Cleo Paskal
Associate Fellow, Energy, Environment and Resources

The nuclear crisis unfolding in Japan started decades ago on a piece of paper. Before a nuclear project that size is approved, a risk assessment is carried out. Hazards are identified and a cost/benefit analysis is made about how to approach the risks.

If constructing in a seismic zone that hasn't seen an earthquake above a magnitude of 6.5 in 100 years, do you build to withstand 7? Or put in extra millions upfront to protect against a magnitude of 8? Or do you simply choose not to build a nuclear power station in an earthquake zone at all?

Every critical energy installation (and much of all vital infrastructure) is built on the basis of such risk assessments. In the case of the energy sector, getting it right is crucial not only for the ability to generate power, but also for site integrity. However, there are increasingly problems, both physical and economic, with the way risk assessments are done.

Environmental Changes

First, due to changing environmental conditions (sea level rises, subsidence, changing storm activity) historical records may no longer be reliable predictors for future risks.

In 2003, for example, unusually high temperatures in France caused the powering down or shutting off of 17 nuclear reactors, many of which were cooled by river water. This 'anomaly' happened again in the summers of 2006 and 2009, again causing powering downs. According to the Hadley Center for Climate Change, by 2040, it will be 'commonplace' for European summer temperatures to reach 2003 levels.

This new environmental change variable is often left out of risk assessments for all manner of new infrastructure builds. Dams in India are seeing reduced generation capacity as a result of shifting monsoons. Sections of oil and gas infrastructure along the US Gulf Coast are suffering repeated shut downs due to flooding, hurricanes and subsidence. Homes in the UK are already being built on actual floodplains, let alone areas that are likely to become floodplains.

Economic Calculations

The second problem is economic. Some of the best risk assessors are in the insurance industry. However in some places, and cases, that safeguard against risk - no insurance, no building permit - is being short-circuited.

For example, the US lobbied India to impose a cap on liability for nuclear accidents in order to protect American firms seeking to sell reactors to India. This distorts real risk assessment and can lead to situations in which corners are cut because the cost of building safely exceeds the liability and so, from a financial perspective, it makes sense to build less safely.

An extension of this is financial structures that allow for the creation of front companies that are designed to be 'cut loose' and fail and take the loss with them, without affecting the parent company.

The economic miscalculation of risk is also exacerbated by an environment in which 'externalities', such as costs to other industries, health impacts, and security implications, are not factored into the risk assessment at all.

Economic systems that are designed to offload risk produce particularly inaccurate risk analyses and particularly vulnerable or dangerous installations. This is the infrastructure equivalent of credit default swaps, in which the risk is ignored or passed around, to the point where it can seem to make sense to build a nuclear plant in a highly active seismic zone.

The result is that in many key components of our critical infrastructure, long before the first share is issued, the first shovelful of earth is dug, the first brick is laid, the risk is much higher than anyone knows. Or, in some cases it seems, wants to know. If more Fukushimas are to be avoided, we have to start by understanding the real risk of risk.

Read more:

The Vulnerability of Energy Infrastructure to Environmental Change
Cleo Paskal, Briefing Paper, April 2009

Global Warring: How Environmental, Economic, and Political Crises Will Redraw the World Map
Cleo Paskal, Palgrave Macmillan 2010