Reply #72: In this case "opportunity cost" is not well enough specified to be meaningful [View All]

[GliderGuider]

Opportunity cost is defined as "the cost related to the next-best choice available to someone who has picked among several mutually exclusive choices." There are two problems with this definition in relation to the wind/nuclear decision.

First, the definition leaves open the interpretation of "next-best choice", which depends entirely on the criteria of whoever is doing the choosing. Is the criterion the quantity of electricity generated, the cost of the electricity, the amount of CO2 generated per KWh or the carbon cost of CO2 avoided - or something else entirely like political advantage or aesthetics? The choice of goal dramatically influences the calculation of opportunity cost. In my case I picked the amount of CO2 generated per KWh as the primary criterion. Other choices will yield other results.

The second problem with the definition of opportunity cost is deciding whether the choices are mutually exclusive. You feel they are, but I'm not so sure. Here are the reasons I demur:

First, each phase of a project (plan, build, operate and decommission) is done by different people using different resources, so there is no mutual exclusivity between project phases. The planning team for one project can proceed to another project as soon as the build team takes over, the build team goes to another project as soon as the build is done and the operations team takes over. Given the work forces available globally, large numbers of projects of the same type can be done in parallel. There is no significant slack time due to resource scarcity, which is another requirement for there to be an opportunity cost.

Next, wind and nuclear programs require entirely different skill sets and different resources. As a result there is no mutual exclusivity between the two programs. Both can proceed as quickly as possible, using their own human and physical resources. One area in which there might be scarcity resulting in mutual exclusivity is in financing - dollars are fungible in a way that skill sets aren't. However, the availability of capital is driven by many factors, and it's hard to pin down factors that might affect one program more than the other. Both programs have risk issues, both have public acceptability issues, both have discount rate exposures that drive the cost of financing. There seems to be enough money available to keep both programsd going, and I haven't seen any evidence yet that nuclear funding per se interferes with the availability of capital for wind projects, or vice versa.

Finally, opportunity costs due to planning delays are mitigated by having a large number of parallel projects at different life cycle phases, as well as there being a large installed base relative to the build program. This is why my calculation of the opportunity cost of CO2 emission was so low. An opportunity cost that might be significant if a single project is considered in isolation (which is essentially the same as ignoring the operating installed base), shrinks in importance when considered in the context of the entire program.

Any attempt to use "opportunity cost" as a cudgel with which to beat on nuclear power needs a lot more explaining and quantification than Jacobson has given it, in terms of goals, methods of calculation and demonstrations of scarcity and mutual exclusivity.

As it stands, the opportunity cost objection is bullshit.