Level 7, by Label Only

Story Highlight:

• Japan raised the rating of the Fukushima nuclear accident from level 5 to level 7—the same level given to the 1986 Chernobyl explosion.
• Based on scale, as of now, Chernobyl was clearly far worse—perhaps pointing to a flaw in how we define nuclear incidents globally.
• Global investors should keep in mind economic and market-related impacts from the disasters in Japan are likely to be mostly localized and fleeting.

Japan raised the rating of the Fukushima nuclear accident from level 5 to level 7—the highest on the internationally recognized scale. The upgrade seems to be based on new assessments of radiation levels around the reactor rather than on changes to the nuclear plant’s current condition. Though this is the same level given to Chernobyl—the worst nuclear power plant disaster recorded—the fallout thus far has only been a fraction of the damages seen in 1986 and appears to be rather controlled.

Notably, the estimated radiation amount leaked into the atmosphere from Fukushima so far is 10% that of Chernobyl. The Chernobyl reactor explosion and subsequent graphite fire shot radiation-laden smoke miles into the air, and contamination was detected as far as 300 miles away from the plant. Conversely, the Fukushima Daiichi plant lacks a combustible graphite core and has the added benefit of concrete and steel containment structures, which are reportedly still largely intact. Workers have so far successfully cooled the three damaged fuel reactors and spent fuel pools to prevent a chain reaction, and levels of radioactive materials around the plant appear to be declining. Residents in a 12-mile radius remain evacuated.

The situation doesn’t seem to be any worse—so why was Fukushima upgraded to level 7? The new designation moves the situation from “accident with wider consequences” to “major accident”—which the International Atomic Energy Agency (IAEA) explains as“ a major release of radioactive material with widespread health and environmental effects requiring implementation of planned and extended countermeasures.”

By words alone, level 7 can certainly fit the bill in describing Fukushima—though full assessment of fallout won’t be possible for months. But based on scale, as of now, Chernobyl was clearly far worse—perhaps pointing to a flaw in how we define nuclear incidents globally. After all, the World Health Organization and IAEA didn’t change their risk assessments of Fukushima despite the new level label.

For now, risk of broader, material radiation contamination seems very low. Similarly, global investors should keep in mind economic and market-related impacts from the disasters in Japan are likely to be mostly localized and fleeting. For example, though the IMF isn’t an infallible economic forecaster, they still predict Japanese growth this year, despite the earthquakes, tsunami, and Fukushima. Indeed, historical precedents show recovery from disasters can take place much faster than initially estimated. Further, we can find no natural or man-made disaster that was the primary or even a material driver of a global bear market or recession. The world, economically and otherwise, is simply more resilient than many realize.