The Case for Combating Climate Change with Nuclear Power and Fracking

If you ask any given environmentalist to identify the biggest threat to the planet, you may expect to hear about man-made climate change, consumerism, or overpopulation. But if you ask Harvard Business School's Joseph B. Lassiter, he'll toss in another: single-issue myopia.

First, there's the oft-discussed issue of temporal shortsightedness—the very human tendency to focus on present-day concerns without considering how our actions will affect the future. But there's also ideological myopia—a failure to realize that compromising a little is better than staying stuck in the present path.

"Right now we're letting the ends of the ideological spectrum and the entrenched power of legacy interests stalemate a path to the future," Lassiter says. "That's a thing worth fighting."

“Right now we're letting the ends of the ideological spectrum and the entrenched power of legacy interests stalemate a path to the future.”

Lassiter, the Senator John Heinz Professor of Management Practice in Environmental Management, has spent several years studying the intersection between entrepreneurial finance and environmental concerns. He recently sat down with Harvard Business School Working Knowledge to discuss the core challenges of fighting global carbon dioxide emissions in a shortsighted, ideologically polarized environment.

To his mind, both in Europe and in the United States, government efforts to regulate carbon emissions have been costly and ineffective so far, an outcome often ensured by extreme politicking from the legacy energy, transportation, farming, and environmental lobbies.

"It's time for politicians, regulators, and voters to give markets—and the price signals that they send to producers, consumers, and entrepreneurs—a try at doing something that is both environmentally meaningful and economically sustainable," he says.

Lassiter's Market-based Proposal

His proposed market-based solution? "I think each energy source—oil, natural gas, wind, nuclear, solar, etc.—should have a market price based not only on its production costs, but also, in part, on its unique public costs reflected by revenue-neutral taxes: a carbon emissions tax, a security-of-supply tax, a catastrophe insurance tax, and even a local emissions abatement tax," he says. "While people hate the thought of paying more taxes, we are in truth paying most of these 'taxes' today. Unfortunately, the political process allows these taxes—or subsidies—to be hidden in rules, regulations, and foreign policy decisions.

"The resulting market prices for energy should be enforced in international trade with border tariffs," Lassiter continues. "And we should let markets go to work for us. I think that markets will do a much cheaper, faster job of attacking our energy and environment problems than having politicians and regulators try to solve them by selecting technologies or drafting complex rules and regulations that simply hide the costs from consumers and producers alike. The likelihood that what I just said will actually happen is vanishingly small. But I'm an old man, so I should keep on emphasizing completely obvious solutions."

Like many people, Lassiter is concerned that the massive carbon emissions from today's coal plants and transportation sector pose a major danger to mankind through the effects of rapid climate change. Less typically, he's more bullish on nuclear power and hydraulic fracturing, or "fracking," than he is on solar energy or wind power for addressing the worldwide carbon emissions problem. It's not that he has anything against renewable energy. It's that he hasn't seen evidence that renewable energy sources will get cheap enough, fast enough to slow global carbon emissions, particularly those from coal-fired power plants in China and India.

"The Chinese and Indians are going to clean up their local pollution problem—particulates and sulfur emissions—from coal plants, but the carbon emissions are an entirely different matter. To have a dramatic impact on those carbon emissions, you need to find something that beats a traditional coal plant in their countries on straightforward energy economics, and that's really, really hard to do," he says.

The Case For Fighting Coal With Nuclear And Fracking Technology

Given the absolutely clear evidence that electricity significantly betters human life in the developing world, Lassiter worries that attempts to squelch nuclear and fracking efforts will just give rise to more and more coal plants around the world. "When it comes to carbon emissions, nearly anything is better than a traditional coal-fired power plant," he says.

Lassiter argues that the world has allowed nuclear to become virtually an "orphaned technology," despite its potential to attack the problems of carbon emissions. And in spite of recent concerns about the tragedy at Japan's Fukushima plant, he maintains that nuclear power "is a scalable technology that has significant room for technological improvement, safety enhancement, proliferation resistance, regulatory redesign, and, yes, cost reduction."

“When it comes to carbon emissions, nearly anything is better than a traditional coal-fired power plant.”

And what are we to do about the problem of radioactive waste, a byproduct of nuclear power generation? Lassiter points to three young companies—Martingale, Inc., of Tavernier, Florida, Transatomic Power of Cambridge, Massachusetts, and TerraPower of Bellevue, Washington. Each is working on new nuclear reactor designs to harvest and run on radioactive waste fuels, such as thorium (a waste product of rare earth mining), and depleted uranium (the waste product left in spent nuclear fuel rods). In other words, these new nuclear designs could actually consume and be fueled by materials largely considered to be radioactive waste today.

"The world probably has enough spent nuclear fuel lying around to power reactors for hundreds of years, and there is literally four times as much thorium on the planet as uranium," Lassiter says.

Building a prototype of any one of these new nuclear designs may take 5 to 10 years and cost upwards of $1 billion, which suggests that they're in danger of falling into the financing "valley of death," the stage between researching a product and actually going to market with it. Even so, TerraPower has received multiple rounds of funding—and its chairman, Bill Gates, is the wealthiest person on earth. (Last year, Lassiter coauthored a business case about TerraPower's funding issues, along with HBS colleagues William A. Sahlman and Ramana Nanda and James McQuade [HBS MBA 2011].)

"What would our world look like if we could have US levels of electricity available at affordable prices for every person on the planet for 1,000 years?" Lassiter says. "We should be working on nuclear like there is no tomorrow. We should do everything we can to encourage new nuclear and drive it to costs that are competitive with traditional coal. We need to insist that the world's governments allow and encourage entrepreneurs to pursue nuclear with both rigorous testing and real urgency. And we need to always remember that if new nuclear or any energy alternative doesn't match coal on straight-up cost, it won't do much to solve the worldwide carbon emissions problem."

Lassiter also supports shale gas, produced through fracking. He likes it because the market likes it. The shale gas boom in the United States has driven down the cost of natural gas, which has increased secure, domestic supplies. The global unconventional gas market, valued at $93.95 billion in 2012, is expected to reach $126.93 billion by 2019, according to a recent report by Transparency Market Research. Coal's market share is expected to decrease accordingly.

"Shale gas has produced a ton of great companies, and the 'clean energy' cost gap versus coal has narrowed because of shale gas," Lassiter says. "A lot of people say, 'But, no, no, no, that's not clean energy.' Well, I say that if a gas-fired plant has lower emissions than a traditional coal plant, it's at least cleaner energy, and it buys us more time to find a zero-carbon emissions alternative."

Coal combustion emits nearly twice as much carbon dioxide per energy unit than natural gas, with crude oil combustion falling between the two, according to the Energy Information Administration. But fracking comes with its own environmental risks, not the least of which is wastewater production. Again, Lassiter points to a market-based solution: Select Energy Services in Houston is among many companies turning their attention toward fracking water management. The frack water treatment market is expected to grow ninefold to $9 billion in 2020, up from abourt $1 billion in 2012, according to a Lux Research Report issued last year.

Carbon Emissions Are Acting Globally, So Why Aren't We?

Lassiter also warns of geographical myopia—discounting how local action or inaction will affect the whole world. In his lectures, he often incorporates a slide from Robert Hargraves, an energy policy instructor at Dartmouth College, which forecasts a hypothetical but startling scenario for the world's electricity consumption. [Click the image to see the slide.]"Even if we were capable of cutting US per capita electricity usage in half by 2050 and the rest of the world only rose to that hypothetical level of US per capita consumption by 2050, the world will have a tremendous growth in electricity usage and with that the associated carbon emissions," Lassiter says. "So, unless we impact carbon emissions, particularly in China and India, nothing we do in the United States much matters. To do that, the world needs to show them an alternative for electricity that beats coal on price."

Somewhat wryly, Lassiter acknowledges that the threat of climate change may be overstated for some—inasmuch as he thinks that it's probably happening slowly enough for the planet's wealthier residents to adapt successfully. But that's not the case for nations in sub-Saharan Africa like Sudan, which has been in ecological crisis for years. (UN Secretary-General Ban Ki-moon is among those who have cited climate change as a culprit in inciting the Darfur conflict.)

"It is pretty bad in some parts of the world today," Lassiter says. "And with rapid climate change, it's absolutely going to get worse and worse over time. There will be more extreme events; there will be islands that go under water. But, thank you very much, they'll put another few meters onto the seawalls of the Amsterdams, Londons, and New Yorks of the world, and things will appear to be perfectly OK.

"Most of the time, wealthy people figure out a way to do OK, and it's the poor people who get hammered," he continues. "In my mind, there are some ethics there that each one of us needs to worry about, and today we are each making a de facto decision through our collective inaction. But even the wealthy need to do some soul-searching. If the upper extremes of potential climate changes materialize, I…no, we don't know what will happen. There is a material risk that we will all go into a world where no one knows the consequences to our food supply, our cities, or our society. With every pound of CO² emitted, we pass a piece of that incalculable risk on to our children each and every day. "

Read Joe Lassiter's update to this article.