The impact of nuclear energy on social welfare and the future of renewable energy: episode from South Korea

Abstract

Nuclear and renewable energy are two significant energy sources, and their shares in the energy mix significantly depend on energy policy targets. This study examines how nuclear energy affects social welfare and uses a dynamic stochastic general equilibrium model to discuss renewable energy’s future. First, we consider the heterogeneous cost-efficiency of four energy sources—nuclear, renewable, liquefied natural gas, and coal; in our model, energy price is their composite price. Second, the model incorporates potential nuclear disasters, reflecting the negative impact of nuclear energy on the economy and social welfare. We calibrate the model using data from South Korea through the back-and-forth energy policy toward nuclear and renewable energy. The results show that an increased nuclear energy share promotes long-run welfare. This finding implies that the economic benefits of using nuclear energy due to its cost-efficiency outweigh the potential adverse effects of nuclear disasters. In contrast, more use of renewable energy negatively affects social welfare because of the high cost of renewable energy. However, due to the decreasing trend of electricity generation costs for renewable energy, this negative impact is expected to become negligible. Finally, our model reveals that rising energy policy uncertainty negatively affects consumption and output through delayed investment. The results imply that both nuclear and renewable energy are economically reasonable, and policymakers should minimize energy policy uncertainty rather than argue between them.