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Japan's Earthquake -- Political, Economic and Energy Implications

Speakers: Sheila A. Smith, Senior Fellow for Japan Studies, CFR, and Michael A. Levi, Senior Fellow for Energy and the Environment, CFR
Presider: Jayshree Bajoria, Senior Staff Writer, CFR
March 14, 2011, Washington D.C
Council on Foreign Relations

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JAYSHREE BAJORIA: Thank you. Good afternoon, everyone, and welcome to this Council on Foreign Relations media call. The topic of discussion is Japan's earthquake and its political, economic and energy implications.

I am Jayshree Bajoria, senior staff writer on Asia for CFR.org.

The devastation from the earthquake and the tsunami has been vast. And the death toll is expected to rise as thousands of people remain unaccounted for. And there are serious humanitarian concerns. On the other side, there are concerns also regarding the unfolding nuclear crisis.

So to understand better the situation and the implications, we are joined by two senior CFR fellows: Sheila Smith and Michael Levi. Sheila Smith is a senior fellow for Japan studies and can give insights into the political and economic implications of the crisis. Michael Levi is the senior fellow for energy and environment and director of the program on energy security and climate change. Mike has a fresh analysis on CFR.org on how Japan's crisis may impact the future of U.S. atomic energy.

So let me start with a question for each of you. Sheila, if you could start with talking about how the Japanese government is coping with the crisis and what the priorities are going to be in the coming days.

SHEILA SMITH: Sure, Jayshree. You know, clearly this is exactly as the prime minister said this weekend: Japan's largest crisis- management challenge since World War II. The human toll is tremendous. We've all watched the visuals and the television coverage of the earthquake, but particularly the tsunami, the devastation that was wreaked on Japan.

The economic challenges of recovery are going to be great, both in the short term and the long term. But right now, the human toll is what the government is trying very hard to focus on.

The deaths are at this stage -- the last time I checked, was 1,900 and climbing; 15,000 or more in the northeastern region, Tohoku region, are missing, unaccounted for; and in known evacuation centers, people who reached actual evacuation centers, you have a half million Japanese displaced. They don't have water, they don't have electricity, they don't have oil. And the temperatures are -- as we speak, are dipping below freezing because it's snowing in most of those regions.

So there's an acute humanitarian crisis today in Japan. And we have -- we're watching Japanese Self-Defense Forces, over 100,000 involved in this search-and-rescue and support operation, as well as the U.S. military. And 91 other countries around the world have offered support.

BAJORIA: And do you think the government is coping with the crisis or is having difficulties on certain fronts?

SMITH: Well, you know, Jayshree, the immensity of this crisis -- it cannot be understated (sic) in terms of the managing side of crisis management, pressures on the Japanese government. You know, lots of us prior to Friday were talking and writing about the bickering among the politicians and the challenges Japan was having in its political transition. But I will say without a doubt that from the moment of the earthquake at 3:00 -- 2:46 on Friday afternoon, this has been a government and a country and a political leadership that's been extraordinarily unified.

It is striking how calm and how dignified the government is, from the top, prime minister's office, down to the local governments that are having to deal with the communities that have been devastated. It's -- as crisis management goes, the other piece of the puzzle, of course, is Japan is immensely prepared for this kind of natural disaster. I don't think anybody can fully prepare for the scope of this, a 9.0-magnitude earthquake and then the resulting tsunami. But if any society can prepare, if any society is trained to prepare, the Japanese society is the one. So you're watching a government doing the best it can in a very multifaceted and multilayered series of crises associated with the devastation.

BAJORIA: Thanks, Sheila.

Mike, there has been much panic about the nuclear situation unfolding in Japan, especially at the Daiichi plant in Fukushima. Could you start with how, you know, we should be reading this news? How serious is the situation? And then, what might be some of the policy implications for both Japan and the international community?

MICHAEL LEVI: This is clearly a very serious situation. I won't try to handicap the fine technical details. I have to say that there are only a relatively small number of people who can speak clearly to the very specific events that are going on. A simple, broad, theoretical understanding of how reactors work and what-not doesn't do the trick; you need to know about this specific reactor and this specific situation.

What we can say, we can say a few basic things. Firstly, some of the worries about this affecting the continental United States are overblown. The early reaction from Japanese authorities, which tried to downplay this a little bit, has been put in the past, and they clearly are taking proactive steps now in order to minimize the human consequences of whatever physically happens at the plant. You can see the play-by-play in a variety of places, but the fundamental reality here is that even if you have access to the fine technical details of what's happening, it is very difficult to predict what the future evolution of the plant will be. This is simply quite unprecedented territory, and the measures that the authorities are taking to combat the situation are also largely improvised and difficult to look at.

There's clearly a reaction, a political reaction, already happening in this country. So far, we've moved past the first phase where people have downplayed the situation, and into a second phase where everyone largely sees it as confirming their previous biases. People who are antinuclear see this as emphasizing the threat of nuclear energy; people who are pronuclear see this as showing that even if there is an accident, so far, the consequences are contained. I think we will probably move to a third phase as we see exactly what the consequences are. But in the big picture, most people will have their previous biases reconfirmed.

The one place where I see a potential shift in the United States is in -- is in the group of environmental advocates who may have been willing in the past to compromise on nuclear energy as part of a broader deal on climate change, just like many of them were willing to do the same on offshore drilling. This sort of event will make them a lot less comfortable doing that.

Ultimately, the way that affects the future of U.S. nuclear power is through regulatory uncertainty and the sort of public opposition that ultimately drives up the cost of financing, and thus the cost of nuclear power. But the bottom line -- a warning I would give anyone trying to interpret this is that it is extremely early. If you go back and look at people's conclusions on the consequences of last year's oil spill for the future of energy policy a couple of days after the spill, you'll find that most of them bear little resemblance to the reality that unfolded. And it's worth having a similar level of caution right now.

BAJORIA: Thank you, Mike.

Operator, now we would like to open it up for questions.

For our late callers, this is a Council on Foreign Relations media call, and the topic of discussion is Japan's earthquake and its political, economic and energy implications. On the call with us is Sheila Smith, CFR's senior fellow for Japan studies; and Michael Levi, CFR's senior fellow for energy and the environment.

OPERATOR: Thank you.

At this time, we will open the floor for questions. (Gives queuing instructions.) Our first question comes from Tim (sic) Landers with Dallas Morning News.

QUESTIONER: I wanted to ask if either of you knows what the nuclear accident insurance situation is like in Japan. Is the Japanese government essentially the backstop for whatever costs of -- these incidents incur?

BAJORIA: Mike, would like you to take that one?

LEVI: Yeah, my understanding is pretty limited. Insurance policies tend to exclude sort of acts of God, and earthquake damage will tend to be part of -- part of that. Whether the governments backs it up, to be -- to be blunt, I just don't know the answer to that. My guess is that ultimately, whether there is a formal government backstop or not, the government will have to step in. Otherwise, the consequences for the health of the utility industry in Japan, which will need to do significant rebuilding, would be too -- would be too stark.

BAJORIA: Thanks, Mike. Our next question please.

OPERATOR: Thank you. Our next comes from Shaun Tandon, with AFP.

QUESTIONER: Hi, thanks for doing this call. I think this question's probably more for Sheila.

I'm not suggesting this is the biggest issue, by any means. But before the earthquake, there was, of course, quite a bit of friction between the U.S. and Japan over military issues, the issue of the Okinawa base and everything. Do you think that this will fundamentally transform that debate? Do you see the U.S. military taking quite a role in the relief? Or do you see this bubbling up again once this crisis has passed?

SMITH: Yeah, it's a good question. I think to start off with, in the -- in the immediate responses, of course, the United States military has been all-out in offering assistance to the self- defense forces. Our military, the U.S. military and the Japanese military, work together seamlessly, and so the U.S. Forces Japan has assumed a pretty strong lead role in the response, the advisory team that's in -- you know, organized under Ambassador Roos in Tokyo. Everybody I talk to -- it's a very anecdotal response, but everybody I talk to in Japan, the first thing that they say is, you know, the president's statement on Friday that the United States would be with Japan throughout the recovery effort gave them great strength and confidence in the relationship. So I think at one level you've got the U.S.-Japan partnership. It's clearly strong, and there's evidence of that being demonstrated here.

The U.S. military, of course, can be on the scene as quickly as anybody. And the expansive response I think is quite obvious to most Japanese. I do think that the base issue of course has complications that need to be resolved and worked through, but I don't think there's anybody in Japan right now who is doubting that the U.S. military is serving their interests at the moment.

QUESTIONER: Thank you.

LEVI: Let me follow up quickly on the first question if I can. My understanding is that the utility is required to carry a billion-and-a-half dollars, roughly, worth of coverage for this sort of situation, and then the government is on the hook for anything else.

BAJORIA: Thank you so much, Mike.

Can we have our next question, please?

OPERATOR: Yes, ma'am. Our next question comes from Joe Kamelik (sp), with ISIS (sp) News.

QUESTIONER: Hello, and thanks for having the call.

A question for Mr. Levi. I understand your point of view that how this will shake out politically and in terms of U.S. nuclear energy interests in the U.S. political landscape can't be determined right now. But I wanted to ask you if you think that, however this shakes out in the long run, whether this doesn't increase the U.S. reliance on natural gas -- likely to increase U.S. reliance on natural gas as part of its overall energy mix, on the assumption that this incident, this tragedy in Japan, can't be good for U.S. nuclear interests in the -- in the near term, certainly. So is that going to shift more of the burden to natural gas?

LEVI: Right. Well look, the relationship cuts both ways. One of the reasons that nuclear is already having difficulty in the United States is that natural gas is very cheap. And so if nuclear is the competitor, particularly in a world where utilities are averse to building new coal-fired power, cheap natural gas already makes things tough. So if you add on top of that any kind of pullback on nuclear then, yes, the burden on natural gas becomes more significant, particularly, again, if you're focused on a world where you want to reduce greenhouse gas emissions. So the other big question, of course, is the supply for natural gas. There's still a lot of regulatory uncertainty surrounding gas production.

The other thing you'll notice, by the way, is the impact on natural gas prices in the United States has been quite marginal. And the big reason is that the U.S. is not particularly integrated in global gas markets. You'll see a big uptick in Japanese demand for natural gas in order to make up for the nuclear power plants that are offline, but the strain is limited on the United States.

This could have some bearing on the U.S. policy debate on whether to integrate more, and to what degree to integrate with global natural gas markets. This is the -- frankly, the second thing in the last couple months that has played to that. The U.S. has been insulated from gas market movements resulting from the situation in the Middle East, and now it's somewhat insulated from gas market exposure to what's happening in Japan.

QUESTIONER: Thank you.

OPERATOR: Thank you. Our next question will come from Mark Matthews with ABC 7.

QUESTIONER: Yeah, thank you very much for having the call. Michael, you mentioned just briefly the difficulty in predicting the future and referred to the blowout in the Gulf. Talk to me about that a little bit more, would you? We just came in on the end of that.

LEVI: Well, look, if you just look at the first few days of the Gulf accident, people looked at the platform and said, look, there was a horrible explosion but nothing much more. You had a bit of that very early on in observation of what happened in Japan. Clearly, things have gotten worse at a rapid rate. And so we're essentially in the phase similar to when you first started to see the underwater gusher in the Gulf.

And again, people had their views confirmed. If you -- if you were anti-drilling, you looked at it and you saw a horrible environmental disaster. If you were pro-drilling, you looked at it and you saw that there was still limited physical impact on the shores. As time went on, you started to shift a bit. And I think we'll see that as the situation unfolds in Japan. But the last piece of the analogy is that less than a year after the Gulf disaster, we're back to the same old debate over offshore drilling. So it's important not to overstate the consequences of a particular event for U.S. policy until you really wait to see how the entire -- how the -- all the details play out and how the context evolves. There are a lot of different factors that play into the U.S. energy debate, and this will be -- this will be only one of them.

The other thing I'd say is, in drawing the analogy to Three Mile Island -- it's very important to distinguish between events that happened in the United States and events that happened elsewhere. Clearly people are glued to their televisions. They're watching videos online. But it -- but this simply doesn't compare to having something happen within the United States as far as the impact on public opinion -- as far as the impact on public opinion goes.

I'd say one other thing on top of that. The U.S. nuclear industry has done a much better job of responding to the early phases of this than the oil industry did in responding to the early phases of the situation in the Gulf. I'm focused in particular on the public communication aspect. The nuclear industry is actually very good at providing clear information on what's going on in Japan and in staying above the fray of policy debates, which is a wise choice on their part and benefits the public by providing them with better understanding of what's happening.

QUESTIONER: Thanks, Michael. And pronounce your last name for me, please.

LEVI: Lev-ee.

QUESTIONER: Thanks. Bye.

OPERATOR: Thank you. Our next question comes from Christina Bergmann with DW German international radio.

QUESTIONER: Yes, hi. Thank you for doing this. The German government has reacted in a very different way. There's regulation of the atomic energy program going on. The extension for nuclear power plants, for example, are put on hold. And some plants will actually be shut down because of what happened in Japan.

Now, it's -- a tsunami or even an earthquake is pretty unlikely in Germany. So otherwise -- on the other end, in the United States, it's more likely. So do you see this kind of reaction by the U.S. government? And if not, why not? Thank you.

LEVI: I don't see this sort of reaction by the U.S. government, for a couple of reasons. Firstly, in Japan, the nuclear issue is more prominent -- sorry, in Germany the nuclear issue is more prominent, frankly, than it is in the United States. You have a long- running debate where things have swung quite widely in recent years. In the United States it's less well formed. In Germany, if the government decides to lean against nuclear power, it won't suffer all that much politically, and it will really strengthen itself with certain groups who put a lot of emphasis on nuclear power in the United States. There aren't that many votes, to be blunt, that you get or lose by taking a different position on nuclear power.

Right now, the Obama administration is also somewhat pro-nuclear. I think a lot of people look at it and don't think -- don't believe that, but that's my read of their view. So they're not looking for a reason to lean against nuclear, and they're not going to take advantage of the situation to do that.

I'm sure they'll be prudent. They'll look at risks, particularly in earthquake-prone zones. And there are some, clearly, in the United States. There are other parts that are not earthquake-prone. But I -- but they're -- the bottom line is, they're not looking for an opportunity, and there is no big, you know, green party with a lot of sway in parliament to put a lot of political pressure on them.

QUESTIONER: Thank you.

OPERATOR: Thank you. Our next question comes from Yuwei Zhang (sp) with China Daily News.

QUESTIONER: Hi. Thank you for the conference call. My question is maybe mostly for Sheila. So some -- we know that some investors have said that -- earlier today that, you know, the earthquake probably have -- will have little impact on the world economy and global markets. I just want sort of your opinion on that. What do you make of it? Is that true?

SMITH: Well, I think, again, we're in the -- we're in the time when it's very hard to predict forward, especially on something as large as that. The initial market response, of course, has been very jittery. Friday -- by the end of day Friday, the Nikkei market had lost 1.7 percent of its value. This morning, throughout the day today, apparently, it's lost 6 percent.

I think clearly we're going to watch very volatile markets this week, and I think the Japanese government is trying very hard, first through the Bank of Japan and also through the Finance Ministry, to communicate to the market that it fully backs stabilization of the market. I this morning the Bank of Japan injected 1 trillion yen, so in -- allow for liquidity. I think they're going to have another 6 trillion they plan to have available for that.

But the reality is, like the nuclear issue, this is a day-by-day policy environment. I suspect over the long term you're going to have two dimensions of this problem to deal with. One is clearly the cost of reconstruction, and if we just focused on the earthquake and the tsunami damage -- you know, there's power plants off line, there's roads and bridges and highways and ports that are all damaged, non- -- in the -- not in the industrial belt sound of Tokyo but in the north, nonetheless -- 4 million households without power; a major dam has burst. Closer to Tokyo, you've got damages in Tokyo Port itself. You have the Cosmo Oil Refinery in Chiba, a major refinery, in flames. So you're going to have a significant cost beyond the search and rescue effort that we're watching as we speak, but a significant cost to the Japanese state and, beyond that, to the Japanese private sector as well.

So how we handle the policy coordination with Tokyo on the financial markets and beyond is very important. China's role here clearly is going to be very important, but also how Japan finances the rebuilding and reconstruction effort will be a significant impact on their economy. Again, I think it's too early to say what percentage of the economy is compromised, but the latest or the best comparative example we've got at the moment is the 1995 Kobe earthquake, and that cost $132 billion, over time. So this will be a very costly project of reconstruction for Japan.

QUESTIONER: OK. Sheila -- sorry, just to follow up, you mentioned that China's role will be important. Can you elaborate that a little bit?

SMITH: Well, I think, you know, Japan, in terms of stabilizing the global economy, of course the expectations of China are still quite high -- (chuckles) -- outside the country. Japan has played a fairly significant role -- for example, on the purchase of U.S. Treasurys. I think Japan's global investments, Japanese capital overseas, will have to -- some of that will have to be repatriated, and I think we're beginning to see that in the markets today.

Again, I think that when I -- my comment about China was really about the broader structural expectations of China's stabilizing role in the global economy. And I think coordination with Tokyo and with others around the globe would be very -- would be very helpful at this moment.

QUESTIONER: Thank you very much.

OPERATOR: Thank you. Our next question comes from Carrie Hewis (sp) from MSNBC.com.

QUESTIONER: Hi. Thanks for taking my question. I have questions related to the power outages, and I think the first part is for Sheila. Could you elaborate at all on how the power -- how broad the power outages are and how it plays into this humanitarian crisis and perhaps talk a little bit about how it affects -- will affect relief work in the area?

SMITH: Absolutely, yes.

QUESTIONER: And then Mike, on the other side, I don't understand power grids very much, but I wonder whether -- you know, what is -- what is the Japanese government's or the power industry's ability to channel power into that area in terms of distribution of power, to get them up and running?

SMITH: Let me -- let me start with the power shortages themselves. They were announced late Sunday night Tokyo time. They were announced to begin as of 6:00 a.m. in Tokyo on Monday. Twenty- five percent of Japan's electrical power-generation capability has been lost. Power plants, nuclear and conventional, are off line.

So it's a short-term problem, but the government was worried that without taking this scheduled rolling power-outage approach to managing, power generation -- or power usage, rather -- that they could have a catastrophic power outage in Tokyo and beyond.

So these scheduled power outages began at 6:00 a.m. on Monday. They go for three-hour intervals, or they planned at least to go for three-hour intervals. They were effective in the Kanto Plain; they were to affect Tokyo, Kanagawa, Shizuoka, Yamanashi, Chiba, Ibaraki, Saitama, Tochigi, and Gunma Prefectures. That is all on the Kanto Plain south of the devastated Tohoku region and where the bulk of the Japanese population on the east coast is concentrated.

Railway traffic, subways -- everything, of course, runs -- the transportation network runs on electric power. So this has affected a number of trains and subways, et cetera, available to everybody. The Japanese prime minister asked every individual Japanese to help conserve energy. And apparently at the end of the day today, TEPCO, Tokyo Electric Power Company, announced that it didn't have to run the outages for the full three hours because people had been so helpful.

But it has compromised daily life in Tokyo. And what I'm hearing again, from friends and others that I talk to regularly is, you know, it's very hard to deal with these intervals. It allows for a certain amount of industrial planning and, you know, system-wide transportation, et cetera, kind of planning.

But still, elevators go out, right -- this is a very modern and high-tech society. Everything is moving on power. Escalators stop, trains stop, everything stops. So I think people today, Monday, Tokyo time, were just trying to adjust to all of this.

There's a second dimension that's not about power, if you'll let me just -- one more sentence here about life in Tokyo is, you know, people are deeply worried about the nuclear-power situation, of course, but they're also beginning to run into a situation where they go to their local convenience store or supermarkets and there's nothing on the shelves. And stockpiling of food and water and that kind of thing in Japan is fairly good. The delivery system is quite good. But again, with power outages and food and other kinds of basic products coming off the shelves, I think we're going to -- we ought to be watching very carefully the situation in Tokyo.

LEVI: On the second question, information is quite limited. The grid is connected throughout the country, so there are no -- there are no completely isolated pieces of the grid. The open questions are what impact -- or the big open question is, what impact has the physical destruction had on the grid itself? So even if in theory you can wheel power from one part to another, if some of the transmission lines are down, that can -- that can make that task much more difficult.

But the rationing appears to be happening on a fairly national basis, which would suggest that the interconnections across the whole country are still meaningful in order for those rolling -- broad rolling blackouts to be -- to be meaningful.

The other big question in terms of whether Japan can -- or, you know, what it takes for Japan to meet demand is what demand is. You're going to have a host of different influences on demand right now if -- to the extent that businesses are off line and industrial facilities are off line, that decreases demand. There are other idiosyncratic factors like weather that can have huge impacts on variations in electricity demand. That was one of the factors that -- unexpectedly low demand was one of the factors that delayed the rolling blackouts beginning, I believe, this morning.

So a lot of -- a lot of uncertainty about how this is all -- this is all met, but bottom line, there is there are greater interconnection throughout the country than, let's say, in the United States.

SMITH: Jayshree, could I ask -- answer one comment --

BAJORIA: Oh, sure.

SMITH: -- the question you asked me about the impact of this on search and rescue. And I had forgotten that part of the question.

You know, basically what Michael and I have been talking to specifically are -- is about Tokyo and the Kanto Plain, which is south of Tohoku, right? What you've got up north is 4 million households without power. Evacuation centers, as I had mentioned at the beginning, with no access to electricity, which means no heat. They have no water, et cetera.

So I think what you're seeing here in the northeastern region in terms of dealing with the half-million Japanese that are currently in evacuation centers, this is a -- has a tremendous impact. Much of the search and rescue -- the relief operations going on right now are very focused, because the roads are out, because bridges are broken, because all of these kinds of basic infrastructure are largely unusable, right? And the airlift is the way in, and so you'll see Self-Defense Forces supported by the American military, and increasingly it will be others, using helicopters to bring supplies and goods in to the people who are still waiting for help up in the northeast.

BAJORIA: That's helpful to know, Sheila. Thank you.

Do we have another question at this point?

OPERATOR: Yes, ma'am. Our next question will come from Renee Loth with the Boston Globe.

QUESTIONER: Thank you. You know, I know it's very early days yet, but I'm struck by the contrast between this earthquake and the one in Haiti last year. I mean, these are two societies whose level of development, you know, could almost not be farther apart.

Are there any useful, you know, comparisons or lessons that you can draw about the response to a natural disaster like this in these two societies that are so different? I mean, Haiti, of course, is still climbing out its disaster year -- over a year later.

SMITH: I'll take a shot at a very preliminary comment on that. This is Sheila. I am not an expert on disaster relief, and so maybe Mike will have something to add here. But, you know, my comparison is really not between Japan and other countries, but the '95 Kobe earthquake and this one today.

QUESTIONER: Kobe. Mm-hmm.

SMITH: I think the one thing I'll go back to is what I said in my introductory comments, is that Japan is a wealthy country. It's the third-largest economy. It's technologically highly advanced. It has, perhaps of any society in the world, the most informed and well- trained public in terms of evacuation preparedness, earthquake preparedness. It has incredibly sophisticated buildings, architectural expertise, et cetera, et cetera. We could go on. This is the creme de la creme of what you can be prepared for in some -- in some ways -- right? -- in terms of social organization. And yet we're watching Japan need to reach out globally for the kind of search-and- rescue operations they need to do. It's a very hard job when you have this level of devastation.

The earthquake -- and again, we'll have to wait for the full analysis; it's premature really to make this kind of comment as a conclusive answer to your question -- but I think many people felt that many of the structures in Japan withheld -- I mean, it stood up to the 9.0 better than you might expect --

QUESTIONER: Yeah.

SMITH: -- and particularly better than we -- obviously we all saw on TV with Haiti. It was tsunami devastation, I think, and we're witnessing that all on the accounts on TV. That is very hard to prepare or plan for.

BAJORIA: Mike, do you want to add something?

LEVI: I don't have -- I don't really have anything to add to that. I think Sheila gets it just right.

QUESTIONER: Yeah, thank you.

BAJORIA: Do we have the next question, please?

OPERATOR: Yes, ma'am. Our next question comes from Mark Chediak with Bloomberg News.

QUESTIONER: Hi, yes. This question is more directed at Mike. There are at least 20 reactors that are applying for relicensing in the United States. And also, there are a number of reactors in the United States located near earthquake-sensitive zones.

I know you've made comments regarding your feelings about the major shifts in U.S. policy, but do you possibly foresee calls for some of these reactors near sensitive sites such as those in California, seismically sensitive sites, to be shut or to have their licenses not be extended?

LEVI: I don't just foresee calls; I'm sure they've already gone out. The question is what the consequences of those calls will be.

And what I notice and I'm struck by is, although activist groups have been pushing a hard anti-nuclear line in the last couple days, even the most skeptical informed members of Congress have taken a somewhat more cautious line. So an Ed Markey, for example, who has never been a nuclear enthusiast, came out and said we need to take a careful look at the situations in these places where we're doing nuclear power and -- so that we can -- we can do things responsibly. To me, that's a responsible line for -- to be taking. It suggests to me that at a minimum, we'll take a careful look at these places before we decide to do anything about them.

So might there be a bit of a slowdown in the relicensing for some of the places near fault lines? Perhaps -- though I don't think that that will be how we make the distinction. If we're going to be hesitant to relicense places near fault lines, then we would presumably want to apply the same analysis to places that may be younger but that are still -- that are still in sensitive zones.

So, look, let's wait and see how the analysis plays out. There's also the question of what types of reactors are being looked at in these different zones, and you're going to need to look at it on a site-by-site basis.

And then on top of all of it, the other big question will come down to how local public opinion reacts. Often, the particular contours of public opinion in areas with nuclear reactors is -- varies enormously from site to site. In some places, like in Westchester, New York, north of New York City, people hate nuclear and tend to react to events by trying to see why they should shut it down. In other places, they see it as a source of employment and will be very cautious about pushing for a shutdown.

QUESTIONER: Okay. Thank you.

OPERATOR: Thank you. Our next question comes from Mike Senseden (sp) with Nikkei Business Magazine.

QUESTIONER: Hi. How are you doing? Thanks a lot for taking this. From your opening statement, Mike, and Sheila, from the questioning from China Daily, you mentioned that it's not -- it doesn't really serve an effective purpose to speculate. But, you know, if you compare this to the '95 Kobe earthquake where Japan experienced a brief boost in a few industries during the infrastructure rebuilding process, what are the short-term and long-term market implications in that sense, if you compare it to '95, the Kobe earthquake? For example, it was largely domestic in terms of rebuilding from Japan, but would -- do you see in this case maybe international parties coming in to aid either privately or from governments in the rebuilding process?

SMITH: I think that's to me. (Laughs.)

LEVI: I think that's for you.

SMITH: Everybody's -- there's a pause there and great silence.

You know, I wish I -- I wish I had a way to answer that question. I don't think that the reconstruction is just completely -- you know, this is just my initial take on your question, and I don't know that it's necessarily well informed. I don't see the reconstruction effort as necessarily requiring outside assistance. Japan's construction and engineering capacities are sufficient to that task -- again, if you're looking at the northeastern part of the country. What I think is going to be a more difficult challenge, not just for Japan but for other countries as well, is the costs associated with the kind of market consequences. This is not something the Japanese can handle alone in that sense. I think rebuilding roads, rebuilding bridges, rebuilding infrastructure is something that perhaps the Japanese can afford; and that Japanese expertise, both technical and in terms of construction, you know, companies, certainly they can probably handle this. I don't worry about that so much.

Compared to the Kobe earthquake -- again, this is the 20/20 hindsight of looking at the Kobe earthquake -- lots of projections in the early months, a year even, of how quickly Japan could recover. In some areas they were very quick to restore highways, to build major infrastructures -- very mobilized, very focused, very quick. In other areas, they were not so good. It took some people -- there were 300,000 people in Kobe displaced. It took until 2000 for people to have new homes.

So again, this rebuilding process -- there's the big price tag of 132 billion (dollars). We know that only after the fact. And I think, you know, any kind of massive effort of reconstruction on this scale will have its ups and downs, and it will take time to sort those all out.

BAJORIA: Thank you, Sheila.

Next question, please.

OPERATOR: Thank you. Our next question comes from Will -- excuse me, William Murray, with Energy Intelligence Group.

QUESTIONER: Yeah, hi, thanks for having this call. This may be a question for Michael. But obviously, you were talking about some of the -- some of the usual suspects, being both on the pro and on the antinuclear here in the United States in the Senate and the House, kind of taking a "wait and see attitude," which is -- I think you were alluding to maybe kind of something different, that they were looking more broadly to not want to dispense with one key element of a larger energy scheme. Is that -- is that your initial take on it? And how important is the nuclear component to continued negotiations over U.S. energy policy?

LEVI: The nuclear component is hugely consequential for U.S. negotiations on energy policy. It -- there is -- there is no question that when it comes to alternatives to fossil fuels, those on the right are far more enthusiastic about nuclear than about anything else. It's also true that those on the left -- that many of those on the left have become more open to nuclear as part of a package. And you saw, for example, the president in his State of the Union Speech, pushing for a clean electricity standard, rather than a renewable electricity standard; one of the two key differences being that it would include nuclear power under its remit. So certainly it's a big piece of energy policy negotiations.

Now, let's not overplay this. Energy policy negotiations are not in great shape, period, so it's not like this -- like nuclear will be decisive. Right now nothing big is happening, and this only makes things somewhat harder. But over the longer term, I find it very difficult to see a political compromise on clean energy, and on clean electricity in particular, that doesn't say something serious for nuclear. Again, go back to late 2009 when there was this bipartisan or tripartisan, if you'll have it, push from Senators Kerry, Lieberman and Graham on climate policy. The key to Senator Graham's participation was doing something big for nuclear, and I don't see that that dynamic changes.

QUESTIONER: Thank you.

OPERATOR: Thank you. The next question comes from Crotus Rossi (sp) with -- (inaudible).

QUESTIONER: Yes, my question is to Mr. Levi about -- still about the nuclear question. There are many analysts saying that there will be in relation to the crisis in Japan a backlash on the so-called nuclear renaissance. Do you agree with that or is it too early to say?

LEVI: It's too early to say, and it depends on where you're looking. Clearly there is going to be a significant move in Europe. We're already seeing action in Germany. I think in the U.S. the outcome is a bit more neutral. If you read the news from China, that seems to be full speed ahead. So things depend heavily on the country that you are looking at. And again, we need to take time to see what -- to see how this plays out and to see exactly what the consequences are. So part of this will depend on what actually happens with the reactors, and we still don't know what that will be, and part of it will be -- will depend on how people interpret the situation.

But the bottom line is that the so-called nuclear renaissance has a lot of -- has a lot of speed bumps still ahead with it. It had those speed bumps a week ago. This adds another complication to it, but to predict that this will somehow decisively shift the course -- I think it's at best too early to make that judgment.

OPERATOR: Thank you. Our next question comes from Joshua Agawa (sp) with Nikkei. Q: Hi, and thank you for taking call. I have two questions. One is regarding the liability issues. Do you know in this -- in the case like this, how is the liability split between the operator and the manufacturers of the reactors? And the second question is -- well, similar to the question asked before, but do you anticipate increased regulatory requirements on the U.S. nuclear plant licensing, or at least change in regulatory requirements? Thank you.

LEVI: On the first question of how the liability is split up, I just don't have the answer for you.

On the second question, look, it's not like U.S. regulators don't look at things like earthquake risk already. I'm sure people will be taking a careful look over their regulatory schemes and trying to understand exactly what the vulnerabilities are that they may not have understood previously, and if that leads to changes in how the regulate, then there will be changes. And regulators are constantly reassessing their understanding for a variety of different reasons.

The other thing that will come into play is there's been a lot of discussion about how next-generation reactors are -- the technical term is "passively cooled" so that they can still cool themselves even if they have a complete power shutoff. That would certainly tilt the -- this situation would certainly tilt things that way, but the lesson is -- the lesson of this situation is not that -- just that there's a particular failure mode associated with earthquakes. It's that things happen that you don't predict when you have very complex systems, and you need to be prepared not only to prevent bad situations from happening but you need to be prepared to mitigate the consequences. And so perhaps there will be a bit more thinking about how to react to rather extreme circumstances, just like there was after the oil spill last year. There wasn't only a focus on preventing accidents but a focus on being able to contain them.

OPERATOR: Thank you. Our next question comes from John Marcario with Seapower Magazine.

QUESTIONER: Hi. You both were talking about U.S. military a little while ago. What will be the immediate impacts of this relief effort on the U.S. military? How long will it last, and where are these resources being pulled from that's going to Japan right now?

BAJORIA: Sheila?

SMITH: Yeah. Let me share with you to the extent that I can on this, and also direct you to a website, which is the U.S. embassy website in Tokyo. They have all of the basic information about which American units are deployed and how they are deployed, so that's probably your best source of information.

I believe the USS Ronald Reagan was on its way to do exercises in the region. The other ships -- the ones that I know about -- the Blue Ridge and another -- one was in Singapore; one was in Malaysia. So these were ships -- the immediacy of the response was in part because of the forward deployment of U.S. Naval forces. PACOM has been intimately involved in the mobilization of additional resources. We obviously have U.S. military forces in-country in Japan. Japan is one of our closest allies, and we have upward of 40(,000) to 45,000 U.S. military personnel serving on bases in Japan today.

Again, the U.S. embassy site -- the U.S. embassy in Tokyo site is the best place to get information about specific units, but in the immediate aftermath, to my knowledge the forces that are -- U.S. Marine Corps, for example, is stationed in Okinawa was partially moved up. Their helicopters and lift capabilities were moved up to Iwakuni, which is a U.S. Marine Corps base on the main island of Japan. So a lot of the lift capability is coming from in-country U.S. military bases, and that's what the Japanese self-defense forces needed first and foremost.

The Naval support -- the USS Ronald Reagan is providing fuel and emergency relief, as well as emergency equipment to the self-defense forces operating off the shore of Japan.

QUESTIONER: Thank you.

SMITH: Beyond that I think you'd need to get into the specific details of each ship and each unit being deployed to answer your question fully.

QUESTIONER: OK. Thank you very much.

OPERATOR: Thank you. Our next question comes from Fernanda Godoy (sp) with Global Brazil.

QUESTIONER: Hi. My question is for Sheila. I'd like to know how big is the burden on -- for the fiscal problem that Japan already has, and would it affect the international confidence in the Japanese economy?

SMITH: It's a very good question. Again, Japan as of this year has approximately 200 percent of its GDP in debt -- in long-term debt. Servicing that debt is increasingly becoming expensive for the Japanese government. After the economic downturn, about 40 -- depending on the year -- this last year it was about 45 (percent), almost 50 percent of its debt was -- I'm sorry, of its budget, its national budget was financed via debt.

Japan's fiscal situation is problematic for two reasons. One is the long-term structural pressures in Japan, and that has to do with demographics. As you probably know, Japan is the most rapidly aging advanced industrialized society, so the increasing fiscal burden of that social welfare challenge is clearly in the minds of most Japanese planners. And the other is clearly whether or not the Japanese can continue to service its debt effectively. Now, the one difference between Japan and other countries that are having fiscal difficulties, of course, is that Japan's debt is held by Japanese for the most part. It is not indebted to foreign borrowers -- lenders, rather. And in that sense, many people in Japan felt that they could manage the fiscal situation if they could get their spending and their tax policy under control. So that was very much the policy debate going on in Tokyo prior to this earthquake.

The costs of this effort of course will be borne primarily by the Japanese state. This will put an added burden on an already fiscally challenged Japanese state, and I think that's where we ought to look in terms of the economic impact. Japanese capital will have to come home, clearly, to help underwrite and support the Japanese government's effort here, and that has broader global implications. I think, again, we've got to wait a little while before we clearly understand what those implications are, but Japan's government will need Japanese capital or it will need to borrow from broader global financial markets in ways that it hasn't to date.

OPERATOR: Thank you. (Gives queueing instructions.) Our next question comes from Joe Kemlick (sp) with Isis News (sp).

QUESTIONER: Thanks again for the call. I guess this is a question for Ms. Smith. Given that Japan's economy is the third-largest in the world, do you see the quake and the tsunami aftereffect as perhaps shaving -- at least initially shaving a tenth of a point or something off of global GDP in a couple of coming quarters, then to be recovered as the Japanese reconstruction and rebuilding effort gathers speed in two quarters further on? Do you see that kind of impact, or is it not quite to the point where it could have that kind of seismic impact on the global GDP?

SMITH: I am going to have to confess that I can't tell you. I haven't seen any kind of prediction at this point in terms of what this cost is going to be -- you know, an aggregate figure yet that we can work with. So clearly it's way too premature for that. And so I can't -- I'm not qualified to extrapolate beyond my own expertise here. And so I think it may be a little early. But there may be others who could answer that question better than I.

QUESTIONER: All right. Thanks. Sure you don't want to take a long-shot guess, though?

SMITH: (Laughs.) No.

LEVI: I'd be in a different line of work if I could --

SMITH: (Laughs.) Well, you know, one place you could ask -- I mean, we have expertise at the council. And I think our financial and economic experts will be writing pieces for our CFR.org blog in -- tomorrow and the day after, and I would suggest that they are better prepared to answer the kinds of questions you're asking. Q: OK. Thanks.

BAJORIA: Thanks, Sheila. Actually, I would like to add we are queued up on CFR.org to hopefully get more economic analysis that might come from it, both implications for Japan's economy and implications for the global economy extrapolating from that. So if I were you I would keep an eye out on CFR.org for the next two days and I'm sure you will get more analysis there.

Q: OK. Many thanks.

BAJORIA: Thank you.

Next question, please.

OPERATOR: Thank you. Our next question comes from Chan Dowers (sp) with CBS.

QUESTIONER: Yes. There has been a limitation on the number of iodide doses, apparently -- 230,000 was the number we -- (inaudible) -- and that implies a supply problem or a transport problem in order for the population, because that's near the level of the population of the area that's evacuated. Do you have any information on that or any insight?

MR. : This is --

LEVI: I don't have any particular information on that, but you're saying that the number of pills available is roughly equal to the number of people potentially affected?

QUESTIONER: Yes. That -- or, and if they expand the area, which is not -- which is not out of the realm of possibility, then that implies a shortage. And I know that obviously the Strategic National Stockpile in the United States has some possibility there, and I just wondered --

LEVI: All I would -- all I would say on that is -- I don't want to speculate too broadly, but if in the worst case you have to move potassium iodide tablets from one place to another, these are not large and bulky things. So I wouldn't rank this high up on my list of problems

QUESTIONER: Yeah. I just wondered. It's just -- it's just an interesting aspect of the disaster response.

LEVI: Mm-hmm. (In agreement.)

BAJORIA: Thank you. Next question, please.

LEVI: I should -- I should add very quickly to your question -- the reason it's an interesting and challenging aspect is because these problem -- when we plan for these problems, we think of them in terms of single-site failures. And to the extent that we have a broader problem because it's -- because the problem is due to a large event, our response is more challenging. Again, it forces us to think quite broadly about the sorts of scenarios we might be faced with. Usually the most difficult ones are not when something goes badly wrong with a single point but when we have a series of problems all at the same time.

QUESTIONER: Yeah. Thank you.

OPERATOR: Thank you. Our next question comes from Mark Brzezinski with McGuireWoods.

QUESTIONER: Yeah. This question is for Ms. Smith because you've spent time in Japan. And my question is based purely on kind of anecdotal conversations I had when traveling around Japan, and that is based on the following: There is clearly and understandably an emotional kind of context associated with the fact that Japan is the only country in the world where nuclear weapons have been used against. And when I was in Japan, I detected an understandably very emotional feeling about the fact that they are victims of a nuclear force and this type of thing. Might that resonate in any psychological way or even a sociopolitical way in terms of what's happening now with the nuclear reactors and the possible meltdown and so forth? Thank you.

SMITH: Thank you, Mark. It's a very good and very sophisticated question, and I don't know if I can do it justice. But on two levels, you know, we're talking about the material needs of the Japanese government and society at the moment, right -- the short term and expanding forward over reconstruction. There is clearly a different dimension to this, and that is what the impact of this is going to be on Japanese society as a whole, whether we're calling that emotional or psyche.

This is a tremendous blow to Japan. You are absolutely right in pointing out the nuclear allergy -- the post-war nuclear allergy in Japan, which is a product of the use of the two -- of the weapons -- nuclear weapons on Japan in Nagasaki and Hiroshima. That memory is still alive, literally, in a generation of Japanese, and subsequent generations have had to deal with the effects of radiation sickness, of those two -- the use of those two weapons. So you have a country and you have people who have already had a horrific interaction with nuclear radiation.

I think it is absolutely paralyzing for most of the people that I speak to today to consider that the -- Japan may have an accident -- a nuclear meltdown or any kind of major incident. I don't know that that is affecting -- just to be clear here, I'm not saying that's affecting crisis management capacities because I don't think that's right. But I think we can't underestimate the psychological impact of that on the Japanese people. I know many people in Japan. I have been having phone conversations every day, twice a day, with the woman who I live with as an exchange student. She lived through World War II, and all she can talk about is the nuclear aspect of this. There's a second dimension, of course, that will also have an impact on the psyche issue like -- of the Japanese people, and that is Japan has, for the post-war period, been deeply proud of its post-war technological prowess, of its capacity to -- not only to build good buildings that withstand earthquakes, but also to manage nuclear power -- civilian nuclear power.

There is also inside Japan at the moment, I think, some misgivings about the technological capacity of their scientists and their engineers and their government experts. Again, I think we have a very rough road ahead in terms of analyzing what's happening in these nuclear power plants, but I wouldn't underestimate at all the emotional impact of the devastation, not just the nuclear issue, but the outright devastation that this earthquake and tsunami has wrought on a country that was already feeling quite fragile.

BAJORIA: (Inaudible.)

LEVI: Let me just add one -- let me add one small thing, which is, this is the emotional reaction that Sheila is describing. There is no reason to conclude that Japanese technical prowess is somehow less than what people believed it was. They are -- by all indications this incident is completely outside the bounds of what people were reasonably preparing for, and the engineers and other responders have responded valiantly in their efforts to deal with the problem. Just to make that clear.

SMITH: Yeah. Thank you, Michael. That's important.

BAJORIA: You know, tagging on to that last question, do you think this is also going to prompt -- you know, trigger a serious debate inside Japan on reevaluating its own energy policy? Currently Japan -- 30 percent of Japan's total electricity generation comes from nuclear, and they are projecting that they -- trying to build capacity to make this 50 percent by 2030. So is there going to be a serious debate inside Japan on whether they should try and look at other sources -- say, geothermal or renewable sources instead of nuclear energy?

SMITH: I don't know if you want me or Michael to go first on that.

LEVI: Sheila, you know the politics inside Japan better -- I mean, about what's actually possible.

SMITH: Yeah. Let me -- yeah. I'll talk about the politics first.

I mean, there are two aspects of this, and that is Japan is -- you know, it is a mountainous country. It doesn't have a lot of basic natural resources. It is dependent for 98.6 percent of its oil from overseas, for example. It is dependent for food, and I think that's one of the aspects of this crisis we're going to see in the weeks to come.

That dependency on vital resources and energy and beyond is something that many Japanese would like to mitigate as best they can, and so a lot of the argument inside post-war Japan -- the political argument is that Japan's scientific and engineering capacities have allowed it at least a slight autonomy in an area of energy that they would not otherwise have. So I think there is several dimensions of this. I think that many people, despite some setbacks with some of the plants' operations in the last decade or so -- many people still feel confident in the nuclear option in Japan, and that's why you have the desire for a greater dependency on nuclear power.

There is also a vast interest in Japan, technologically and otherwise, in renewables and other kinds of technological sort of innovations that will assist them in decreasing their dependence on oil. So I think the nuclear -- the power mix, the energy mix is going to be a deeply debated question, and the management of these power plants in the face of this devastation will be analytically scrutinized by the public as well.

LEVI: All out on the technical side -- first it's important to remember that while this nuclear incident is much bigger than any that's happened in the past, Japan, unlike the United States, has had nuclear incidents in the last 30 years. And so -- and the public support for nuclear has been resilient to that. Obviously, again, this is of a much different scale.

The other basic point is, it's very difficult to imagine a country like Japan throwing itself full-bore into renewable sources that people have not seen work at the kind of scale that nuclear has been proven at. Those countries that have been able to do things like wind at the scale that nuclear is done in Japan are ones that are connected to much bigger grids and that are able to not really worry about reliability because they can rely on pulling power off other sources and other countries. So throwing itself deeply into another direction will be very difficult -- very difficult for Japan.

The other thing I would just say politically is that the industry -- industry lobbies in Japan, particularly in the power sector, are quite strong and have a huge influence over power sector development. They are not particularly enthusiastic about alternative sources.

BAJORIA: Thank you.

I think we are nearly out of time. Do we have any other pending questions at this point?

OPERATOR: Currently there are no questions.

BAJORIA: OK. And that's a wrap from us. Thank you, everyone, for being on the call today. A special thank you to Sheila Smith, CFR's senior fellow for Japan studies, and Michael Levi, senior fellow for energy and the environment, and director of the program on energy, security and climate change. Thank you so much, both of you.

A reminder that the audio and transcript of this call will be available later on the council's website, CFR.org. For additional analysis, please check out CFR's Asia Unbound blog -- Sheila has also been blogging for it -- and Michael Levi's blog on CFR.org, along with our other timely content.

Thank you all.

SMITH: Thank you, Jayshree.

BAJORIA: Thank you, Sheila.

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