Risk aversion and the external cost of a nuclear accident

The external costs of fuel cycles used in the production of electricity can be defined as those imposed on society and the environment, that are not a ccounted for by the producers and consumers of energy. Within the evaluatio n of the external cost of the nuclear fuel cycle, the estimation of the ext ernal cost of a severe nuclear accident is one of the major topics to be ad dressed. For this purpose, the usual approach consists of calculating the e xpected value of the cost of various accident scenarios. The main criticism of this approach is that there is a discrepancy between the social accepta bility of the risk and the average monetary value required for paying compe nsation to each individual affected by the accident. This paper proposes a methodology, based on the expected utility approach, for integrating risk a version into the evaluation of the cost of a nuclear accident, as well as a numerical application based on French data. Although a wide range of values have been published for the coefficient of relative risk aversion, it seems reasonable to adopt a value of 2 for the s pecific case of nuclear accidents. This leads to an estimated multiplying f actor of approximately 20, to be applied to the expected external cost of a nuclear accident corresponding to a release of about 1 % of the core. In t his case, the external cost of the nuclear accident is estimated to be 0.04 6 mEuro kWh(-1). This represents about 50% of the total external cost of th e nuclear fuel cycle without accident (estimated at 0.1 mEuro kWh(-1) with a 3% annual discount rate). (C) 2000 Academic Press.