Fail Safe

Acts of God And Risk

I've been pondering the issue of nuclear power in light of the Fukushima crisis, and I have to say the problems of how things got to this point are so complicated that it's impossible to pin the blame on any one thing. The Fukushima plant was designed with earthquakes and tsunami threats in mind. They set the bar for earthquakes at 8.0 or so which was the magnitude of the quake in Tokyo, 1923. The tsunami threat was set for waves that were 6m high. In reality, what brought Fukushima undone was a 9.0 earthquake that unleashed 1500 times more energy than the 1995 Kobe quake, and a tsunami that was 12m high. In both instances, the spec the plant had to withstand was much larger than anything in recent record.

And there's crux number one. How far back would one have to go to fin the maximum threat, and how much more redundancy would one have to add on top? Even if they had added 20% to the largest threat recorded, the plant would have been built to 8.4 magnitude and 7.2m high waves. The unforeseen is by definition is unforeseen.

Subsequent to the two overpowering threats that manifested were 2 diesel generators for back up that failed, as well as a third battery system that also failed to kick in. All the fail-safes and redundancies were overwhelmed.  The fact that the system didn't go into immediate meltdown is some kind of testament to the engineering. Can all of this really be ascribed to the fault of the engineers? Isn't this more like what insurers call 'An Act of God'?

I'm not trying to redeem the nuclear power industry or Japanese engineering here, because at the end of the day there is an ongoing crisis that is threatening all of Fukushima prefecture and possible North-East Japan. What I do want to bring up is the nature of risk. Every time we drive a car we take a risk, every time we take the train we take a risk; society is actually built up on managed risks and underlying them all are assumptions on what is manageable and safe. For the better part of 40years, the nuclear plant in Fukushima ran without having a major hiccup until a series of overwhelming events. A rational person has to put that into the equation of benefits to balance against the risks.

So now I'm thinking aloud here, wondering if the case for nuclear is legitimately dead. Here's an intellectual exercise: Let's say the same plant was built in Australia and run with equal effectiveness. If it were away from the coast and rivers, chances are it's not going to be subjected to magnitude 9.0 earthquakes and tsunamis. What could possibly happen?

About the only thing I can think of off-hand are bushfires. But what if it had an exclusion zone around it? Again the question comes up as to what would be a legitimately safe exclusion zone to counter all bushfires? We could only figure out the worst bushfire and then calculate a 20% redundancy on top of the worst case scenario we know. But what if the disaster that strikes is twice the size of the previous worst?

The same problem is in fact what struck Brisbane and the Wivenhoe in the recent flood. The Wivenhoe dam was designed with the worst case on record in mind. The flood that eventually came had twice as much water as the previous recorded worst case.

I guess actuaries are busy doing their sums on this kind of thing, and doubtless there are mathematical formulae that address these things, and even then I'm guessing they will be found out to be faulty by the next disaster. Which leads me to think there's a structural problem with all of projection of worst case scenarios. Stock traders and commodity traders are always quick to point out that past performance is no promise of future performance. This is at its core the same problem with inductive reasoning.

The problem of induction is the philosophical question of whether inductive reasoning leads to knowledge. That is, what is the justification for either:

• generalizing about the properties of a class of objects based on some number of observations of particular instances of that class (for example, the inference that "all swans we have seen are white, and therefore all swans are white," before the discovery of black swans) or


• presupposing that a sequence of events in the future will occur as it always has in the past (for example, that the laws of physics will hold as they have always been observed to hold). Hume called this the Principle of Uniformity of Nature.

The problem calls into question all empirical claims made in everyday life or through the scientific method. Although the problem arguably dates back to the Pyrrhonism of ancient philosophy, David Hume introduced it in the mid-18th century, with the most notable response provided by Karl Popper two centuries later. A more recent, probability-based extension is the "no-free-lunch theorem for supervised learning" of Wolpert and Macready.

Philosopher John Vickers concluded that we should use induction, not because it yields certainties, like deduction, but because it is a method that can correct itself - and is thus more likely to bring us closer to truth than other methods.[1].

Now this ultimately goes to Karl Popper and falsifiablity:

According to Popper, the problem of induction as usually conceived is asking the wrong question: it is asking how to justify theories given they cannot be justified by induction. Popper argued that justification is not needed at all, and seeking justification "begs for an authoritarian answer". Instead, Popper said, what should be done is to look to find and correct errors.[20] Popper regarded theories that have survived criticism as better corroborated in proportion to the amount and stringency of the criticism, but, in sharp contrast to the inductivist theories of knowledge, emphatically as less[21] likely to be true. Popper held that seeking for theories with a high probability of being true was a false goal that is in conflict with the search for knowledge. Science should seek for theories that are most probably false on the one hand (which is the same as saying that they are highly falsifiable and so there are lots of ways that they could turn out to be wrong), but still all actual attempts to falsify them have failed so far (that they are highly corroborated).

That's all well and good for knowledge, but for design and engineering, this has practical, real world problems. And I don't mean this lightly. The main problem we're seeing is that the critique comes in the guise of out of control, super-scale disasters. We only get to see the failure point of designs when a sufficiently large disaster strikes. On that scale, the trials of the Fukushima plant are inordinate challenges. They are beyond what could have been reasonably expected; the unreasonable-ness if you like, of the challenge is in a sense falsifying the design.

Was it reasonable to design for 8.0magnitude earthquakes when there are 9.0 magnitude earthquakes? Was it reasonable to design for 6m tsunamis when 5m was the highest that had been seen? I'd like to see one argument that is mounted without being post-hoc. It's the post-hoc arguments that are clouding the issue as to whether we can realistically look at any piece of design and find it acceptable.

Anyway, I've been racking my brain in the aftermath of the quake off Sendai, and that's all I've got for you. Some of you are better philosophers. You tell me if we can actually learn anything useful about the risks for which we can and can't design. It seems to me, we're all at a loss, and the triumphal "told you so" heard from our Green friends about nuclear power are actually nothing much more than opportunistic cat calls. And I'm saying this as somebody who is not even pro-nuclear. I just want some truth.

A New, Clear Dawn

The Tapes Have Recorded Their Names

Okay, so that's about the best line I can cite from Emerson Lake and Palmer's  'Karn Evil 9 Impression 3', but it's strangely fitting what with an apocalyptic sequence of events taking place over in Japan. First there was the magnitude 9.0 Earthquake. Then there was the Tsunami generated by the said earthquake, which wiped out the eastern coastline of Japan, and then the subsequent nuclear reactor problems at Fukushima that have steadily been going towards China Syndrome. "It's sort of a meltdown", "it might be contained," "oh look there's an explosion" sequence has been more or less the picture of panic and chaos. What's really disturbing with the Fukushima power plant situation is that it's really hard to tell what exactly is going on in there.

Workers at the plant have been manually feeding seawater into the reactors to prevent the fuel rods from heating up and melting down after Friday's earthquake and tsunami shut down all the country’s nuclear power plants.

Mr Jaczko, who was briefing US politicians in Washington, said the NRC believed "there has been a hydrogen explosion in this unit due to an uncovering of the fuel in the spent fuel pool".

"We believe that secondary containment has been destroyed and there is no water in the spent fuel pool. And we believe that radiation levels are extremely high, which could possibly impact the ability to take corrective measures."

Mr Jaczko told journalists later that he received the information "from staff people in Tokyo who are interfacing with their Japanese counterparts".

"I've confirmed that their information is reliable," he said, adding: "It is my great hope that the information is not accurate."

The NRC and US Department of Energy both have experts on site at the Fukushima Daiichi plant, the Associated Press reported.

But Hajime Motojuku, a spokesman for TEPCO, played down the US concerns and said the "condition is stable" at reactor No.4.

The US Energy Secretary, Steven Chu, also expressed his concern at the US Energy Funds hearing, saying that "the events unfolding in the Japan incidents actually appear to be more serious than Three Mile Island".

"To what extent we don't really know now," he added.

The quick answer is that it is much worse than Three Mile Island and about 3 inches of concrete from Cherobyl. It's going to be a big problem should it really blow. The rate it's going, on shouldn't be surprised. As with Chernobyl, you get the feeling that the officials at Tokyo Electric - TEPCO - hit the denial button pretty hard as things started to go out of control. The Prime Minister Naoto Kan was overheard through his door, yelling at TEPCO's representatives, "In the end there's only you there. Get serious. If you so much as pull out of the reactor area, your company will go under, 100%. I'll guarantee you that!"

By "Get serious," PM Naoto Kan means, draw-your-sword-and-prepare-for-death-serious, which is something that gets lost in the translation. This reported incident has garnered him more bad press but most people I've spoken to agree with him. So the question is, how bad is it really and how bad is it going to get? We may still be in Act 2 of a very drawn out apocalypse of the Nuclear industry in Japan and by extension, elsewhere in the world.

In the mean time, the whole nuclear debate in Australia itself is set to go dead quiet.

There were two strands for the Labor conference to consider: whether Australia should develop a nuclear industry, and whether Labor should adjust its policy allowing uranium to be sold to India.

It's the first strand that's become too fraught. Selling uranium to India is problematic, but still an outside prospect. It will come down to the Prime Minister. If Julia Gillard wants to sell yellowcake to India, then key figures on the Right and the Left will marshal the numbers to support the executive.

But the spectre of post-disaster Japan will also complicate that debate. Opponents will say that if Fukushima can happen in a country such as Japan - a developed country with advanced technological capability and orderly governance - imagine what could happen in India. The Prime Minister will need to want to have the fight, and whether she does - when she has so many other fights at present - is unlikely, but only time will tell.

At one level, Labor's internal truce on the nuclear issue would be good news for Gillard, who is going backwards with the public according to the latest Age/Nielsen and Newspoll surveys.

Voters have watched nonplussed while the Prime Minister has grappled with her cluttered personal history of fixes and formulations, primarily on climate change, but on other issues too - the vexed problem of asylum seekers and, of course, her complicated relationship with the man she replaced.

Deferring the nuclear debate will buy the Prime Minister some restorative Zen in the 24-hour news cycle, but, unfortunately for her, the underlying issues won't go away.

Japan or no Japan, India will still want our uranium. The Americans will still want us to sell it to them. This will remain a significant foreign policy challenge, as it was for her two predecessors, John Howard and Kevin Rudd.

And the broader subject of nuclear energy will come back round again in the political discourse if recent history is a reliable guide.

Rational people don't want nuclear power for its own sake. Only carpetbaggers and boosters will tell you nuclear is a perfect technology. Events in Japan show us nuclear's downside. When it goes bad, it's not just bad, but potentially catastrophic.

This debate is likely to be repeated around the world. As the article says, only the heavily invested will try and convince you of the merits of nuclear. The funny thing is I was in America to see Three Mile Island unfold and I certainly recall the day Chernobyl went up in a radioactive puff. It's amazing the nuclear industry made as much of comeback as it is, after those accidents.

The question that should be asked is whether countries like Iran, Pakistan, India and China really want to be venturing down the nuclear path and take these kinds of risks.

What Happens Next?

This is the curious question, and here's a curious answer in the SMH today.

Despite two decades of stagnant growth on home turf, Japan is the second largest foreign owner of US government securities, with nearly $900 billion of America's public debt. This time it could be the rest of the world that takes a financial hit while the Japanese economy booms.

To understand how this could happen it is necessary to follow the Japanese money. Savings by individuals and money held by Japanese insurers and financial institutions amounts to trillions of dollars in cash, much of which makes its way on to world securities markets. When natural disasters happen in Japan, individuals and companies need this cash to rebuild, and insurance companies need it for payouts.

Earthquake insurance is hard to get for most households in Japan, so much of the cost - estimated at $US100 billion - will have to come from a mountain of ordinary savings held in Japanese financial institutions, much of it invested overseas. For anything that is insured, possibly amounting to between $US10 billion and $US15 billion - the situation is complicated. Japanese insurers will also have to sell overseas assets, but they will be spared the full cost because they have reinsured a lot of their risk with overseas insurance firms, who in turn have reinsured it with other insurers. This insurance trail is a global labyrinth. Japan's risk, it turns out, is the world's risk.

The article is really interesting in that it plays out a scenario where the Japanese trade out those US Treasury bonds to save itself.

Perhaps the biggest difference is the Tokyo government's fiscal position, awash in debt that amounts to two years' worth of GDP. It can ill-afford the generous injections it is making to stabilise markets and the spending that will be needed to restore infrastructure.

If the model plays out as predicted, the sell-off in bonds will continue, and the yen could rise further. The immediate effect on the Japanese economy will likely be to turn an expected 0.3 per cent growth this quarter into negative growth, perhaps sending Japan back into recession. But within a year the rebuilding effort will deliver strong GDP growth. Production of everything from cars to concrete will have to be ramped up to satisfy the expected demand.

If things work out according to that scenario, there are going to be a lot of hurt investors in bonds and insurance companies.

The other thing that needs to be said is that like the recent Queensland floods this disaster is going to end up stimulating domestic demand. I can't quite fathom the amound of fear of the people getting out of say, the mining sector at the Australian exchange. Alright, Uranium is deservedly down, but surely coal and iron are going to be in much demand as all these places like Queensland, Christchurch and the north of Japan all go into a rebuilding frenzy.

Check out what the Economist has to say about shocks to the share market. These things bounce back. If I had money to spend I would've spent it today buying shares. The Economist also dug up its 1923 reportage of the Great Kanto Earthquake.

As to the repercussion on the trade of the world generally, there are obviously circumstances in which so serious a blow to one of the great trading nations might set up a series of trade crises and precipitate world depression. But, again, the universal stagnation of trade, and the fact that speculation has for this reason been recently restrained within extremely narrow limits, means that commerce generally is not so vulnerable, as is sometimes the case, to a shock to credit. Indeed, looking at the matter from a purely narrow national standpoint, it is conceivable that the momentary withdrawal of Japan from world competition may cause buying by India and China in other markets, and that Great Britain may momentarily benefit from a cause which in the long run will reduce, and not increase, the trade of the world.

The rebuilding of Tokyo will, of course, afford some compensation to the otherwise depressing effects of the disaster. A substantial proportion of the requirements for this purpose will be needed from overseas, which will involve the placing of loans abroad, presumably in London and New York. Some of the sums raised in this way may even be required for purchasing food if it should appear that very large stocks of these requirements have perished or been spoiled, and that internal Japanese resources are insufficient or cannot quickly be mobilised by the Government for the relief measures that will be necessary.

Sounds familiar? That's the sound of history repeating. Cue Shirley Bassey and the Propeller Heads.