The Economic Impact of Nuclear Power Discontinuation in Sweden

Bergman, L. (1980). The Economic Impact of Nuclear Power Discontinuation in Sweden. IIASA Working Paper. IIASA, Laxenburg, Austria: WP-80-097

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Abstract

Prior to the referendum in March 1980 on the future use of nuclear power in Sweden, a committee appointed by the Swedish government investigated the economic and social consequences of a discontinuation of the Swedish nuclear power program. The committee should not make any recommendations on ranking of various alternatives. Thus, its main task was to elucidate the economic and social impact of a nuclear power discontinuation, and to provide the electorate with estimates of various "costs" associated with such a policy.

The author was asked by the committee to carry out an analysis of the long term economic consequences of a discontinuation of the Swedish nuclear power-program. The committee was primarily concerned with two aspects of such a policy; one was to estimate the value for the society as a whole of the resources already invested in nuclear power plants; the second was to evaluate how the loss of that value would affect the development of the economy, particularly in terms of the sectoral and regional allocation of the labor force.

It was an explicit request by the committee that the analysis should be based on simulation with a general equilibrium model of the Swedish economy, previously developed at IIASA by the author, in cooperation with A. Por. This report presents the methodology and results of the analysis carried out for the committee.

The characteristic feature of a general equilibrium model is that both quantities and prices are determined within the model. Thus, the model can simulate future states of the economy where supply equals demand on all commodity and factor markets at prices, wages and interest rates such that all producing sectors can cover their costs and no sector makes excess profits. The general equilibrium model used in this study is elaborated particularly in terms of the treatment of energy demand and foreign trade. The need for the first elaboration in this context is obvious. The second is motivated by the relatively large foreign trade sector in the Swedish economy, and the fact that Sweden, to some extent, has specialized in relatively electricity-intensive export industries.

Several different alternatives for a discontinuation of the Swedish nuclear power plants before 1990 were investigated. In one case, the replacement of the nuclear plants by other power plants was emphasized. In two other cases, electricity conservation efforts in various parts of the economy were emphasized. However, no attempt was made to identify the cost-minimizing mix of replacement and conservation investments.

The results of the model simulations indicate that a discontinuation of all nuclear power plants in Sweden before 1990 would lead to a loss in terms of potential household consumption of goods and services. Thus, in the discontinuation cases, the level of potential household consumption around 1990 was 2-3% lower than in the "reference case". The estimated present value of the total reduction of potential household consumption 1980-2000, was 70.109-110.109 Skr. in 1979 prices. On the sectoral level, there was a negative impact on production and employment in the electricity intensive sectors, primarily the paper and pulp industry.

Clearly there are many uncertainties in impact estimates of this type. A number of sensitivity tests of the results were carried out in order to get a rough measure of the uncertainty. It then turned out that the assumptions about future oil prices and the substitutability of electricity and other factors of production were the most strategic ones. Apart from the uncertainties about key parameters and exogenous variables, there is also a systematic under-estimation of the impact of the investigation policy inherent in the methodological approach. The reason for this is that when that impact is calculated as a difference between equilibrium allocations, various kinds of adjustment costs are, by definition, neglected. However, it seems reasonable to conclude that these neglected costs are quantitatively less important than the costs taken into account.

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