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. We propose a transitory price mechanism that can restrain price volatility while providing investment incentives.