investment viewpoints
Nuclear energy: still dividing opinions
Seventy-eight years after the detonation of the first atomic bomb, nuclear technology continues to divide opinion. Proponents herald its ability to deliver clean and reliable energy. Critics argue it is simply not worth the risk.
In the public psyche, nuclear can conjure up images of mushroom clouds, ghost towns frozen in time and fluorescent green sludge. Such impressions are hard to shake.
Despite the negative perceptions, we argue that nuclear power can make an important contribution to a net zero economy. We explore how the three key risks of nuclear power – proliferation, meltdown and the disposal of hazardous waste – can be mitigated with careful management.
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“The nuclear phase-out is the right thing to do for Germany… I don't think nuclear energy is a sustainable form of energy in the long term”.
Angela Merkel, former Chancellor of Germany2
Boris Johnson, former Prime Minister of the United Kingdom3
What’s not to like?
The first key point is that nuclear power has a relatively low carbon footprint. A study by Our World in Data, a scientific publication, determined that the lifetime emissions from nuclear are even lower than from solar and wind after accounting for construction and demolition4.
Nuclear is also predictable and somewhat flexible, unlike solar and wind. This makes it a useful complement in a decarbonised energy system. Nuclear can meet demand from consumers with a constant need for energy, while minimising peaks and troughs in power generation that result from increased penetration of renewables.
A third point, which is perhaps less well-known, is that a retreat from nuclear energy would make limiting warming to 1.5C above pre-industrial levels tougher. Today, nuclear generates 10% of global electricity. Were we to shut down all nuclear overnight and replace it with coal, global carbon emissions would rise by more than 2.5 gigatonnes a year, an increase of roughly 7%5. This may not sound like much, but over the course of 30 years, it equates to nearly 30% of the remaining carbon we can emit if we want to limit warming to 1.5C, putting that destination further out of reach.
So, what’s not to like about nuclear?
The key risks
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Risk 1: Nuclear Proliferation
The first downside of nuclear energy is the potential for proliferation. This can play out in different ways, including through the direct theft of radioactive materials, as has been attempted before. It can also happen indirectly via the spread of knowledge, making it easier for countries to develop nuclear weapons (e.g., Iran’s military program).
These threats are real and cannot be eliminated. Indeed, the 1968 Non-Proliferation Treaty6 upholds a ‘bargain’ whereby all signatories have the right to peaceful nuclear power, in exchange for refraining from seeking nuclear weapons. The treaty underlined that the benefits of nuclear power should be shared, despite risks from increased knowledge and access7. This agreement has arguably proved successful, and today most countries with civilian nuclear power do not have nuclear weapons8.
Importantly, real security risks can be reduced with the right controls. The NTI Nuclear Security Index, from the Economist Group and the Nuclear Threat Initiative, benchmarks safety across 176 countries. Looking at protocols and regulatory effectiveness, it concludes that authorities in Australia, Canada, Switzerland, the UK and the US, among others, maintain secure and effective regimes9.
Nuclear energy cannot be ‘un-invented’. While curtailing the expansion of nuclear would reduce the opportunity for security leaks, the proliferation genie cannot be put back in the bottle. We believe the best way forward is to demand robust security controls and international oversight. This enables us to get the benefits of nuclear power, with lower security risk. -
Risk 2: Meltdown
The second downside of nuclear energy is the risk of a Fukushima-type meltdown. A meltdown occurs when a nuclear accident, such as a burst pipe that holds coolant, causes a nuclear reactor core to become so hot that it breaches containment barriers, leaking radioactive materials into the surrounding environment.
Another meltdown cannot be ruled out, but there are three good reasons to believe this is unlikely.
Firstly, regulators have strengthened oversight since 2011. The European Commission has coordinated stress tests of all nuclear facilities against ‘natural disasters’ and ‘man-made incidents’10, responding to the International Atomic Energy Agency’s (IAEA) 2011 Action Plan on Nuclear Safety11. Similar reviews and facility upgrades have been instituted in the US12.
Secondly, passive safety features are now widely incorporated in new nuclear power plants and retrofits. These systems minimise the need for outside power or intelligence inputs to cool a reactor in the event of overheating. Designs such as the AP1000 include gravity driven passive water-circulation systems and ‘core catchers’ that can contain and disperse a molten core13 14. Automatic shutdown systems are more resilient if a severe weather event or other catastrophe occurs.
Finally, there were idiosyncratic weaknesses in Japan’s nuclear regulation that we can guard against. For instance, a lack of modelling of the full historical record of tsunamis meant no appropriate margin for error was left in constructing the Fukushima plant, and emergency equipment and backup generators were built on low ground15. The NTI Index, by providing an international overview, can offer clarity on which regimes are robust and which are not.
Again, while there are good reasons to be cautious, eliminating nuclear need not be the only answer. Effective independent oversight and a shift to passively safe reactor designs can make nuclear power increasingly safe. -
Risk 3: Contamination from nuclear waste
The third major downside of nuclear energy is that fission reactions generate highly hazardous waste, which could contaminate land and water and cause sickness if not carefully managed.
Volumes of low-level waste16 (fabrics, equipment, construction materials) from nuclear power plants have been small – roughly 20 million cubic meters since the advent of civil nuclear in 1954,17 which is equivalent to the volume of nine Pyramids of Giza. To put that in perspective, 100 billion cubic meters of coal ash is released by industry annually,18 19 equivalent to 10% of the volume of Mount Everest, and annual municipal waste volumes are higher still20. Furthermore, facilities managing low-level radioactive waste have operated without incident for several decades, with some now in a post-closure monitoring stage21.
Volumes of intermediate (materials from the reactor core) and high-level (e.g. spent fuel) waste are even smaller at 3 million cubic meters and 300,000 cubic meters, respectively22. However, these waste streams are difficult to manage, requiring isolation for extended periods in deep repositories.
Repositories for high-level waste specifically need to be built to withstand timescales of “some hundred thousand years or more”, without the need for “active human monitoring, control or intervention”23. Within such a site, a multiple barrier system can then be used to minimise the risk of leakage even if outermost barriers are compromised. Additionally, the repository itself needs to be located at least 500 meters sub surface, in stable rock formations, to prevent any impacts from seismic activity24.
The EU Technical expert group notes that the process for managing high-level waste is “robust and reliable”25. However, the long timeframes implied by disposal, the lack of a track record for any operational site, and concerns around inter-generational fairness, motivate opposition. A 2020 Survey found that even among supporters of new nuclear in the US, only 25% would be comfortable living within 5 miles of a spent fuel depository, rising to just 47% at 50 miles26. Such reticence means that constructing facilities in countries with high population density is likely to face stiff opposition.
The disposal of highly radioactive waste is contentious. There is broad consensus in the scientific community that geological storage is the right approach for long-term containment of the most hazardous waste27. However, despite work on developing robust long-term solutions, public trust has yet to be won.
Portfolio Implication
We only list exposure to nuclear energy as ‘sustainable’ if we can validate that the highest standards are met.
For all companies in the nuclear value chain, this means we look for evidence that they only operate in countries with robust safety and security protocols. We define robust as a score of >50 in the NTI Nuclear Security Index’s latest assessment of the goals to Secure Materials (if applicable) and Protect Facilities28.
For different activities within the nuclear value chain, we then apply additional tests, outlined below.
For uranium miners and fuel processors, like Cameco Corp29, we conduct a qualitative assessment on whether the firm has taken steps to minimise the impact of mining operations30. We look for documented evidence of measuring environmental impacts and efforts to improve footprints. Cameco has outlined detailed policies and targets around minimising the effects associated with uranium tailings and managing waste resources. Their sites are also subject to third-party verification. We have therefore concluded that the firm’s nuclear activities can be labelled as sustainable, given that the company also meets our general condition for nuclear energy.
For utilities, such as US-based Constellation29, we look for proof of actions taken to improve the resilience of nuclear assets, and in the case of new construction, the incorporation of the latest passive safety features (Generation III+ designs). In Constellation’s case, no new builds are in train and significant upgrades are taking place under the US FLEX plan, drawing on the lessons learnt from the Fukushima meltdown31. We therefore believe there is sufficient support for the claim that Constellation’s nuclear assets are sustainable.
Finally, for engineering firms, including SNC Lavalin29, we assess whether they are allocating capex toward next-generation nuclear reactor designs, which may have superior safety and environmental features (for instance – Generation IV designs). For SNC Lavalin we believe there is ample evidence to demonstrate this32. The firm is the engineering supplier for Rolls Royce’s Small Modular Reactor program – next-generation designs with an improved safety profile33. The company is also investing in nuclear fusion capabilities, via ITER, the world’s largest experimental fusion project. Nuclear fusion reactions generate no hazardous by-products, unlike fission reactions, and thereby bypass one of the greatest potentially adverse impacts of nuclear energy. Again, in this case, we are happy to conclude that the firm’s exposure to nuclear in its engineering business is sustainable, given our general nuclear energy condition is met.
For these three companies, we can build a sufficient case that their nuclear exposures are sustainable. Where documented evidence is not available, nuclear activities should be categorised as ‘neutral’ by default.
Acknowledging the risks and benefits
The points above illustrate why nuclear energy remains one of the most controversial topics in the energy transition. On the one hand, it brings the promise of clean and reliable power. On the other hand, the technology comes with serious potentially adverse effects, which must be carefully managed.
On balance, we believe that nuclear power is a tool that we cannot afford to leave out on the road to a net zero economy. However, any nuclear facility must be subject to intense scrutiny and oversight. While acknowledging the benefits of nuclear power, we cannot forget the very real risks that must be carefully and transparently managed.
Sources
1 holistiQ is a trading name of the Lombard Odier Investment Managers group (“LOIM”) and is not a legal partnership or other separate legal entity. Any dealings in respect of holistiQ shall be carried out solely through LOIM regulated entities and their authorised officers. Systemiq Limited is not a regulated entity and nothing in this website is intended to imply that Systemiq Limited will carry out regulated activity in any jurisdiction.
2 Q&A: Why is Germany phasing out nuclear power - and why now? | Clean Energy Wire
3 Boris Johnson on X: "Nuclear is a reliable, safe and constant source of clean energy. It’s absolutely crucial to weaning us off fossil fuels, including Russian oil and gas. Hinkley Point C will generate low-carbon electricity for six million homes. https://t.co/EXqJs5zIgV" / X (twitter.com)
4 https://ourworldindata.org/safest-sources-of-energy
5 holistiQ calculations drawing on BNEF and https://www.carbonbrief.org/guest-post-what-the-tiny-remaining-1-5c-carbon-budget-means-for-climate-policy/
6 https://www.un.org/disarmament/wmd/nuclear/npt/text
7 https://www.armscontrol.org/act/2004_11/BookReview
8 https://www.aljazeera.com/news/2021/11/16/infographic-the-world-nuclear-club (November 2021)
9 https://www.ntiindex.org/about-the-nti-index/ (full methodology): https://www.ntiindex.org/wp-content/uploads/2020/07/2020_NTI-Index_EIU-Methodology_Final.pdf
10 https://ec.europa.eu/commission/presscorner/detail/es/MEMO_12_157
11 https://www.iaea.org/sites/default/files/actionplanns.pdf
12 https://www.nrc.gov/docs/ML1835/ML18355A806.pdf
13 AP1000 Nuclear Power Plant Safety | Westinghouse Nuclear
14 https://www.iaea.org/publications/7683/nuclear-power-plant-design-characteristics
15 https://carnegieendowment.org/2012/03/06/why-fukushima-was-preventable-pub-47361
16 ‘Low level waste’ is defined as “above clearance levels, but with limited amounts of long-lived radio-actinides. It requires robust isolation and containment for periods of up to a few hundred years and is suitable for disposal in engineered near-surface facilities.”
‘Intermediate level waste’ may contain long-lived radionuclides in particular alpha emitting radionuclides that will not decay to a level acceptable for near surface disposal. Intermediate waste does not require provision for heat dissipation during its storage and disposal.
‘High level waste’ has activity concentration high enough to generate significant quantities of heat during radioactive decay or is waste with large amounts of long-live radionuclides.
https://finance.ec.europa.eu/system/files/2021-03/210329-jrc-report-nuclear-energy-assessment_en.pdf
17 https://finance.ec.europa.eu/system/files/2021-03/210329-jrc-report-nuclear-energy-assessment_en.pdf (p219-220)
18 https://www.aqua-calc.com/calculate/volume-to-weight/substance/cinders-coma-and-blank-coal-blank-ash
19 https://www.sciencedirect.com/science/article/abs/pii/S0360128509000604#:~:text=The%20current%20annual%20production%20of,total%20ash%20produced%20%5B1%5D
20 https://datatopics.worldbank.org/what-a-waste/trends_in_solid_waste_management.html
21 https://finance.ec.europa.eu/system/files/2021-03/210329-jrc-report-nuclear-energy-assessment_en.pdf (p.243)
22 https://finance.ec.europa.eu/system/files/2021-03/210329-jrc-report-nuclear-energy-assessment_en.pdf (p219-220)
23 https://finance.ec.europa.eu/system/files/2021-03/210329-jrc-report-nuclear-energy-assessment_en.pdf (p.159)
24 https://www.nwmo.ca/Canadas-Plan/Multiple-barrier-system
25 210329-jrc-report-nuclear-energy-assessment_en.pdf (europa.eu) (p.243)
26 https://pro.morningconsult.com/articles/nuclear-energy-polling
27 210329-jrc-report-nuclear-energy-assessment_en.pdf (europa.eu) (p.269)
28 Results - NTI Nuclear Security Index (ntiindex.org)
29 Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document. Past performance is not a guarantee of future results.
30 https://s3-us-west-2.amazonaws.com/assets-us-west-2/annual/cameco-2022-annual-report.pdf (p.97)
31 https://www.constellationenergy.com/our-work/what-we-do/generation/nuclear/safety.html
32 https://www.snclavalin.com/en/markets-and-services/markets/nuclear
33 PR_INI (europa.eu) (p.12)
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