Abstract
The recent Chernobyl accident has increased both concerns over the safety of nuclear energy and opposition to its further development. In the event that such opposition led to a moratorium on new nuclear generation it would have a dramatic effect on European natural gas markets. Evaluating total welfare effects of such a policy would require information on the effects in such related markets. In light of these concerns this study quantifies the effects of a moratorium that would allow no new nuclear plants in a number of Western European countries after 1990. To determine the maximum effect on the gas market, it is assumed that all new planned nuclear facilities would be replaced by natural gas facilities. Since the gas market is heavily dependent on the oil market and gas transport is expensive, this moratorium is simulated using a spatial model that includes both gas and oil. In this model econometric estimates of oil and gas demand are combined with supply scenarios and oil and gas transport costs for 13 European demand regions, seven world supply regions for oil, and four supply regions for gas to Western Europe. This two-commodity spatial model is solved by reactive programming to forecast trade flows of oil and gas, prices at both supply and demand nodes for 2000 both with and without a moratorium. The most probable gas price increase from a moratorium was found to be in the range of $25–50/m 3 × 10 3. It caused a significant reallocation of natural gas with higher oil prices, higher income elasticities, and more variance across elasticities tending to increase the amount of gas reallocated. Aggregate annual net consumer welfare gains for the countries modelled from a moratorium were $1.1 billion for the oil market and $912 million for the gas market. Given very different patterns of nuclear development across the countries modelled, spatial modelling finds quite different welfare effects of a moratorium than a similar aggregate model.
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