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Prospects for the Nuclear Debate in the UK
Published in Andrew Blowers, David Pepper, Nuclear Power in Crisis, 2019
Two problems surface here. One is how best to undertake economic assessments of nuclear-related capital projects. The time pattern of costs and benefits is heavily asymmetric in favour of benefits, especially the early benefits. In addition, quantifying in money values such costs as radiation contamination from normal operations or from accidents, is almost impossible to undertake faithfully. So economic assessments of nuclear investments tend to favour the immediate and tangible benefits of more electricity now, rather than the far less predictable costs which may span out over many generations. This raises the difficult issue of discounting the cost and benefit streams of nuclear investments. Discounting is a procedure for equating gains and losses to a common point of reference, normally present value money. But when costs may emerge in the distant but unpredictable future, discounting can become meaningless. Since there are no adequate methodologies for dealing with such non-equivalent phenomena, this places assessment institutions such as public inquiries or special commissions of investigation in something of a dilemma. That dilemma is how to marry quantifiable criteria prepared through conventional cost benefit analysis, with unquantifiable elements that do not conform to known methodologies. This particular problem plagued the Sizewell B Inquiry (Chapter 4) though it is not confined to cost-benefit analyses of nuclear investments.
Extending the Life of Historic Concrete Arch Bridges: State of the Art
Published in Structural Engineering International, 2019
Arne P. Johnson, Gary J. Klein, John S. Lawler
Discount rate. “Discounting” is the process that converts future costs into an equivalent value for the current year. In principle, expenditures are estimated in today’s dollars, converted to future costs using an assumed inflation rate, and then decreased to present value using an assumed interest rate. In LCCA, inflation and interest rates are often combined into a “real discount rate”. According to FHWA, “real discount rate … represents the prevailing rate of interest on borrowed funds, less inflation.”10 The results of a LCCA are strongly influenced by the discount rate that is assumed. Furthermore, selecting an appropriate discount rate for public funds is not always clear and sometimes debated. On the extremes, a zero discount rate implies that the timing of repairs is irrelevant and only total expenditures over time are important; while a high discount rate ensures that low upfront cost alternatives are more desirable. In reality, there is some hard-to-quantify benefit for public agencies to postpone expenses when possible because the money saved can be redirected to other priorities. Discount rates used by federal agencies have varied widely in recent decades, from zero to over 7%.14–16 In 2002, FHWA cited a range of 3–5%, with a long-term average of 4%. The United States Office of Management and Budget recommended a real discount rate of 2.9% in 1999 and 0.6% in 2018 based on the interest rate of 30-year treasury notes and bonds. The Minnesota Department of Transportation currently uses a real discount rate of 2.2%. Given the disparity, the authors suggest that a sensitivity analysis be conducted by varying the real discount rate from zero to say 5% and observing how the relative merits of the different alternatives change.