in England is another. France is reputed to have the safest installations, yet in 1981 a fire at Beaumont-Hague plant released a burst of radiation in the atmosphere. Twenty four years later, radiation levels in the region are still higher than normal and it is said that there children are more likely to come down with leukemia; the incidents at St Laurent des Eaux and at the Superphernix have all but destroyed that reputation. The Chernobyl meltdown in the Ukraine in 1986 sent a plume of radioactive debris over half of Europe, killed 56 persons involved in the clean-up operation and the World Health Organization initially estimates that it will prematurely kill 4,000 more from cancer. In a more recent report, the WHO and the International Atomic Energy Agency raised the figure to 9,000-10,000. The Russian Academy of Medical Sciences puts it conservatively at 212,000 in the Ukraine, Russia and Belarus only. Houses, artifacts and the wild life within a 30 km exclusion zone are radioactive; examinations of non-human mammals show that their muscles are packed with cesium-137 and their bones contain high levels of strontium-90. The more recent one in Japan is one of the lesser incidents that may happen at any time. Others plants such as the Indian Point in the State of New York, and the Shellafield plant in England are causes for sleepless nights.
To really focus on the waste problem, let me first say a brief word about the operation of a nuclear reactor. Inside a nuclear reactor, enriched uranium undergoes a process called “fission” that releases a huge quantity of heat. The heat converts water into steam, which in turn powers turbines to generate electricity. The process also produces plutonium. That is, plutonium and some uranium must be extracted from the spent fuel in the reactor to make mostly bombs, while the rest of the fuel must be disposed of. At Shellafield, for example, uranium and plutonium are reprocessed by dissolving them in nitric acid, producing a highly radioactive mixture. The uranium and plutonium are next turned into an oxide fuel, but the remaining liquid waste will remain radioactive for 100,000 years or more. There is so much of it now that only a fraction can be turned into some sort of cake that requires cooling for 50 years before being stored underground. The rest is simply thrown into the Irish Sea.
There are many nuclear operators that do not have the means to recycle their waste. So France is now offering them a way out by building another reactor at Beaumont-Hague just to process spent nuclear fuel form the world over. Recalling that in the 1970s and 1980s, the French Government had selected some underground sites for final waste disposal in secret. But by 1991, public concern prompted a law imposing a 15-year moratorium on final disposal until the industry could find a better solution. Until today, no such solution has been found. Meanwhile, the nuclear waste is accumulating in temporary canisters at the Hague installation; right now, there are over 6,000 of them. With or without the treatment of spent nuclear fuel, there will always be waste. What will we do with it in the future?
No detailed cost estimate of the new plant is available to me, but I surmise that the French Government, which has already subsidized the nuclear industry to the amount of $120 billion, is not going to be intimidated by such a cost, mostly when it is hoping to treat other countries’ nuclear waste for a fee. However, one can gauge the cost of such a plant from the American experience. At the beginning of 2005, the U.S. Department of Energy commissioned Bechtel National to build by 2017 a nuclear-waste treatment plant at the Hanford nuclear reservation in the State of Washington to treat the highly radioactive waste left over from decades of plutonium production for the nuclear weapon programme, accumulated in 177 underground tanks, at a cost of $5.8 billion. One year later, a team of independent experts carried out a review that raised the cost to $11.3 billion and pushed the starting date back one year. What would it cost to treat the nuclear waste of the whole nuclear industry?
Besides the increased probability of reactor accidents and the waste disposal problem, the nuclear option stands to encourage the proliferation of nuclear arms directly and indirectly. From what I have already said, the way direct proliferation could occur is obvious enough. Let me now turn to how proliferation could indirectly be brought about. The Nuclear Non-Proliferation Treaty (NPT) is by all accounts perhaps the only good thing to come out of the cold war era. Now the Agreement between the US and India has just sidestepped it. India has steadfastly refused to sign the treaty and consequently was kept away from its benefits. In one shot, the Agreement rewards India by removing that restriction and also removes the incentive many non participants had to join in or for participants to respect the terms of the treaty. According to many, the US took that action for pure commercial purposes and of course to counterweigh China. If that agreement is approved by the Congress and the 35-nation Nuclear Fuel Group, 8 of India’s nuclear installations will remain outside international scrutiny. As India will be able to buy nuclear fuel from the US, it can therefore devote more of its domestic uranium supply to the manufacture of warheads. In that eventuality, Pakistan and China will surely want to boost their own stockpiles. The Agreement also absolves Israel for its own stockpile and for helping apartheid South Africa to make a bomb. Moreover, it stands to reason that Iran, North Korea, and others will conclude that it was Saddam’s lack of a nuclear warhead that left him vulnerable to an invasion; a valid reason to accelerate their own programmes.
At this precise moment, we are having a lot of talks about new wars and the possible limited use of nuclear weapons. With or without nuclear weapons, more depleted uranium will find its way into conventional weapons, thereby increasing the uranium pollution of war theaters. A visitor from outer space, upon seeing earthlings that are supposed to be endowed with deductive reasoning deliberately took the decision, through their governments, to subsidize the sources of radioactivity in their environment and to threaten each other with nuclear weapons, would surely think that they have created a mad, mad civilization.