Coordination Under Uncertain Conditions: An Analysis of the Fukushima Catastrophe

This paper analyzes the impacts of the 11 March 2011 earthquake and tsunami at the Fukushima nuclear power plant in Japan, which were amplified by a failure of coordination across the plant, corporate, industrial, and regulatory levels, resulting in a nuclear catastrophe, comparable in cost to Chernobyl. It derives generic lessons for industrial structure and regulatory frame of the electric power industry by identifying the two shortcomings of a horizontal coordination mechanism: instability under large shock and the lack of “defense in depth.” The suggested policy response is to harness the power of “open-interface-rule-based modularity” by creating an independent nuclear safety commission and an independent system operator owning the transmission grids in Japan. A transitory price mechanism is provided that can restrain price volatility while providing investment incentives. [Working Paper 316]. URL:[http://www.adbi.org/files/2011.10.28.wp316.analysis.fukushima.catastrophe.pdf].