Ambiguity Aversion and the Expected Cost of Rare Energy Disasters: An Application to Nuclear Power Accidents
30 Pages Posted: 13 Jul 2016
Date Written: March 23, 2016
Assessing the risks of rare disasters due to the production of energy is paramount when making energy policy decisions. Yet, the costs associated with these risks are most often not calculable due to the high uncertainties that characterize their potential consequences. In this paper, we propose a non-Bayesian method for the calculation of the expected cost of rare energy disasters, that accounts for the ambiguity that characterizes the probabilities of these events. Ambiguity is defined as the existence of multiple and conflicting sources of information regarding the probabilities associated with these events. We then apply this method to the particular case of nuclear accidents in new builds. Our results suggests that the upper-bound of the expected cost of such accidents is 1.7e/MWh, which is consistent with most of the recent estimates. This expected cost may rise to 7e/MWh when the macroeconomic shock caused by a nuclear accident is taken into account.
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