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February 15, 2011

Nuclear Plants Shouldn’t Be Subsidized Either

Existing nukes are among the cheapest sources of electricity we have. They don't emit CO2 or anything else (other than water vapor) into the atmosphere. There is a solvable (see below) problem with nuclear waste.

So should new nuclear plants be built? The decision should be a scientific and economic and not a political one. New nuclear plants should NOT be subsidized any more than wind turbines and solar panels should be. If safe nuclear plants can't be financed and built economically, then they shouldn't be built. There should be no federal wealth insurance for either investors in nuclear plants or those who lend money to build them.

On the cost side of the ledger, nuclear opponents and proponents of competing forms of energy should not be allowed to impose inflated regulatory costs and unpredictable delays on nuclear construction. Nor should unsubsidized wind, solar, hydro, coal, natural gas, transmission line, or pipeline projects be stalled by serial spurious lawsuits and endless intervention.

Currently subsidies are available for almost every kind of energy project. Very generally speaking, Democrats like to subsidize "renewables" and Republicans like to subsidize oil drilling and nuclear. The compromise has been to "create a level playing field" by subsidizing everything. This approach keeps the campaign funds flowing from the subsidized industries – but is the enemy of both a reasonable budget and a reasonable energy policy based on economics.

There are two major subsidies for nuclear plants: loan guarantees and limitations on liabilities.

In March of 2010 President Obama made a gesture towards Republicans by announcing federal loan guarantees for two nuclear plants planned for Georgia; the guarantees were authorized during the second Bush administration. In theory the guarantees don't cost taxpayers anything because the plant builders pay a fee to the government. But, if the fee were adequate to obtain the loans commercially, there would be no need for the government guarantee. Below from the Washington Post story:

"President Obama seized a key Republican energy initiative as his own Tuesday, promising $8.33 billion in federal loan guarantees for a pair of Georgia reactors that he said would give new life to the U.S. nuclear power industry and create a surge of high-skill jobs...

"Republicans, who have called for building as many as 100 new nuclear power plants, hailed the president's move as evidence that he has accepted their argument. Sen. Lindsey O. Graham (S.C.) called it a "good first step" that would pave the way for progress on climate and energy legislation….

"Nuclear power plants "are simply not economically competitive now, and therefore they can't be privately financed," said Peter Bradford, an adjunct professor at Vermont Law School and a former member of the Nuclear Regulatory Commission. "There are many cheaper ways to displace carbon, and there are many cheaper ways to provide for electric power supply.""

See all the bipartisanship? It's not a good thing in this case. We won't know whether Professor Bradford is right or wrong about nuclear plants being economically viable if we distort the economics and provide wealth insurance to lenders.

The Price-Anderson Nuclear Industries Indemnity Act was first passed in 1957 and last renewed in 2006 for twenty years. It sets up a $10 billion dollar industry-funded no fault insurance plan for nuclear accidents and says that any amount over $10 billion will be supplied by the federal government. The rationale is that no company would take on the unlimited liability of a nuclear plant; a single accident could easily bankrupt a plant owner. Sounds right but it's actually nonsense. Investors always face the risk that their investment will disappear; there are lots of kinds of meltdown. The corporate structure protects investors from losing any more than the amount they invested. Investors might demand a higher return without the guarantee; but that's just the economics of the business. Meanwhile the existence of this particular guarantee feeds nuclear paranoia – why should the cap be necessary unless a very big accident has a significant probability? Note also that even the existence of another unwise cap on liability did not protect BP from the full cost of the Gulf spill.

The government certainly has a regulatory role to play with respect to nuclear power and almost all large scale projects. It's more likely to provide objective oversight when it is a neutral third party and does not have a financial stake in the success of the venture. Part of the regulatory role, however, is to say yes or no in a reasonable amount of time and to have that decision be final and actionable – not a prelude to endless litigation. There ought to standard pre-approved designs for nuclear plants and a reasonable process – at industry expense – for getting a new design approved. Timely permitting alone would be a huge incentive to energy projects – without distorting the economics.

As part of its regulatory role, the government ought to allow the nuclear waste depository at Yucca Mountain, for which we've already paid a fortune, to function. The costs of the plant – other than those caused by politicking – ought to be paid, of course, by the operators of the plant who store waste there. By promising a depository and reneging, the government has left pockets of spent fuel spread around the country and perhaps accessible to terrorists. Failure to follow through on nuclear waste feeds anti-nuclear sentiment, which leads to more delay in licensing which leads to more calls for subsidies.

The first post in this series against federal wealth insurance is about subsidizing mortgages.

Other related posts:

We Can End Energy Subsidies

Government Money Drives Out Private Capital

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