The non-existence of market demand for a clean environment

Consumers camped out on the street and lined up for hours for the
chance to contribute 5% of their income to nuclear waste cleanup. NOT!

The BBC reported this week, "The cost of cleaning up the Sellafield nuclear waste site has reached £67.5bn [US$105 billion] with no sign of when the cost will stop rising..."

Sellafield could be compared to the large nuclear sites in the US such as Hanford and Oak Ridge, or La Hague in France and Rokkasho in Japan. Sellafield has a long history as a nuclear weapons facility, and as a production and reprocessing center for fuel for nuclear reactors. In addition, it serves as a storage site of nuclear waste until a permanent solution is found.

Media reports about government expenses and debts leave the public inured to the impact of large numbers like £67.5 billion. Most people are not likely to stop and think much about $105 billion or put it into any perspective. One useful comparison is to look at the much more reasonable $1.2 billion price tag for the new structure being built over the Chernobyl reactor ruins.

Another way to look at the cost of Sellafield cleanup is to compare it to the national debt. Britain had a public debt in 2012 of £1,278.2 billion, (or 86.8% of GDP), so the Sellafield cleanup will cost about 5% of the present public debt. That may seem like a small share, but it is a lot for an expense that is out of sight and out of mind for most of the public, and it comes at a time when there is a dire need to reduce the debt and the deficit. Furthermore, in these constrained economic times, there is intense competition for funds for health care, education, defense and the other commonly known uses of the national budget.

Some politicians, and heads of corporations that stand to profit, say that these enormous expenses for nuclear cleanup are not so extreme and they will, in any case, provide jobs and economic stimulus. This is true to some extent, but if the cleanup did really have such fine advantages, all the countries with this problem would not be so terribly behind schedule in tackling the problem. British MP Margaret Hodge said in the BBC report an “enormous legacy” of nuclear waste exists at the plant. “Over decades, successive governments have failed to get to grips with this critical problem.” A labor union officer said, “There needs to be immediate change at the top of the consortium and a radical re-evaluation of the piecemeal hiving-off of the nuclear sector to private companies that are clearly ill-equipped to cope and have little interest in ensuring Britain has world-class nuclear facilities.”

In other words, environmental remediation projects have to be conceived of differently from other ways money is spent in a modern economy. There is no market demand for environmental cleanup, and the people who profit from the work have an incentive to not ever finish the job or ever do it effectively. The longer they take, the longer they remain employed. 

Normal market demand is for essential goods, things for which people feel a natural need. There is also market demand for luxuries, but no one wants to spend 5% of personal income on nuclear waste vitrification. Spending money on waste cleanup, or on any effort to prevent further damage to the environment, gives no bang for the buck. People don’t want it the way they want iphones. Spending on waste is, in this sense, a waste. When an economic argument is made for it, there is a false notion that it is good because it creates jobs, not because it is the right thing to do for future generations. If it didn't create jobs, would that be reason not to spend on it? Environmental cleanup is a debt, a cost to be paid for benefits received in the past, in some cases by people who are dead and gone. Thus argument for environmental cleanup has to be moral, not economic, and the decision to clean up has to come from a collective will to make the necessary sacrifices.

Compared to Britain, Japan is in a much worse situation. It has a national debt of $11 trillion, over 200% of GDP, and if the desired inflation of the present government leads to higher interest rates, it will face a terminal debt* meltdown. In this dire circumstance, a few dozen nuclear reactors are headed for decommissioning because so many of them are just now being found to exist on active seismic faults. Whether or not a few of the old ones are deemed safe enough to operate, and whether or not a few new “modern and safe” ones are built in the future, these enormous decommissioning costs will exist. In addition, temporary spent fuel storage capacity is full, and a permanent solution for disposal has to be built. Then there is the Monju fast breeder reactor and the Rokkasho fuel reprocessing site, both of which devoured billions of dollars in national treasure, but never functioned as promised. It is just a matter of time before the government admits they need to be scrapped too. Then, lest we forget, there is the 30-year cleanup job at the smoldering ruins of Fukushima Daiichi. After the looming debt default happens, there will have to be some extremely creative thinking applied in order to establish a social and economic system that can deal with the challenges ahead.

   I think the first step will consist of saying sorry and thanks to the generation of patriotic savers who put their money in low interest bonds and savings accounts. This money has financed the debt for the last twenty years, but it is becoming pretty obvious that it will never be repaid. They might as well say now that borrowed money should be thought of as a kind of tax, retroactively defined as such. In Japan's case, the creditors are also the voters who elected the government, so it is hard to imagine how a government will choose to break the news to its own people.  For many years the comforting truism about the Japanese debt was "it's OK, we owe it to ourselves," but Japanese people may come to wish that they borrowed from foreigners. The historical record shows that only occasionally do foreign creditors organize an army and invade. They are usually content to negotiate a controlled implosion. That might be preferable to the unprecedented situation of a nation defaulting on this scale on its own citizen-creditors.

Further reading: 

If you can't take my word for it, read what two professional economists have to say about Japan's looming debt "singularity:"

Edward Hugh and Claus Vistesen. "Japan's Looming Singularity." Credit Writedowns. February 12, 2013.

Source on British debt: UK Debt Bombshell.

"Government debt reaches record 997 trillion yen." [$10.84 trillion at 92 yen per dollar]. Yomiuri Shinbun. February 10, 2013.

*Terminal debt: the point at which the payments on the interest of a debt are greater than the revenues of the debtor.