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Friday, May 26, 2006

Krugman: Nuclear Energy Should Not Be the Main Answer to Our Energy Problems

Paul Krugman responds to comments on his latest column and gives sources for his estimates of the cost of policies to offset global warming:

Krugman's Money Talks: Al Gore and the Future of Energy, Commentary, NY Times: Readers respond to Paul Krugman's May 26 column, "A Test of Our Character "

...William R. Mosby, Salt Lake City: Does nuclear energy have a part to play in mitigating global warming in the long term? ... [T]hose who see an urgent need to do something about global warming generally don't talk about nuclear energy as a prominent part of the solution. Do they think that nuclear energy would be a bigger problem than global warming?

Paul Krugman: I was at a reception for Al Gore after a screening of his movie, and he was asked that very question. I thought his answer was very good. He said that yes, nuclear should be part of the mix, but it can't be the main answer. And there are problems with nuclear we need to resolve: not just disposal of radioactive waste, but vulnerability to terrorist attack. In fact, as nuclear power becomes more common around the world, the possible misuse for weapons, terrorist or otherwise, will be a big problem. So unless there are some breakthroughs, nuclear power is only a piece, and maybe not a big one, of the solution.

Mark Neely, Santa Monica, Calif.: ...Is there a way to calculate the profit oil companies make relative to the price of a barrel of crude? ... I ask because it seems to me that all administration energy policies seem to encourage diminishing the availability of crude outside the Arctic Circle and U.S. coastlines at any rate. This only makes sense to me if profitability increases for the oil companies when the price of crude goes up and if, as seems obvious, the administration is facilitating the profitability of oil companies at the expense of the public good.

Paul Krugman: It's not that simple. It depends on what the oil company does. To some extent, oil companies own crude production, and in that case they make more money when the price of crude rises. But a lot of what they do is refining, and the profits on refining depend on the "crack spread" — the difference between the price of a barrel of crude and the price of the gasoline, fuel oil, and other stuff you make from that barrel. Right now both the price of crude and the crack spread are very high, so oil companies are making huge profits.

Michael Papenfus, Milwaukee, Wisc.: ...If you have them available, can you recommend a few citations of serious economic studies exploring the costs of reducing CO2 emissions?

Paul Krugman: Some correspondents have asked for sources on the costs of policies against global warming. It's all pretty technical stuff, but here are two things I looked at. (An awful lot of work goes into things that never make it into the column!) First, in 1998, the Energy Information Agency (a part of the Energy Department) did a survey on the costs of complying with the Kyoto treaty, back before Bush rejected the whole thing. The executive summary is at http://www.eia.doe.gov/oiaf/kyoto/execsum.html. Basically, EIA found that trying to meet the Kyoto target on emissions by 2010 might be fairly expensive, but that meeting the target by 2020 wasn't. The report also compared a number of other estimates: http://www.eia.doe.gov/oiaf/kyoto/cost.html.

Second, William Cline of the Institute for International Economics did a study of climate change policy, which can be found here (pdf), and gives very long-run analyses. I'd focus on Figure 7, on page 21: the costs of an aggressive anti-warming policy eventually reduce Gross World Product by about two percent, compared with what it would otherwise be, but only over a very long period.

    Posted by on Friday, May 26, 2006 at 12:25 PM in Economics, Oil, Politics | Permalink  TrackBack (0)  Comments (4)


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