Third NEA Stakeholder Involvement Workshop
on Optimisation in Decision-making
January 18, 2023
Challenges of using cost-benefit analysis
and other approaches within the nuclear sector
Christian Gollier, Toulouse School of Economics

Introduction• What’s our collective goal? How do our acts affect it? What is good?
• Social welfare, multidimensional utility;• Cost-benefit analysis and asset valuation (discounting).

• How do we take account of uncertain costs and benefits in CBA?
• 40 years of asset pricing literature.
• Risk premium associated to acts that raise the collective risk;• Option value for acts that leave open more options for the future (notdeveloped here).

Outline
1. Value, cost and benefit, decision under certainty.
• Examples: Spanish tomatoes, speed limits on highways.

2. How do we treat uncertainty in economics and finance?
• Example: Nuclear waste.

3. Deep uncertainties

CBA of energy transition:
Tomatoes• Decarbonization yields sacrifices (purchasing power,discomfort) and benefits (emission reduction, energy
independence, other co-benefits).
• Example: Spanish tomatoes in France.
• The Spanish tomato is less costly to produce, but must be brought toFrance by trucks emitting CO2.

• Should we prefer French tomatoes, in spite of their higher
cost/price, but because they induce less CO2 emissions?
• How do we value the social benefit?
• Select a Carbon Value.
• Value of life, landscape, time,…

4

Speed limit
reduced from 130
to 110 km/h inFrance• Per 1000 km, reducing speed from 130
km/h to 110 km/h has the following
impacts:• Time lost: 1.4h for an average of
2.2 passengers = 3.1 hours• Fuel saving: 11.4 liters ofgasoline.
• CO2 saving: 28.4 kg of CO2.

• Is the net societal impact positive?
• What is the value of this impact?
• 1 hour lost = 17 euros• 1 liter of gasoline = 0.81 euro(pre-tax price of gasoline)• 1 kg of C02 = 0.015 euro(150€/tCO2).
• The net cost of 17x3.1=52€ is larger
than the net benefit 11.4x0.81 +28.4x0.015 = 13.5€.
• The net societal impact is negative,
and the reform should not beimplemented.
• The cost per tC02 saved would equal to1500€ if the reform would beimplemented.

CBA under uncertainty• Social benefits should be discounted at a rate that is increasing intheir « social beta », i.e., in the income-elasticity of these socialbenefits.
• Example in France: Discount rate  1.2%    2%
• Beta of railways infrastructure =2:  DR  5.2%
• Beta of health infrastructure =-0.5:  DR  0.2%
• Beta of electricity infrastructure is increasing in its LCOE: Larger DR for
gas than for nuclear.
• Climate beta?

Nuclear waste storage facility (Cigéo)• The DR is key to determine the relative merit of different waste
storage strategies.
• Simple socio-economic evaluation of Cigéo (€25bn in the next 20years) versus permanent surface storage (€0.1bn per year forever):• The DR should be smaller than 0.4% to recommend Cigéo.

• But Cigéo provides an insurance against potentially large health andenvironmental damages in chaotic evolution of our civilisation.
• Counter-evaluation for ANDRA (2021) supports Cigéo on this basis.

Deep uncertainties• Measuring the social cost of nuclear kwh is made complex because of
the ambiguity surrounding the true probability of a nuclear accident.
• Should we use the mean probability to perform CBA?
• Human beings seem to value lotteries A and B differently:• Lottery A: earn 100€ with probability 0.5;
• Lottery B: earn 100€ with an uncertain probability with mean 0.5.

• Ambiguity aversion.
• Existing literature in Decision Theory, but with little operational
recommendations.

Conclusion• Risk management is a key ingredient in the evaluation of policies andstrategies.
• Valuing them requires estimating costs and benefits, and to accountfor the uncertainties surrounding them.
• Assuming risk neutrality is not an option.