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LECTURER: So let's get started.
So far, we have focused exclusively on market dynamics
of energy systems.
But of course, there are a lot of non-market issues
that we have to also consider in our hypothetical cost-benefit
calculation, which we largely call externalities.
So coal pollutes with sulfur and PM10, and wind farms
make noise and kill birds.
And nuclear reactors very, very rarely
have accidents and release radiation to the environment.
So to do our assessment strictly on an economic basis
isn't entirely fair.
So we're going to look in part two
of the course at these issues, not only does it
factor in, at least theoretically
into the calculation, but it also
is an issue for the social debate around nuclear energy.
So we need to know these things no matter what.
So let's just start at the abstract level
because I know you guys love economics.
So what is an externality?
I think you probably all know it's a cost can actually also
be a benefit.
Any kind of value that is incurred
by someone who did not choose to incur it, and by which they mean
is not exchanged in the marketplace.
So this is an externality.
So I may be happy with a few kilowatts of nuclear power,
but I really didn't plan, when I was buying that nuclear power
to also be forced to live next to a nuclear reactor that
was unsafe.
So that would be the externality.
So we talked a lot about social welfare
and the idea of why we're doing this cost benefit calculation is
to maximize what we call consumer surplus-- essentially
a measure of how resources are allocated so that the society
benefits the most.
And what externalities do is they make
that calculation incorrect.
So there's always, of course, a trade
off between cost and benefits.
Things like pollution and safety risks are just more costs.
But the issue is that they should
be factored into the cost of the supply curve.
So that supply curve is, in theory, too low down.
It should be higher per unit.
So we could raise it, and that would
be the value of the externality that we raised it by.
And what we see here is that leaves us
with this interesting little triangle.
So this is the quantity.
Let me just maybe go back a second.
This was the equilibrium condition between the supply
and demand, right.
So the first person to buy the first unit of electricity
had enormous value because they're
engaged in some activity that absolutely
must have electricity.
So the demand is high regardless of the price.
And then as the price comes down, the demand begins to fall.
And so the quantity demanded goes up
and up and up as the price comes down.
And the opposite is true of supply.
So there's some equilibrium condition.
And the first theory of welfare economics says that equilibrium
condition, this is where we will achieve Pareto optimality,
which is this idea that you cannot improve any person's lot
without also harming somebody else's lot.
It doesn't mean that resources are optimally distributed
between individuals.
It just means that, on the whole,
there will be a 0 sum game of moving around resources.
So this is what we call the equilibrium quantity that
is purchased in the market.
And if we now put the externality in we
see what happens.
The true equilibrium-- the socially optimum quantity
that should have been consumed is actually less.
And so all of these units were produced,
but they shouldn't have been.
And the value of them was lower than the supply cost.
So the height of this little bar here,
dq, is the wasted social value, if you will,
that got misappropriated because the market did not
include the correct price.
And so if we integrate that up to the value that is actually
produced, we get the total value lost
to society, the total loss of social welfare.
And this has a special term.
This is called the deadweight loss.
So this is the first problem that externalities have.
They create this deadweight loss in the market.
But there's a second problem also.
So if we just look at this yellow rectangle
and think about it for a second, what is this?
This is the total quantity produced
times the value of the externality that
was not included in the market.
So this is the total value of the harm that
was being done by that externality that
was paid by someone who didn't buy the electricity.
It was paid by someone else.
And this is what the person who bought--
or the people who bought the electricity actually paid.
And so this value here is only a fraction of the total cost.
And so what you have is the second problem,
which is that you have this involuntary wealth transfer,
where the yellow people are being forced
to pay for some cost that really should be attributed
to the green people.
And so this is a kind of an ethics problem.
So these are the two issues that we have to deal with.
So this is the general case.
But in fact, the electricity market
is slightly modified because these supply and demand
curves aren't realistic.
They're just pictorial.
So here is closer to what the electricity market looks like.
So we have what's called inelastic demand, which
is to say that the demand--
the quantity demanded is relatively
insensitive to the price.
People come home and they turn on their lights,
and they need electricity.
And they don't really think, oh, is this really worth $0.65
a kilowatt hour to run my microwave to heat up
this old cup of coffee?
That calculation is not being done.
They just use electricity.
And as a result, it's fairly insensitive to the price.
You can argue that this is only true in the short run,
and then in the long run that people will slowly accommodate.
And all of that is true, but we generally
look at it in this sense.
So let's just redo that calculation.
We'll put in that externality.
Boom.
There it is.
And now look what happened.
The deadweight loss actually gets very small.
So the suboptimal distribution of resources
because of externalities associated with electricity
production, whether it's nuclear, or wind, or anything
else, is actually typically very small.
It's important to make that electricity no matter what.
But this problem is the same.
So this is the primary thing that we
are trying to deal with when we think about externalities.
So how do we deal with this problem?
Well, people have had all sorts of ideas.
This first one is that there are certain winners and losers.
People getting the cheap electricity benefit.
People who live next to the polluting coal plant get harmed.
We should just have the winners transfer some value
to the losers.
And that's the Caldor-Hicks approach.
But this is very, very problematic.
So first of all, what is the dollar value
that you're going to transfer?
Remember, value-- sorry, the price of something
is something that really reflects scarcity, not utility.
And what is being lost is some utility.
Some health impact will be some loss of utility.
But as we pointed out earlier in this class,
water has tremendous utility to you.
Diamonds do not, yet water is cheap
and diamonds are expensive.
So there's no necessary relationship between the price
of something and its utility.
And that makes the valuation of those damages very, very
difficult. Price really just reflects scarcity.
The second thing is that even if you could figure out
dollar value that was equivalent to the utility lost,
that's not generalizable.
If I have to compensate you-- let's
say I do something that makes you sick for a day,
and you miss all your classes.
And you say, well, I need compensation.
And I say, would you accept $1,000?
I coughed in your face, and you missed a day of classes.
Would you accept $1,000 and feel it was fair?
STUDENT: Yeah.
LECTURER: Do you think if I said that to Bill Gates,
he would accept $1,000?
No, he would say get lost.
I'm charging you $1,000 for having this conversation with
me.
So this is the problem--
that actually, because of different wealth,
money has differing utilities for different individuals.
So if you're trying to compensate someone with money,
you can't do it.
If you can say, well, look, I had to use someone--
I had to bulldoze somebody's house to put in a gas pipeline
to deliver some natural gas to some power plant,
and you buy them another house in essentially
the same neighborhood, in the same town,
and it's functionally equivalent, or maybe a little
better, have you compensated?
Arguably, yes, apart from their emotional attachment
to that particular house.
But as soon as you start to try to do it with dollars,
it breaks down.
And then finally, some losses are really non-marketable.
There's no way to really put a price tag on them.
Like, I asked about your health, and I
could do what we just did is called a contingent value
survey.
I could go around and ask people,
but if statistically I'm going to kill you.
And I said, well, but if I kill you,
I will compensate you for that.
I don't really care because money has no value to me
once I'm dead.
So how do I deal with these types of losses?
How do I do this compensation?
So that's the naive way.
And we try and basically never do this.
This is what courts do if you sue.
And this is why court settlements are all
crazy and all over the place.
But this is not how we deal with it, as a matter of routine.
The second approach is kind of an intermediate step.
This is the economist solution.
They say, oh, yes, we remember those.
We were interested in social optimization.
And we want to get rid of that triangle the deadweight loss.
And what we could do is we could put a tax such
that we could fix the quantities and get the correct number
and, therefore, there would be no deadweight loss.
And I'll show you how that works in a second.
And that is fine for dealing with social welfare,
but it doesn't fix the reallocation problem.
And the third is that we could just
try to ban or limit the existence of that externality
in the first place.
And that's where regulation comes in.
I'm going to spend the rest of the class talking about that.
So very quickly, what is number two of how
do you fix the quantities?
This is called a Pigouvian tax.
It's the same idea, except now, what
we're going to do is we're going to apply a tax
so that the supply cost, which is the cost at which you can buy
the good, is the cost charged by the company making it
plus the tax, which happens to be just the right amount
so that this moves back down to here.
And then that deadweight loss goes away.
That sounds great.
But you, of course, still have a problem
in that you are now collecting a tax equal--
does this is have the yellow?
No, it does not.
You are now collecting a tax equal to that yellow box that
used to be here.
And what you do with it?
Did this get a lot louder?
If it's too loud, raise your hand.
So one of the things-- this is the basic problem with Pigouvian
tax is that you don't really know
how to do the redistribution.
It's very difficult to identify who paid the externality when
you're talking about something like pollution
or distributed harm to the environment.
And then even if you could identify who bore the burden,
we still have all those other problems
associated with utility in dollars, not being equal,
and so on and so forth.
So the general view is that you take the revenues from this tax,
and you use it for political ends, which
are generally consistent with offsetting other regressive
taxes associated with wealth inequalities or phenomena
associated in this market.
So maybe if you taxed electricity,
you would take the revenues and do something
that helped the poorest people who suffered, maybe
lived next to the coal plant or something like that.
But you're not going to be able to compensate
each individual correctly, but you try
to do something in that vein.
I just also want to point out that the calculation of the tax
is not necessarily equal.
It looks in this plot like it would
be equal to the value of the externality.
But that's only because here, the externality has
the same value for every unit.
And if that's not true, then actually,
the tax does not necessarily equal
the value of the externality.
Also, you have to remember that the demand curve in the presence
of a tax may also shift.
So don't think of it as the value of the externality.
It's just some value that is adjusting the quantity.
So we still have the distributional issue.
But that issue is avoided if we can somehow
prevent the externality from happening in the first place.
And that's where we get to regulation.
So before we get to regulation, let's talk about one
of the most difficult issues in measuring the cost of damages.
Earlier I gave this example of this contingent value survey
but said, what do you do when you're killing someone?
Well, you need an answer to that no matter
what, because ultimately, you like
to do a cost benefit analysis for any kind
of regulatory policy.
And that still requires that you have some way
to estimate the harm.
So we have this idea of a value of a statistical life.
So these are the values of a statistical life
over different years.
And for different regulatory agencies--
the Environmental Protection Agency, the Food and Drug
Administration, Department of Transportation,
Consumer Product Safety Commission, Federal Aviation
Commission, and the Nuclear Regulatory Commission.
And you can see how they have changed.
And if you ever wanted a cold and heartless calculation
that showed the world is getting better, this is it.
This is in constant 2020 dollars.
And so this is all inflation adjusted.
You can compare dollars in different years.
And what you see is that, over time,
in general, regulatory agencies think
that human life is worth more.
And that arises because of a number of issues.
One is that society has become more affluent,
so we are literally worth more.
But also the view that we can, as an affluent society, take
measures to protect people.
During the construction of Hoover Dam,
lots and lots of people died building that dam,
and no one blinked an eye because that was just
how it was.
And we could not do that today.
Society socially is not in that position.
So all of that is true for everyone except for the NRC.
And the reason why that is the NRC doesn't do it
like everyone else does it.
They don't say they put a certain value per life.
What they do is put a value per unit REM,
which is a measure of radiation exposure--
value of $2,000 per unit REM avoided.
And from that, you can then calculate
the statistical probability of a unit REM killing you,
and then you can back out this.
But they never actually talk about it in these terms.
And so when there's public discourse about how
to increase the vessels.
They kind of fly under the radar screen.
There has been during the Obama administration--
the NRC did propose to rectify this problem.
So currently, the NRC says you're worth about $3.2 million
versus other entities, saying that you're
worth $15 to $20 million.
But NRC during the Obama administration
wanted to revise that upwards to $8.5 million.
It doesn't really affect the price of building reactors,
but it does affect the price of these changes after the fact,
because those changes are enforced according
to the back fit rule, for which they do this calculation that we
just did an example.
So the kind of story that I like to talk about
is during after Fukushima.
So Fukushima was a boiling water reactor,
and it has a small volume containment.
And when the reactor overheats, it--
all sorts of steam is vented into this containment.
In the case of those reactors, there's also
a torus and some other things.
And this concrete containment can't take all the steam
pressure after a couple of days.
So what they have to do is they have to vent some of the gases
to the atmosphere, which contain radionuclides.
And that's where all of the radiation released
from Fukushima basically came from.
And so someone had this idea, well,
why are we venting it to the atmosphere?
Why don't we put a pipe and then have a big trench full of sand
and water, and you bubble the gases through here,
and then the radionuclides will adsorb
onto the surfaces of the sand or dissolve into the water,
and then clean gas or much cleaner gas
will come out of this big pit.
How expensive is it to take a big pit
and fill it with sand and water?
I mean, it's going to be millions of dollars
because there's going to be some kind of control system
and so on, but it's a relatively cheap upgrade.
And all the European BWRs decided, absolutely,
we need to do this to minimize damages to humans.
And RC did a calculation, and they
adopted their very low value of statistical life.
And they said, ah, it turns out that according
to our calculations, it's not worth a pit of sand.
And so in the United States, we don't have this upgrade
because of this calculation.
So that's how it affects--
how the industry saves money with this.
So if we want to do something, regulation--
if we want to prevent these things from occurring,
regulation is the way to do it.
And it doesn't usually eliminate them.
What it really tries to do is just
minimize them to what we deem through policy
to be an acceptable level.
So what is it exactly?
It's a set of administrative rules that governments
or standards that governments can put into place
and have essentially the force of law.
They aren't passed by Congress.
They're written by agencies, but they
go through this special process, and then they basically
have the force of law.
So in total, in the United States have about 165,000 pages
of regulations.
We have over 330,000 full-time federal employees who enforce
the regulations.
Arguably, depending on how you do the math,
it costs roughly 50% of the US budget
to maintain and enforce regulations--
the US Federal budget.
And the average household pays about $15,500 for this pleasure
in taxes for regulation to basically keep our standard
of life where it is today, which is a lot of money.
So it's easy to see why there's a lot of critique
about regulations, and especially from businesses
where it directly increases their costs.
In the abstract, it sounds like a lot.
And keeping regulation going is a challenge.
But it's also hard to remember how important regulation is.
If you woke up this morning because your cell phone
alarm went off, let's just walk through what happened.
That cell phone received its signal
because of a regulation that required certain standards
with the communication infrastructure.
The radios didn't get zapped because
of regulations that limit the RF output
of other electronic noise.
You didn't get a rash when you woke up because Consumer Product
Safety Commission had regulations
about what kind of stuff went into your mattress.
You went and brushed your teeth.
There are regulations of what goes in your toothpaste.
It can't be ground glass.
And the number of regulations that you incur,
that you benefit from the moment you wake up
to the time you get to class would take me
hours to go through.
It just affects-- it is what creates
the modern standard of living.
So it is expensive, but it is also really important.
So historically, for the nuclear industry,
this meant paying a lot of money.
And typically, to get a brand new reactor design license
can cost as much as $1 billion before the first plant ever gets
built. And that's a big deal.
And there are huge sums of money at stake.
So cost of a nuclear power plant in the US
might be around $10 billion.
A site where they typically build two
at a time, $20 billion.
And that means they have a lot to lose if the regulation gets
in the way.
And when you have that much money
involved, $10 or $20 billion, well, now, you can do something.
That kind of money speaks.
Maybe you can buy a political campaign, get some law changed.
This stuff is actually happening for a small fraction of what
it costs to build the plant.
So you have, for nuclear, this problem that the regulator
is subject to industry influence,
because the cost of the industry to change the regulation
is basically small compared to the numbers
that they're dealing with.
Nuclear regulations are also complicated by the fact
that, in principle, we want to do
these cost-benefit calculations.
But who's to say what the harms will be?
We don't really know how safe these reactors are.
We don't really know if we make this change what
the effect will be on people.
We don't really know what the effect of radiation
is on people.
All of these problems make the calculation
of a convincing cost-benefit subject to interpretation,
and that makes the regulations easily influenced
by different political perspectives.
So all of that means-- it's just a way
to say that nuclear regulation is particularly
challenging subject area.
So let's talk about how our current system came about.
We began the nuclear age with the Atomic Energy Commission.
This is the bad old days of nuclear.
AEC was mother, father, judge, jury, and executioner
of all things nuclear.
They determine what information was secret, what
information was not, et cetera.
And at the top of the AEC were these commissioners.
I showed you a picture of them in the first lecture.
And they really had this idea that they
were going to give birth to this transformative industry,
and that would set the world free from its energy burdens.
And so they didn't want things getting in the way.
And there was no regulator per se,
but there was something called the Advisory Committee
on reactor safeguards.
And they didn't have legal authority
to enforce standards like a regulator,
but they were supposed to help direct the design of reactors
to be safer.
So they came up with some really good ideas.
They came up with the idea of the containment.
What else did they do?
Nothing else comes to mind, but they
did like the baseline ideas of reactor safety.
Then, in the 1960s, the US government started doing a bunch
of crazy experiments where they would actually melt down
reactors.
And they learned a lot.
So for example, prior to 1966, it
was believed that if the fuel melted because
of some kind of reactivity excursion got too hot,
it would melt and just sit on the bottom of the pressure
vessel.
And then we discovered, thanks to our experiments,
that, oh, no, it's actually hot enough
that it just melts right through the pressure vessel
and keeps going.
And this became known as the China syndrome.
And people had these visions of it
melting all the way through the center of the Earth
and coming out in China, such nonsense.
But we learned that the pressure vessel was not
a sufficient barrier.
And so this discovery led to attempts
to find ways to prevent this from happening.
And so Westinghouse came up with the idea
of basically putting a giant--
it's a ceramic concrete underneath the reactor pressure
vessel called the core catcher.
And it's a refractory material for which this,
what we call corium-- melted core--
lava-- will not easily penetrate, and it spreads out,
and then it cools off to the point where it solidifies
and the problem is solved.
So that was the original idea.
But General Electric, who invented the boiling water
reactor, was always looking for ways to save money.
And they said these ginormous ceramic dishes
are going to be very expensive to manufacture and install.
Why don't we just have a sprinkler system instead?
And we'll just spray water.
This is called the emergency core cooling system.
Now of course, the issue with the ECCS--
Emergency Core Cooling System-- was that now it
was an active system.
You had to have pipes, and sprinkler heads,
and you had to have pumps, and electricity to run it,
and you'd have to turn it on, and all
that has to be done as opposed to this passive, always-present
safety thing.
But that was all a lot cheaper than trying
to build this core catcher.
And so a debate ensued and many nasty accusations
going back and forth about which was more functional
and which was more expensive.
And ultimately, the AEC commissioners,
who cared about the viability of nuclear power said--
it turns out they didn't really believe that this was an issue.
This guy who's, I think, head of reactor design--
I think that was his title--
Milton Shaw, he was like, safety guys are nuts.
They're coming up with all these scenarios that will just not
happen, in his opinion.
And so let's just do whatever's the cheapest.
And so they endorsed the General Electric sprinkler system.
And then the labs--
Idaho National Laboratory-- said, fine,
we'll do some experiments because that's what we do.
And they did this experiment where
they sprayed hot water on something,
and look what happened.
It was-- or water on something hot,
and this is-- they got the Leidenfrost effect right.
So the water forms a vapor layer instantly on contact,
and basically, the cooling power of the water goes away,
and the water just sheets off the hot fuel
and doesn't do a very good job cooling it.
And then they discovered, oh, actually,
if you spray a lot of hot water on the core
with sufficient force that you actually--
a lot of cold water on the core with sufficient force
that you can actually cool it, then the fuel cracks, and now
more radionuclides are released into the environment,
and this is even worse.
So this whole idea was problematic.
And so this led to something of a scandal.
And the AEC kind of got its hand slapped by Congress,
and said you need to work this out
before-- you can't just go and install these things.
You need to make sure that they're going to work.
And so they did, and these things still exist,
and they have been worked out.
The EPR in Europe has a core catcher,
and I think the American designs still have Emergency Core
Cooling Systems.
Shortly after that, the AEC began
to double down on their bad behavior,
and they refused to comply with other regulatory laws
that they saw were getting in the way of their vision
of this nuclear future.
So one of those laws is the National Environmental
Protection Act that says you have
to do Environmental Protection, assessment
of the implications of building anything,
basically, including a nuclear reactor.
And they said, eh, we don't have to do that.
And then they got sued-- the US District Court.
And the court ruled, quote, "the AEC is making a mockery
of the law."
They were just very high and mighty.
And in 1972, Congress said, enough is enough.
You guys cannot be maintaining the safety of these reactors
and also clearly promoting them in this unbridled fashion.
This is a conflict of interest.
And so the AEC was dissolved and split into what
became the Department of Energy and an independent--
the first independent regulator, the Nuclear Regulatory
Commission, 1974.
And that's how the NRC was born, as an independent entity.
And so what are the requirements for a strong regulator?
So this is what the academic literature says.
You need to have independent operations.
You can't depend on--
you can't have Boeing inspecting their own airplanes
and then telling you that they're safe.
Now, there is a proposal right now in the nuclear industry
to do this.
But for now, we have independent inspectors--
the NRC employees who inspect nuclear sites.
They're supposed to have independent finances,
so they're not dependent on the company for their operations.
They're supposed to have independent sources
of information, meaning they can run their own codes.
They have their own competency to figure out
what the truth of the matter is, and they
should have legal authority.
These are the metrics for a good regulator.
Unfortunately, not all of these hold
true to the maximum extent for the NRC.
So by its very mission, of course, the NRC
will increase the cost of nuclear power.
So for example, every nuclear power plant has--
large nuclear power plant has two inspectors assigned to it
on a full-time basis.
And for that privilege, the NRC invoices the power--
that reactor $4.5 million every year
for their inspectorial services.
If a reactor owner decides they need
to make some change to their plant,
they can submit a request to the NRC.
And the NRC will happily review that request for $272 an hour.
So you can see how it feels to the industry positively
masochistic that these people are both telling you what you
can and cannot do, and you have to pay them for the privilege.
They don't like this.
So does it make sense to charge-- for the NRC
to charge the private industry for what is going on?
Well, it's unfortunately written into the law.
The law says that the NRC must recover 100% of its operating
expenses--
yeah, of its operating expenses with the exception
of a few exclusions from the industry through these fees.
But in an attempt to prevent these fees
from becoming a mechanism that causes them to just keep
charging like lawyers do more than they should,
they don't get the money directly.
That money goes into the US Treasury,
and then the Congress allocates the NRC's budget
the following year.
So in principle, that break is supposed to get, basically,
the budget as they need.
And the money just goes back into the Treasury.
So it can't charge a little more and make a little more.
In principle, they can't do that.
Is there good otherwise philosophical idea for this?
Well, yeah, there is actually.
Safety is an externality.
And the basic problem with externalities
is that they are external.
They're not incorporated into the cost.
And if you make the industry pay for the process of making
their reactors safe, you are internalizing that externality,
which is fundamentally what you want to be doing.
So arguably, this is the ideal, but you
do have this issue of the conflict of interest
that the budgetary thing is supposed to solve.
But there's one more problem that emerges,
and that is this fee-for-service attitude.
So you now have this idea that the industry looks at the NRC
partly as their adversaries, but partly
as people who are working for them.
Because look, we paid you to do this review.
Do it the way we want you to do it.
And the NRC says that's not our job.
And they say, but you can see how it still
changes the perception of the relationship
because the NRC is paying--
sorry, the industry is paying.
And that problem becomes worse if the NRC staff come out
of industry, because now you have people
with that mindset inside the NRC saying,
oh, yeah, you're right-- well, we
should do this in a favorable way.
And you paid for it, after all.
And that has happened, basically.
A lot of the staff level people can be independent,
but the commissioner's more and more so
do seem to be ex industry people.
Despite this, the NRC has really done
a very good job over the years.
American reactors are the most robustly operated reactors
in the world.
And the NRC approval process, by which new reactors are licensed
is still considered the gold standard
by all countries in the world.
There are many countries who don't
want to build a reactor unless the US
NRC has approved that design.
They don't really care what the French regulator says.
US NRC approval is what they want.
So it has issues, as usual, but it is also considered
to be the best there is.
And you know you're doing a good job when the other side is
kind of pissed off.
So here is a quote from the 1990s from the Nuclear Energy
Institute.
We talked about NEI before.
They're the lobbying arm of the nuclear industry.
And they said the NRC is "a serious threat to American
nuclear energy resources by distracting plant managers,
undermining public trust in nuclear power,
and pricing nuclear power out of the competitive energy
marketplace."
They really love to blame the NRC for the fact
that nuclear is expensive.
And maybe it is the reason why nuclear is expensive.
Does it matter?
That's up to you.
If the NRC is doing its job in a fair and efficient way,
and these are the true social costs of making a reactor safe,
then it's just internalizing the externality and it's fine.
On the other hand, if it's not a fair process or not
an efficient process, then yeah, it should be improved.
So that has been the tension forever.
And there's constant lobbying efforts
to try to do things to change how the NRC does business.
And they have had their effect, and we'll talk about some
of them a little bit later.
But most recently, there have been some pretty big changes
brought on by the Trump administration.
The NRC is supposed to be an independent agency.
It is not supposed to be subject to political manipulations
by who is elected into the White House.
It's supposed to be a technical entity with technical experts
making technical judgments.
That began to change in July of this year
when Trump first removed the NRC commissioner and replaced him--
Chris Hansen-- replaced him with someone who was more in line
with the White House's views.
And then another commissioner, Annie Caputo, resigned.
And it's not like these commissioners
were anti-nuclear people.
So Hansen, the guy Trump fired, was endorsed
by the NEI, the lobbying arm.
And they publicly congratulated him.
And he was all for reforms in the NRC and risk
based licensing approaches, big advocate of advanced reactors
and promoting those reactors, but it was not enough for Trump.
After that, Trump then appointed a new NRC commissioner,
a person named--
what was his name?
I'm blanking on his name.
He was the head of Regulatory Affairs
for Southern Company, the company that runs the new Vogtle
reactors.
So basically took the person whose principal job
was arguing with the regulator from the largest,
from the newest nuclear utility, and put him on the commission.
Then, Trump issued Executive Order 14300,
and that mandates that the NRC not just be concerned
with the technical health and safety
of our nuclear infrastructure, but also consider
the promotion of nuclear power, which
was exactly what happened-- exactly why the AEC was
dissolved in 1974, because this was a conflict of interest.
And Trump is trying to create that conflict once again.
He then directed the NRC to fire technical experts
from the Advisory Committee on reactor safeguards, which
are where you get all your material scientists,
and neutronics experts, and so on to the statutory minimum.
By law, there's a certain number of people they have to have,
but he wanted it reduced to the minimum.
And also they reduced the overall workforce
of the NRC thanks to DOGE.
So of course, this is a problem for the industry
because they now need to get their licenses approved.
But there's no one to do it, or fewer people to do it.
And so why don't they oppose this?
Because it's yet another provision.
So the executive order caps the time
that the NRC can spend reviewing to 18 months
and also caps the fees.
And you can say, well, maybe 18 months is enough time.
Maybe it is, maybe it isn't.
I don't really know.
But basically, that ensures that you have smaller staff and less
time to review things.
And of course, that means those reviews are not
going to be as independent and complete as they used to be.
So the NRC in the United States is no longer
an independent body.
It is now operating according to the dictates of the White House.
And given these capped timelines,
the NRC is going to have to increasingly just take
the things that the industry gives them
and trust them on faith.
And that is a problem.
But this is not new.
These kinds of changes, manipulations
have been happening maybe less dramatically
than the executive order, but they
have been happening for the last 40 years.
So the reactor licensing process is probably
the place where these changes have been most dramatic.
So let me just tell you a little bit about some of these changes.
Originally, nuclear power plants were licensed in a two-part
process, which we call part 50, which refers to the part
of the federal--
what's the word--
STUDENT: CoTa regulations.
LECTURER: CoTa federal regulations.
Thank you.
Their part of the CoTa Federal Regulations.
And part 50-- first, the utility would submit an application
for the construction of a plant.
And if it was approved, it could then build the plant.
And it actually had a lot of flexibility
in how it built the plant.
And then once the plant was nearing completion,
that company would apply for a second license
to operate the plant.
And they would review the plant build.
And then if it passed safety inspection,
they would begin power uprates, and testing,
and proceed all the way to full operation.
It was a 2-step process.
It seems like a very perfectly reasonable way to proceed,
but it had something that the industry turned out not to
and that is it left something to chance.
So you see, after the Three Mile Island accident in Pennsylvania,
the NRC determined that many of the plants that were then
being constructed had inadequate safety.
And so they changed the rules while these plants
were being built.
And that caused cost overruns and delays,
and nobody liked that.
So this was an issue because now this
presented significant financial risk to the investors.
You go get a bank to invest in your plant,
and you can't promise them that this plant is going
to go online and make money.
So now, they're like, oh, well, we
have to charge you more interest because you can't guarantee us
that you're going to be able to finish this plant for the price
that you say you are.
And so this was a big problem.
And so this began a long process to limit the NRC's ability
to demand changes.
And here's how it happened.
So after Three Mile Island, the NRC--
I'll quote an internal document here--
said that the process, quote, "vividly demonstrated
the deficiencies in existing procedures for coping with
an offsite nuclear emergency."
There was confusion and uncertainty among the decision
makers and local authorities, who
were trying to cope with the prospect of a radiation release
from the plant.
That was the principal kind of issue,
if there will be a radiation release,
how do you deal with this problem?
If you don't deal with it in a timely manner,
people will begin to inhale radiation,
so you need to have a good plan.
So Congress requested that the NRC work
to improve this emergency planning process.
And in response, NRC required evacuation plans
for the population within a 10-mile radius of every plant
before granting an operating license,
which sounds like a sensible move.
And they also required that there be plans going out
to 50 Miles for evaluating the effect of fallout
on food production in those areas.
So this is what it would look like in Pennsylvania,
where Three Mile Island accident.
The red zones are the evacuation zones,
and the blue zones are the larger 50 mile
zones for dealing with food ingestion and so on.
And you can see it covers roughly like a third
of the state of Pennsylvania.
It covers 90% of the state of New Jersey.
And so you need to have a lot of local government officials
and a lot of assessment going on to actually do this.
The problem was that the NRC nor--
neither the NRC nor any private utility
had the power to compel any state or local government to do
the things it wanted to do in an emergency.
The 10th Amendment basically says that these--
unless it's in the Constitution, these rights are reserved
for states and the individuals.
And so this, in effect, gave tremendous power
to the local municipalities around the plant,
who had to agree on how these evacuations were going to occur.
And so you had this problem.
This is the problem of Shoreham.
This is Long Island, New York.
This is where the Shoreham plant was.
And it was finished in 1983, a few years
after the Three Mile Island accident.
And there had been strong public opposition.
And the Suffolk County government determined that
the population of the red circle cannot be realistically
evacuated if there was a major accident.
Now, I'm not sure if that is true or not true.
It's a relatively unpopulated corner of Long Island.
It's true that there were atypical hazards.
There was a particular hurricane risk hazard.
It was in the flight paths of two commercial airports.
There was also five miles away a Naval weapons testing facility,
and they continuously had military aircraft flying
around running test drills.
And because it was on the edge of the island
where there's a lot of weather, there was a lot of power outages
there.
In fact, during Hurricane Sandy, they
lost power for two weeks, which would have been a real problem
if there were a nuclear plant.
So there were a lot of reasons not to put a nuclear plant
there, but I have no idea if the evacuation
story is the whole story.
So they couldn't get an emergency planning agreement
with the Suffolk County government.
And as a result, the Shoreham--
as a result of standoff, the NRC actually
changed the rules for them.
They passed something in 1988.
The plant was finished in '83 and just sitting
there waiting for his license.
So in 1988, they passed something called the Realism
Rule.
The Realism Rule said, OK, they don't have to agree.
We'll assume that if there is an accident
that they will cooperate.
And that seems realistic.
But it also meant that you could now
write emergency plans for which the government had no capacity
to execute, no review of whether that plan was
a realistic plan at all.
You just say whatever you want because they didn't actually
have to sign off on it.
And so it made the problem worse in a different way.
The NRC proceeded to issue a license
to operate at 25% power on that basis.
But by the time all of this occurred, it was too late.
The utility was basically filing for bankruptcy.
It had been 15 years since the plant had received
its construction permit.
Costs had skyrocketed to 100 times
the original predicted price for this plant,
and they just decided to cut their losses
and sell the plant to the state of New York,
and plant was never opened.
So the industry said, you know what?
Never again is this going to happen.
So what they decided to do was to eliminate this operating
license that could prevent them from starting
their plant by doing something called the combined operating
license, which is part 52 of the regulations.
And what that does is basically say,
you apply for a license to build the plant
and operate the plant at the beginning.
And once that license is granted,
you're guaranteed the right to operate it
as long as you build what you say you're going to build.
And that's the key thing.
It has to be functionally equivalent.
So the key benefit is once this COL, as we call it--
Combined Operating License-- is issued, it can't be withdrawn.
It can't be modified if the NRC decides
to change the safety standards.
And that was a key objective of industry.
And more importantly, it all happens
when there's just a green field before anything happens.
Once you start building the cooling towers
and people in the neighborhood are like,
oh, there's a nuclear plant going up there,
and they might have public opposition.
Well, guess what?
Too late.
You should have gone to the hearing when that was just
a green field.
And so that was a way to disenfranchise
local voices, which of course, the industry really
liked because it meant that you were not going
to have public opposition.
So they implemented this rule, and then it
went untested because no one ordered any new plants
for 16 years.
And finally, after the nuclear renaissance in 2005,
that changed.
We had federal loan guarantee program,
and we had a bunch of new plants signing up
to-- a bunch of utilities signing up to build new plants.
And we saw that with the building
of the virtual summer generating station-- two AP1000S, just
like Vogtle, but in South Carolina, not in Georgia.
They filed for their COL in 2008, was issued in 2012.
And the problem was that in the first five
years of construction, as they were starting
to build this plant, they kept discovering that they needed
to make little changes, which meant they weren't building
exactly the plant that they said they were going to build,
which meant every time they wanted
to move the road over here because it turns out
the soil isn't strong enough, and that meant they had to move
this other thing, every one of these required
a modification to the license.
And of course, that had to go back to the NRC.
And it was reviewed at $272 an hour and so on and so forth.
And so between 2012 and 2017, 75 license amendments
were made which, of course, slowed everything way down.
They're paying the interest on the loan during construction.
This is pushing up the budget, right.
This is causing problems.
And so needless to say, costs skyrocketed out of control.
And after spending $9 billion starting the construction
of a nuclear plant, which should have been more
than the total cost of the plant when they originally predicted,
they decided it was still cheaper
to just give up and walk away than to spend
the rest of the money.
And that's because of all the costs
associated with these license changes and delays.
And so the industry blamed many things, but most of all,
they blame the regulator.
They said the COL is problematic.
It's like, well, this is what you wanted.
They now say it's not flexible enough,
and they want further changes.
One of the current things that is being proposed is that
instead of having a 10-mile evacuation zone and a 50-mile
emergency planning zone region, they now say that the emergency
planning zone should be shrunk to the fence line of the plant,
and that anything beyond doesn't apply.
The NRC was fairly resistant to that for a long time,
but this idea seems to have taken root.
And so how is this possible?
Do they really think if there's a radiation release,
it's not going to cross the fence of the plant?
And the answer is no, they don't think that.
They're using the magic of statistics.
They say that these plants are so
safe that the in expectation value, the probability
of irradiation release going beyond the fence line is small.
Now, if there is a release, it will go beyond the fence line.
Not a question.
But because we get to multiply by very low probability
of that safety event happening, then in expectation value,
this plant is super safe.
And the real beauty of this is that we
don't have to deal with any of these public entities,
and therefore, we can just do whatever we want.
Now, this gets us into the question of probabilistic risk
assessment, which is how these calculations are done.
So historically, the way safety was
done in the United States was that we were humble.
We knew we didn't have all the answers.
And so what we had is this idea, which we still teach,
called defense in depth.
Defense in depth is like, this should be safe enough,
but just in case, we're going to have some totally independent
way of also keeping you safe.
And just in case that fails, we'll
have a third independent way of keeping people safe.
And then hopefully these things don't interact.
And that accommodates for the fact that it's impossible for us
to predict everything that will happen.
That's the idea of defense in depth.
And that idea is being slowly dismantled and replaced
with something called the risk-informed approach, which
sounds great because who is opposed to being risk-informed?
I don't want the risk-uninformed approach.
But this is what's really going on is that we are getting rid
of redundancy that is there because of model uncertainty.
So PRA is the mechanism by which this happens,
which stands for Probabilistic Risk Assessment.
And maybe I can tell you a little bit about what you do.
Instead of having all these safety layers, what you do
is you have this big model of how the reactor operates.
You have what we call fault trees.
And you assign probabilities to all kinds
of events that might happen.
And then you multiply a bunch of small numbers less than 1,
and you get a very, very, very small number, much,
much less than 1.
And that's basically the idea.
Where does this come from?
It came from MIT.
In 1975, after some safety incidents,
there was a lot of public concern
that nuclear reactors might not be safe enough.
And George Rasmussen, who was a professor here,
did this study where he built a model
of the safety of a nuclear power plant, which was called WASH--
the name of the report was called
WASH-1400, which was how report titles were given by the AEC
at the time.
And it reported that the probability of a core
damage event--
this is like the fuel melting was once every 20,000 years per
reactor.
And you can think to yourself as engineers, the more experience
you'll have, the more maybe this number
will sound just a little crazy to you--
that everything will just continually operate,
and statistically, it will fail only once every 20,000 years.
After the report was issued, it was roundly criticized.
Berkeley nuclear engineering department took it apart
and said this is--
they called it inscrutable.
The problem with this is that you have all of these numbers
that you have to multiply together.
And we didn't have data for the real probabilities
of all of these things.
So most of this stuff was just pulled out of thin air,
and it was a garbage in, garbage out kind of phenomenon.
But it was very appealing to the industry
because now you could have this quantitative thing.
We all like math, and it provided proof
that reactors were safe.
And who could resist that?
The NRC was not convinced.
They're like, you guys are crazy.
But during the 1980s--
and they didn't adopt it.
But then in 1980s, the defense in depth approach was discovered
to have a problem.
The defense in depth is perfectly
fine for when you want to talk about designing a new reactor,
but how do you make changes to reactor?
How do I decide whether a particular change
is worth it, if I should make this change or that change?
If I have two changes, how do I make these trade-offs?
The defense in depth approach doesn't give me any framework
for that kind of thinking.
And so PRA's presented itself as a way
of making these small changes in evaluating what
was the right way to do things.
And in fact, it worked pretty well.
So you a lot of changes that came about because of PRA
assessments have actually improved
the operational reliability of these plants.
And so the US plants have some of the highest capacity factors,
in part, because of changes that we've
made to operating behavior revealed
by PRA-type assessments.
So it's not that PRA is useless.
It's just that at the end of the day, the number that you get out
doesn't actually mean anything in cardinality terms.
It will help you with ordinality, which is to say,
this is better than that.
But you can't take the final number and say, oh,
and this is the safety.
And maybe the best way to convince you of that--
we can look at the output numbers--
or as to point out that, when we look
at most of the major nuclear reactor accidents,
those accidents occurred along pathways that
were not in the PRA model at the time
that that accident occurred.
And then they go, oh, yeah, that could also
happen-- we should add that.
The problem is that the fault tree isn't a complete fault
tree.
It has to be hand-pruned and curated by humans.
And these numbers about what happens are human estimates,
and it will never be necessarily complete.
And that is the basic challenge.
1985, the US government accounting office,
which is the actuarial watchdog for US government entities,
praised the NRC for not using PRA when it
was trying to license reactors.
But this is exactly what the industry is trying to do now,
and they call it the risk-informed approach.
So let's just maybe look at how some of these numbers stack up.
Here are the actual historical rates of a large early release--
radiation release from BWRs and reactors worldwide--
10 to the minus 3 and 3 times 10 to the minus 4.
You just count up reactor years, count up accidents,
and this is your best estimate for the safety of those plants.
Here's what the PRA model says.
It should be 10 to the minus 5.
So, you have somewhere between a factor of 10
to a factor of 100 difference between what is predicted
and what is observed.
These latest reactors have PRA numbers
of like two releases every 100 million years.
And these numbers are starting to look
less and less believable.
So it's kind of like--
PRA, I think of it as like looking for your keys
under the streetlight.
These are the things you know about,
and you solve those problems really well,
and you can drive those things down to 10 to the minus 8.
But there's all this other stuff happening
that you haven't thought about.
And if you assume that the streetlight-- what
is under streetlight is the entire universe of problems,
well, you're wrong.
So don't be fooled.
It's not more scientific.
It is not more accurate.
It's just more quantitative.
It has the appearance of being scientific,
but it's still fundamentally revealing human biases
and human preferences.
And we have to remember that when we look at these numbers.
Nevertheless, industry has been working hard
to get PRA into the licensing process.
And some of the numbers for small reactors are crazy.
So here's NuScale Power.
They say the likelihood of a core damage
event to a NuScale reactor from equipment failure at full power
condition is one event per module every three billion
years.
This is older than the life of planet Earth.
I really don't believe that number is accurate,
and you should not either.
But this is how you get your evacuation zone to 0.
You multiply times 10 to the minus 9,
and now it doesn't really matter.
So I mentioned PRA has found some uses.
Let's see if I can go through some.
So in 1985, NRC determined that more than 35% of, quote,
"abnormal occurrences were directly attributed
to maintenance deficiencies."
And many of those problems arose from human errors,
such as failing to follow procedure
and installing equipment correctly.
And so they pass what was called the Maintenance Rule in 1991.
And this required the NRC to identify
deficiencies in how maintenance of reactors was being done,
not just the overall operation of-- the overall design
of the reactor.
And it collected a whole bunch of data
on all these maintenance deficiencies,
and then it built PRA models that they were then
able to target the inspection process
to the types of maintenance defects
that were common-- that commonly occurred.
And as a result, they were more likely to discover problems
and prevent--
not only prevent accident precursors,
but also prevent the reactor from just shutting down
for an unplanned maintenance event.
And so as a result, here's what happened to US uptime.
In the '80s, we were kind of like the rest of the world.
65%, 70% operational uptime.
And now, we are way up here--
90-plus percent because of this PRA-focused approach on how we
do maintenance.
And that not only is safer.
It actually brings down the cost of nuclear power.
And so that's a good thing.
So this has all been enabled by PRA.
It's a really good tool.
You just have to use it in the right way.
That brings us to how the NRC does Enforcement.
So the NRC actually has officers with badges and handcuffs,
and they have the power to arrest people
who fail to do their jobs.
They really do.
There is an office of the Inspector General,
and its function is to keep the NRC independent.
Of course, OIGs from across the government
have been fired by Trump.
And the problem is that everything would be fine
if it weren't for the fact that people are basically lazy.
They will lie, and cheat, and generally fail
to do what they're supposed to do, like do their homework,
and this leads to safety problems.
So you might think, well, how often does this really happen?
And so just in case you're curious, here are the data.
The OIG catches about 1 to 200 instances
of this stuff happening in the United States per year.
So that's one plant every six-- one
incident per plant every 6 to 12 months
gets caught by the regulator.
And there are all kinds of different materially false
statements, violations of requirements,
non-independent inspection, and retaliation against employees
for safety concerns.
I'll just read some of these from a 2013 report.
A chemistry manager at Indian Point
deliberately falsified test results
from samples of the diesel fuel in the emergency backup
generators.
And diesel fuel can turn into gel,
and then the diesel generators won't work,
and he just didn't test.
Fire protection coordinator at Kewaunee Plant
failed to conduct fire drills for five years in a row
and submitted falsified fire drill evaluation and critique
forms.
Engineering supervisor at Wolf Creek falsified records
indicate that they inspected the spent fuel on a monthly basis,
and no inspections of the spent fuel pool had actually occurred.
Condenser replacement project superintendent at Columbia
was using drugs and submitted-- fake urine
went to his drug test.
Electric supervisor at Watts Bar conspired
to falsify paperwork which indicated that they had checked
the installation of electrical cables
when, in fact, they never checked
to make sure those cables were installed correctly.
So this is the kind of small stuff.
It's small and generally doesn't have an issue,
but sometimes there is an issue.
That's why these things are there in the first place.
And sometimes these things do lead to cascading problems.
And I think this is really the biggest one here.
The corporation retaliating against employees when
they bring up a safety issue.
That kind of stuff means that more and more people are
going to bury safety issues.
The more of this that happens, the more likely
you are going to have big problems that are not
being reported because people are afraid of losing their jobs.
So this is another reason why PRA can't ever really be right.
Their calculations assume this ideal plant that
is following the procedures.
And if you're not following the procedures,
and it's happening every six months,
yeah, things are going to go wrong.
This is an important closing message.
It's in the NRC's mission statement.
Nuclear regulation is the public's business,
and it must be transacted publicly and candidly.
And there are all kinds of laws that
prevent, for example, the commissioners from meeting
with each other unless there is a public forum where people
can hear what they're saying.
They're legally not allowed to get together in a room
and conspire about what to do.
For the most part, the regulatory process in the United
States is an open process.
And you can go to the NRC's website,
and you can look at tons of documents
that are being submitted, and letters submitted by industry
about what they want to do.
But they do protect proprietary information.
And what gets counted as proprietary can be debatable.
So for example, plants have transient events
where there's a power excursion, and sometimes there
may be a scram to shut down the power.
And who knows why these things happen?
And the reason is investigated, but these events are never
reported to the public.
They are kept away from the public
so that they can't be reviewed by independent people.
And you can understand why the industry likes
that, because they don't want the public knowing
that these plants are having these problems.
But this is not a good way to do regulation.
So there's kind of a constant battle going back and forth.
And a few years ago, there's an organization
called the Union of Concerned Scientists, which
is based in Harvard Square.
It was actually founded by professors in the physics
department here at MIT.
And they're kind of like the gadfly that constantly annoys
the NRC and the industry and follows what is going on here.
And they found that some documents that
were-- a lot of documents that were supposed to be released
by the NRC were being withheld.
Starting in 2004, the NRC just kind of stopped
sharing public information.
And this included a bunch of non-sensitive stuff
that the operators of the plant actually
did not make requests to withhold from public view.
The NRC was just doing it for their benefit.
And that is evidence that the NRC is, in a way,
becoming captured by the industry when
they start hiding things on the industry's behalf.
And that really, I think, is a worrisome kind of thing.
What kind of documents were these?
Request for an exemption for complying with fire safety
regulations, for example which was at,
I think the Oconee plant, Turkey Point, Browns Ferry,
Fort Calhoun, and Sharon.
Things like this.
It's not the end of the world, but they're hiding
stuff that doesn't look good.
So this underlines the idea that even the regulator now
treats itself as a problem.
So here are some final closing observations.
Regulation does impose a major cost on industry.
They are imperfect and slow to change,
but they are subject to influence.
And interest groups have really changed how regulation is done.
And there's some bits of evidence
that this is kind of getting out of control when the regulator is
hiding things on their behalf.
The regulation is not all bad.
It has improved, in fact, the safety and profitability
of the industry.
The battlefront is now hiding things
in statistics with this, quote, risk-informed approach.
Despite all this, it still kind of works,
and we ought to keep it going.
We'll talk about other industries in the future.