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Japan fallout: environmental costs

By   /   March 23, 2011  /   Comments

Editor’s note: This is the first of a three-part series.


The global economic impact of Japan’s earthquake cannot be underestimated with disaster efforts estimated to exceed Hurricane Katrina, which was estimated at $125 billion. The official loss of lives is currently at 8,199 as of March 20, but there are still 12,272 more unaccounted for. As we reflect on the economic implications of this catastrophic event, there are so many complex forces in play that it is too numerous to condense into one blog entry. Therefore, this first part of the analysis will focus on the environmental damage to not only Japan, but also to the U.S. and Europe.

The environmental cost arising from Japan’s nuclear power plant might have implications on its future viability as an alternative energy source globally. Right now, it looks like the there has been limited success in cooling down the nuclear reactors., however there remains concern with Unit 3, which is one of six that were at risk of emitting radiation. Transitioning back to the U.S., we can see the current sites of nuclear power in the U.S. shows where trouble areas extend across multiple regions.

While the double whammy of an earthquake and the resulting tsunami is creating current nuclear crisis, U.S. experts actually places the highest risk with the Indian Point Energy Center in Buchanan, NY, which is not along the coast like Japan. There are concerns that many of the nuclear power plants throughout the East, South, and Midwest were constructed with design standards that might have been compromised due to the perceived low risk of an earthquake. While there are safeguards that the U.S. can implement, they will be expensive and intensive.

As for Europe, the impact has already been felt in Germany where Chancellor Angela Merkel has switched her stance on nuclear power. She has called for a moratorium of three months on whether to extend the life of its 17 power plants beyond 2022. Even before disaster, many Germans were wary of nuclear power. Expect other countries to reevaluate nuclear power and this can negatively impact global economic growth if another reliable source of alternative energy is not found.

When thinking about alternative energy sources, one must recognize its importance in economic activity. If consumers see gasoline prices rise, along with electricity and other utility bills, then that will impact their overall purchasing power. This could impact other industries if consumers decide to slash expenditures in entertainment, electronic goods, and other large ticket items. Rising energy costs also affect businesses, especially those that are reliant on energy to produce their products. Given the downward pressures of wages from a stagnant labor market, firms may have to bear those costs themselves and that scenario will dampen profit margins. If these trends are significant and sustaining, then economic growth will be compromised in the future.

Despite these concerns, Dr. Glenn E. Sjoden, cautions Americans to not be overly concerned and believes that nuclear power is essential in meeting our future energy needs. For the foreseeable future, Dr. Sjoden does not believe that any other alternative will come close to supplying global energy needs. He also believes that current nuclear power development is superior in the U.S. and that the likelihood of a similar catastrophe is low. In supporting this contention, he cites the heavy use in France where they have not experienced any problems for over 40 years.

In summary, policy makers in the U.S., Europe, and the rest of the world will have to carefully balance the environmental costs with the potential decline in living standards. If world leaders decide that nuclear power is too risky and its use declines significantly, then we can expect productivity and living standards to fall. Productivity is the ability to make goods and services in the most efficient way. Raising productivity is the key to improving economic growth and living standards.

When looking at energy, its use can impact productivity significantly. If they decide to rely on traditional sources, such as crude oil, then consumers and businesses can count on energy prices to continue to rise. While the U.S. continues to demand crude oil in disproportionate levels relative to the rest of the world, there is also rising demand in developing countries in China, India, Russia, and Brazil. Their incomes and prosperity are quickly rising and energy prices will not dissipate in the near future if nuclear power is abandoned.

Aaron Johnson is the assistant Professor of economics at Darton College, where he also serves as director of the small business management program. He publishes a blog at econprofaj.blogspot.com.
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Owner / Editor / Writer

Tom Knighton is the publisher of The Albany Journal. In November, 2011, he became the first blogger to take over a newspaper anywhere in the world. In August of 2012, he made the difficult decision to take the Journal out of print circulation and become an online news agency, a first for the Albany area.

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