31 March 2011

The Cost of Fukushima

How much will the Fukushima nuclear power disaster cost the Tokyo Electric Power Company, the Japanese economy, and the Japanese taxpayer? A rough estimate based on current conditions is something around $50 billion. TEPCO's salable assets are only worth about half of that.


The costs of the problems at TEPCO's Fukushima Number One nuclear power plant fall into several areas:
  • The direct costs of trying to contain disaster and stabilize the damaged reactors. This includes costs to TEPCO as well as costs being borne by public agencies such as the Japan Self Defense Force, fire services, and so on.
  • The costs to TEPCO of lost sales of the electricity formerly generated at the facility.
  • The costs to individuals and businesses caused by the blackouts imposed by TEPCO due to its sudden loss of generating capacity. There will be secondary and tertiary effects--for example if power cuts prevent railways from running, perishable goods may be lost, or raw materials may not be available to keep manufacturing plants operating. The rolling blackouts are distributing this cost widely over much of eastern Japan, beyond the area where economic activity has been disrupted by the earthquake and tsunami. [Update 6 April 2011 1515 GMT: Government-imposed conservation measures may make blackouts unnecessary, minimizing this exposure for TEPCO. See note below.]
  • Compensation to people harmed by radiation at the plant or released from the plant, or by other direct effects such as fires and explosions. So far the only people directly harmed are some of the workers exposed to radiation or injured during the efforts to stabilize the facility. TEPCO will presumably owe compensation to those injured, sickened, or killed.
  • The eventual cost of cleaning up and entombing the damaged reactors, which will take years [update 28 March 2012: decades; Guardian story], and securing the contaminated areas of the site for many decades. Some land around the plants may need to be acquired due to contamination that is impossible to remove or remediate.
  • The economic losses due to radioactive contamination. Many farmers have already been ordered not to harvest crops, and other crops and other agricultural or fisheries products will not be able to be sold because of radioactive contamination or fear of contamination. All of these businesses will have a claim against TEPCO.
  • If this were in the United States there would be thousands of lawsuits, including class action lawsuits, seeking to recover damages due to disruption of peoples lives and businesses. Probably there would be suits seeking compensation for psychological impacts and loss of quality of life. I don't know how this will play out in the Japanese legal system.
To offset these costs TEPCO presumably will receive some insurance payments, but such payments will be much, much less than its total costs.

Costs of containment and control of the damaged reactors Perhaps $500 million so far; estimated about $2 billion to stabilize the reactors
Lost sales of electricity About $7 billion per year
Costs to businesses due to blackouts About $10 billion [update: may be minimized by conservation measures see note below]
Liability for direct radiation injury Several hundred million dollars?
Clean-up and mothballing cost $10 to $15 billion
Liability for economic harm due to radiation release Maybe $10 billion, depending on amount and type of releases of radioactive materials
Other tort liability Maybe another few billion
Total costs and liabilityAbout $50 billion [update: about $40 billion if blackout liability claims are avoided]

[Update 2012-07-20 1800gmt: This article says "600 people may have died as a result of the evacuation" from the exclusion zone around the plant in an effort to protect them from radiation exposure. "Even the upper-bound projection of the lives saved from the evacuation is lower than the number of deaths already caused by the evacuation itself." Those 600 should be counted as deaths caused by the nuclear accident at Fukushima Daiichi. So even if the total on-site deaths from the nuclear accident are zero and the radiation deaths world wide are few-to-none, the accident at the plant did cause hundreds of deaths in Japan.]

This estimate seems realistic when compared to BP's costs associated with the Macondo blowout. BP had to set aside $20 billion just for economic liability and environmental damage, not counting its costs to plug the blowout and the liability for 11 workers killed and others injured.

This Reuters article has some estimates of TEPCO's costs. "the company said on Wednesday that 2 trillion yen ($24 billion) in emergency loans from Japan's major banks would not cover its mounting costs." Bank of America-Merill Lynch is cited as estimating that compensation claims alone could be between $12 and $130 billion, depending on how long the situation at the plant "drags on".

[Update 5 April 2011 1530 GMT: According to this Reuters story TEPCO has made token payments to evacuated towns of about $2 million. It is in negotiations with the government on what share of damages the taxpayers will cover. TEPCO "said it must first assess the extent of damage before paying actual compensation. 'We are still in discussion as to what extent we will pay on our own and to what extent we will have assistance from the government,' TEPCO executive vice-president Takashi Fujimotohe told a news conference."]

[Update 12 April 2011 0420 GMT: According to this BBC story JP Morgan has estimated compensation claims from the Fukushima disaster could total $24 billion.]

[Update 29 March 2012: BBC story says "to keep the company afloat" "Tepco now says it needs 2.55tn yen [$31 billion--DW] in compensation - up from its previous estimate of 1.7tn yen. Tepco is seeking the additional 1tn yen in financial support from the state-backed fund 'in order to prepare for necessary compensation payouts, the steady decommissioning of Unit 1 to 4 at Fukushima Daiichi Nuclear Power Plant, securement of sufficient capital for stable power supply, and early bond issuance to be able to raise funds independently'." TEPCO press release here.]

At least TEPCO or its successor should establish a compensation fund, as BP was required to do. I am surprised the discussion has leapt directly to nationalization of TEPCO, rather than holding the company to account.

TEPCO's likely costs and liabilities are so far in excess of its resources (cash, borrowing capacity and salable assets) that there has been talk of the Japanese government "nationalizing" the company, or otherwise taking on some of these costs in order to save it.

One might ask why the company is worth saving. Surely it could sell its intact assets (other power plants and distribution systems) to another electricity company to generate some cash to cover its liabilities. (TEPCO's net income from other assets, not including Fukushima Number 1, is still about $3-4 billion per year. These assets should be worth some $30 billion, if they were sold.)

Other remaining liabilities, and the long-term responsibility for the contaminated site, would be transferred to the Japanese taxpayer. The Tokyo Electric Power Company would cease to operate, like ENRON, Lehman Brothers Holdings and many other companies who found their liabilities vastly exceeding their assets.

The taxpayers will have to cover some costs, perhaps tens of billions of dollars worth. But there is no reason that they should bail out the shareholders of TEPCO.

Nuclear generation of electricity will never be as safe as it can be until the private companies that profit from it have to accept all the liability of problems that develop at their plants. Then they will design conservatively, include accurate provisions for costs and potential liability, and make investment decisions that are beneficial for both the owners and the taxpayers. (Note that this implies that no nuclear power industry that is owned and operated by the government will ever be as safe as it can be.)


Calculations:

Cost of control--Just a wild guess.

Lost sales--The capacity of Fukushima 1 was about 4696 MW, about 11% of TEPCO's total generating capacity. (Reactors 5 and 6 may eventually be able to return to service, but their production will probably be lost for at least a year.) Thus about 11% of TEPCO's annual revenues, which are roughly $65 billion, will be lost during the first year.

Business losses due to power cuts--The lost generating capacity at Fukushima Number 1 is about 3% of Japan's total electricity consumption of 1,075 TWh per year (2008). So the estimate is that some fraction of Japan's $5 trillion GDP is lost, say one tenth of that 3%. Conservation and other adjustments will mean that this loss will be temporary. [Update 6 April 2011 1515 GMT: This Reuters story indicates the Japanese government may impose energy conservation measures to prevent the need for blackouts. This could effectively shield TEPCO from liability claims for harm to business due to such blackouts.]

Injuries to workers--Estimating a few deaths or serious injuries, at $100 million per death. [Update 15 April 2011 1815 GMT: Reuters article says 28 workers at Fukushima have accumulated doses of more than 100 millisieverts. This includes the two who were exposed to 170-180 millisiverts by standing in contaminated water with improper footwear. Japan has raised the limit these workers may be exposed to to 250 millisieverts per year, and we haven't heard of any reaching that level. The 100 millisievert level is the lowest dose thought to be linked to increased cancer risk. See this post for more on doses and consequences.]

Economic losses due to contamination--A rough guess. Loss of crops will be temporary. Fisheries losses may be masked by losses due to the tsunami. If Caesium 137 is released in a form that contaminates local land surfaces, some areas might be closed to agriculture for many years, decreasing land values. The government or TEPCO might have to acquire such contaminated land. [Update 5 April 2011 1530 GMT: According to this Bloomberg article BP's payments for economic loss claims from Macondo blowout may total around $10 billion. Update 6 April 1515 GMT: See this post for comparison of Fukushima and Macondo costs.] [Update 12 April 2011 0420 GMT: BBC story reports JP Morgan estimates compensation claims could be around $24 billion.]

Cleanup--Three Mile Island cost about $1 billion to clean up and mothball. It was a much more limited problem with much less contamination of the facility. I estimate at least double the cost per reactor and four damaged reactors, so about $10-15 billion.

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