A free-market energy blog
Random header image... Refresh for more!

Atomic Dreams (Nuclear power not ready for prime U.S. time)

Last week I was on John Stossel’s (most excellent) new show on Fox Business News to discuss energy policy — in particular, popular myths that Republicans have about energy markets.  One of the topics I touched upon was nuclear power.

 My argument was the same that I have offered in print: Nuclear power is a swell technology but, given the high construction costs associated with building nuclear reactors, it’s a technology that cannot compete in free markets without a massive amount of government support.  If one believes in free markets, then one should look askance at such policies. 

As expected, the atomic cult has taken offense. 

Regulation to Blame?

Now, it is reasonable to argue that excessive regulatory oversight has driven up the cost of nuclear power and that a “better” regulatory regime would reduce costs.  Perhaps.  But I have yet to see any concrete accounting of exactly which regulations are “bad” along with associated price tags for the same.  If anyone out there in Internet-land has access to a good, credible accounting like that, please, send it my way.  But until I see something tangible, what we have here is assertion masquerading as fact.

Most of those who consider themselves “pro-nuke” are unaware of the fact that the current federal regulatory regime was thoroughly reformed in the late 1990s to comport with the industry’s model of what a “good” federal regulatory regime would look like.  As Oliver Kingsley Jr., the President of Exelon Nuclear, put it in Senate testimony back in 2001:

The current regulatory environment has become more stable, timely, and predictable, and is an important contributor to improved performance of nuclear plants in the United States.  This means that operators can focus more on achieving operational efficiencies and regulators can focus more on issues of safety significance.  It is important to note that safety is being maintained and, in fact enhanced, as these benefits of regulatory reform are being realized.  The Nuclear Regulatory Commission — and this Subcommittee — can claim a number of successes in their efforts to improve the nuclear regulatory environment.  These include successful implementation of the NRC Reactor Oversight Process, the timely extension of operating licenses at Calvert Cliffs and Oconee, the establishment of a one-step licensing process for advanced reactors, the streamlining of the license transfer process, and the increased efficiency in processing licensing actions.

It’s certainly possible that the industry left some desirable reforms undone, but it seems relevant to me that the Nuclear Energy Institute — the trade association for the nuclear energy industry and a fervent supporter of all these government assistance programs — does not complain that they’re being unfairly hammered by costly red-tape.

Natural Gas Bias?

For the most part, however, the push-back against the arguments I offered last week has little to do with the alleged regulatory problem. It has to do with bias.

According to a post by Rod Adams over at “Atomic Insights Blog,” I am guilty of ignoring subsidies doled out to nuclear’s biggest competitor — natural gas — and because Cato gets money from Koch Industries, it’s clear that my convenient neglect of that matter is part of a corporate-funded attack on nuclear power.  Indeed, Mr. Adams claims that he has unearthed a “smoking gun” with this observation.

Normally, I would ignore attacks like this.  This particular post, however, offers the proverbial “teachable moment” that should not be allowed to go to waste.

First, let’s look at the substance of the argument.  Did I “give natural gas a pass” as Mr. Adams contends?

Well, yes and no; the show was about the cost of nuclear power, not the cost of natural gas.  I did note that natural gas-fired electricity was more attractive in this economic environment than nuclear power, something that happens to be true.

Had John Stossel asked me about whether gas’ economic advantage was due to subsidy, I would have told him that I am against natural gas subsidies as well — a position I have staked-out time and time again in other venues (while there are plenty of examples, this piece I co-authored with Daniel Becker — then of the Sierra Club — for The Los Angeles Times represents my thinking on energy subsidies across the board.  A blog post a while back about the Democratic assault on oil and gas subsidies found me arguing that the D’s should actually go further!  Dozens of other similar arguments against fossil fuel subsidies can be found on my publications page).

So let’s dispose of Mr. Adams’ implicit suggestion that I am some sort of tool for the oil and gas industry, arguing against subsidies here but not against subsidies there.

Relative Subsidies: Natural Gas vs. Nuclear

Second, let’s consider the implicit assertion that Mr. Adams makes — that natural gas-fired electricity is more attractive than nuclear power primarily because of subsidy.  The most recent and thorough assessment of this matter comes from Prof. Gilbert Metcalf, an economist at Tufts University.  Prof. Metcalf agrees with a 2004 report from the Energy Information Administration which contended that preferences for natural gas production in the tax code do little to increase natural gas production and thus do little to make natural gas less expensive than it might otherwise be.

They are wealth transfers for sure, but they do not do much to change natural gas supply or demand curves and thus do not affect consumer prices.  Prof. Metcalf argues that if we had truly level regulatory playing field without any tax distortions, natural gas-fired electricity prices would actually go down, not up!  Government intervention in energy markets does indeed distort gas-fired electricity prices.  It makes them higher than they otherwise would be!

The Energy Information Administration (EIA) identified five natural gas subsidies in 2007 that were relevant to the electricity sector (table 5).  Only two are of particular consequence.  They are:

  • Expensing of Exploration and Development Costs – Gas producers are allowed to expense exploration and development expenditures rather than capitalize and depreciate those costs over time.  Oil and gas producers (combined) took advantage of this tax break to the tune of $860 million per year.  How much goes to gas production rather than to oil production is unclear.
  • Excess of Percentage over Cost Depletion Deferral – Under cost depletion, producers are allowed to make an annual deduction equal to the non-recovered cost of acquisition and development of the resource times the proportion of the resource removed that year.  Under percentage depletion, producers deduct a percentage of gross income from resource production.  Oil and gas producers (combined) take advantage of this tax break to the tune of $790 million per year.  How much goes to gas production rather than to oil production is unclear. 

Even if we put aside the fact that these subsidies don’t impact final consumer prices in any significant manner, it’s useful to keep in mind the fact that the subsidy per unit of gas-fired electricity production — as calculated by EIA — works out to 25 cents per megawatt hour (table 35).  Subsidy per unit of nuclear-fired electricity production works out to $1.59 per megawatt hour.  Hence, the argument that nuclear subsidies are relatively small in comparison with natural gas subsidies is simply incorrect.

Some would argue that the Foreign Tax Credit — a generally applicable credit available to corporations doing business overseas that allows firms to treat royalty payments to foreign governments as a tax that can be deducted from domestic corporate income taxes — should likewise be on the subsidy list. 

The Environmental Law Institute calculates that this credit saves the fossil fuel industry an additional $15.3 billion.  There is room for debate about the wisdom of that credit, but regardless, it doesn’t appear as if the Foreign Tax Credit affects domestic U.S. prices for gas-fired electricity.     

The bigger point is that without government help, few doubt that the natural gas industry would still be humming and electricity would still be produced in large quantities from gas-fired generators.  But without government production subsidies, without loan guarantees, and without liability protection via the Price-Anderson Act, even the nuclear power industry concedes that they would disappear.

Now, to be fair, Prof. Metcalf reports that nuclear power is cheaper than gas-fired power under both current law and under a no-subsidy, no-tax regime.  His calculations, however, were made at a time when natural gas prices were at near historic highs that were thought to be the new norm in energy markets and were governed by fairly optimistic assumptions about nuclear power plant construction costs.

Those assumptions have not held-up well with time.  For a more recent assessment, see my review of this issue in Reason along with this study from MIT, which warns that if more government help isn’t forthcoming, “nuclear power will diminish as a practical and timely option for deployment at a scale that would constitute a material contribution to climate change risk mitigation.”

Third, Mr. Adams argues that the federal nuclear loan guarantee program is a self-evidently good deal and implies that only an anti-industry agitprop specialist (like me) could possibly refuse to see that.  “That program, with its carefully designed and implemented due diligence requirements for project viability, should actually produce revenue for the government.”  Funny, but when private investors perform those due diligence exercises, they come to a very different conclusion … which is why we have a federal loan guarantee program in the first place. 

Who do you trust to watch over your money — investment bankers or Uncle Sam?  The former don’t have the best track record in the world these days, but note that the popular indictment of that crowd is that investment banks weren’t tight fisted enough when it came to lending.  If even these guys were saying no to nuclear power — and at a time when money was flowing free and easy — what makes Mr. Adams think that a bunch of politicians are right about the glorious promise of nuclear power, particularly given the “too cheap to meter” rhetoric we’ve heard from the political world now for the better part of five decades? 

Anyway, for what it’s worth, the Congressional Budget Office has taken a close look at this alleged bonanza for the taxpayer and judged the risk of default on these loan guarantees to be around 50 percent.  They may be wrong of course, but the risks are there, something Moody’s acknowledged last year in a published analysis warning that they were likely to downgrade the credit-worthiness of nuclear power plant construction loans.

Climate Alarmism and Nuclearism

Fourth and finally, Mr. Adams cites Cato’s skepticism about “end-is-near” climate alarmism as yet more evidence that we are on the take from the fossil fuels industry. 

I don’t know if Mr. Adams has been following current events lately, but I would think that we’re looking pretty good right now on that front.  Der Spiegel — no hot-bed of “Big Oil” agitprop — sums up the state of the debate rather nicely in the wake of the ongoing collapse of IPCC credibility.  Matt Ridley — another former devotee of climate alarmism — likewise sifts through the rubble that is now the infamous Michael Mann “hockey stick” analysis (which allegedly demonstrated an unprecedented degree of warming in the 20th Century) and finds thorough and total rot at the heart of the alarmist argument.

Mr. Adams is perhaps unaware that our own Pat Michaels has been making these arguments for years and Cato has no apologies to make on that score. 

Conclusion

Regardless, ad hominem is the sign of a man running out of arguments.  There aren’t many here to rebut, but the form of the complaints offered by Mr. Adams speaks volumes about how little the pro-nuclear camp has to offer right now in defense of nuclear power subsidies.

I have no animus towards nuclear power per se.  If nuclear power could compete without government help, I would be as happy as Mr. Adams or the next MIT nuclear engineer.  But I am no more “pro” nuclear power than I am “pro” any power.  It is not for me to pick winners in the market place.  That’s the invisible hand’s job.  If there is bad regulation out there harming the industry, then by all means, let’s see a list of said bad regulations and amend them accordingly.

But once those regulations are amended (if there are indeed any that need amending), nuclear power should still be subject to an unbiased market test.  Unlike Mr. Adams, I don’t want to see that test rigged.

26 comments

1 Rod Adams { 04.09.10 at 3:55 am }

Mr. Taylor – Thank you for taking the time to produce an interesting and well referenced rebuttal to my smoking gun post. It deserves an additional response, and I promise to produce that response by Wednesday, April 14. I would work on it more quickly, but I happen to have a completely booked weekend.

I am attending the American Nuclear Society Student Conference 2010, being held in Ann Arbor MI. Last night, we had the welcoming dinner – there were more than 500 eager students in the room to share conversation and hear companies like Entergy and Westinghouse tell them about the growth in the industry, including the number of people that they were hiring.

However, please understand that I am no defender of the established “nuclear” industry. I put the word nuclear in quotes because there are few companies in the industry that are actually focused on developing nuclear fission energy as a true competitor to burning coal, oil and gas. The people who lead and invest in the energy industry (no invisible hands here, I have met a number of the decision making individuals over the years) know quite well that the price of energy is driven by the balance between supply and demand. The smart ones who paid attention in economics classes and who watch the behavior of prices on a frequent basis also know that higher energy prices generally lead to higher profits since the cost of production does not vary as much with the balance between supply and demand. (It may be stating the blindingly obvious, but profit goes up if the price increases substantially, the demand does not fall too much, and the cost of production remains flat.)

As you mentioned, direct subsidies for either gas or nuclear have not resulted in much in the way of increased supply, but they have resulted in a rather substantial increase in the wealth produced by selling energy by moving even a bit more of customer money into the hands of the producers. (All taxpayers are also energy consumers.)
I happen to agree with you that subsidies are a dumb way to spend taxpayer money. However, markets dominated by people whose only motive is making more money are not the best decision makers – the people making the decisions in that situation will often decide to influence the law of supply and demand by keeping their hands on the levers that they can use to keep supply restrained. If their hands are “invisible” it is because they work at keeping them hidden or because observers and academic study producers do not work very hard to find them. That is sometimes due to a behavior I have noticed in my professional career as a naval officer assigned to a major Washington DC staff – if you want a study to back up whatever action your decision makers have already decided to take, all it takes is a few hundred thousand dollars and the right kind of study request paperwork and you can get a very nicely produced and selectively argued document.

Finally, before I go and spend a few more days talking with students who are brilliant engineers, but have little practical understanding of how humans make decisions, I will take issue with your comparison between those who promote nuclear energy and those who promote solar. (I am not strongly affiliated with either political party, so I will avoid your characterization of the politics.)

Unlike the solar advocates, who often ignore physical realities like night, clouds, latitude, and the difficulty of collecting weak and diffuse energy sent from a heat source that is 93 million miles away, nuclear advocates are excited about an extremely energy dense group of metals that can release 2-4 MILLION times as much energy per unit mass as burning oil. Nuclear advocates KNOW that our heat source is readily available, is clean enough to operate inside sealed submarines, and can be made safe enough so human beings can spend entire careers in power plants with little risk of injury and essentially zero risk of death. We KNOW that our favored heat source does not threaten its neighbors with either slow or fast death and we KNOW that our grandchildren and our grandchildren’s great grandchildren can still be living abundant, productive lives if they are depending on fission rather than trying to eek the last remaining hydrocarbons out of the earth’s crust.

There is a good reason why companies like BP, Chevron, and Shell promote their investments in solar energy – often spending more on advertising than they do on the actual research and development. Solar does not threaten their market dominance and cannot ever be made abundant enough to reduce the price of energy. In contrast, nuclear energy has proven to be very capable of replacing the use of oil, gas and coal in many applications including powering aircraft carriers, icebreakers and submarines, powering entire countries, and even heating cities with direct district heat. Oil/gas companies (those commodity heat sources are generally produced by exactly the same companies using very similar technology, often in the same wells) do not invest in nuclear because they recognize that abundant, emission-free, affordable energy is the only real threat that they have if they want to retain their wealth and power.

2 Rod Adams { 04.09.10 at 4:20 am }

Mr. Taylor – one more thing. Your stated argument to nuclear energy development in the United States rests on one clearly stated assumption – “given the high construction costs associated with building nuclear reactors”.

What if some technologists reject that assumption and choose a path that aggressively and successfully works to reduce construction costs? What if they recognize that it is easier to reduce manufacturing costs than to reduce construction costs and decide that nuclear energy systems should be manufactured versus being built on site?

See, for example, Hyperion, NuScale, B&W, Toshiba 4S, PBMR, HTR-PM and perhaps even my own company – Adams Atomic Engines, Inc. (www.atomicengines.com)

3 Ted Rockwell { 04.09.10 at 9:38 am }

It’s wonderful how much clarity emerges when we avoid arguing arcane theories and look at what is happening in the real world. In Europe, many nuclear plants have amortized much of their original construction cost and are netting on the order of $2 million per day per plant. This is occurring with such reliable consistency that their competitors are howling “unfair,” poor dears. Therefore, many governments are now imposing “unearned income taxes” and “windfall profit fees” of hundreds of millions of dollars per year, per plant. And in case you think that is only in socialist Europe, note that the attorney-general of Connecticut has called for the same sort of tax in the US. Isn’t that a pretty good demonstration of long- range economic viability?

You ask for suggestions as to which regulatory requirements add to cost. The biggest cost is uncertainty: will regulators again permit activists to delay the licensing process by years? That’s what the government loan guarantees are intended to ameliorate. This is called a subsidy, but historically (again, in the real world), the government has made money, not lost it, in this process (remember Lee Iacocca?).

Of course, the icon of expensive “safety-making” is Yucca Mountain, a monument to the illogical argument that “nuclear waste” requires
extraordinary measures because its toxicity DECREASES every day, unlike ordinary poisons like mercury, lead, arsenic, etc. whose toxicity remains undiminished FOREVER!

4 Jon Boone { 04.09.10 at 10:24 am }

Rod Adams is correct about the contrapuntal relationship between nuclear and, say, coal, since the former can replace coal’s capacity without coal’s nugatory environmental impacts. Ultimately, nuclear has the potential to displace all other electricity generating power sources, and hence represents formidable economic competition. On the other hand, so called renewables like wind and solar, which produce little capacity, require conventional fuels, mainly fossil-fired, to enable their existence. They’re not competitors because they stimulate the need for more fossil fuel use, other things being equal.

As for free market conditions in large scale energy conversion, dream on. One could do a whole series of “Dream On” cartoons with this theme. As Adam Smith himself wrote, his unseen hand works effectively when the field is level and the players share a common sense of the rules, values, and objectives of the game. Such is not the case today in the energy marketplace.

As good as they are, carbon-based fuels, even those as beneficial as oil and natural gas, continue to put us at odds with our potential for informed stewardship of the planet. Our best scientists tell us we must do better in achieving goals of sustainable biodiversity and healthier ecosystems. To do so, we should sooner than later move beyond sloganeering and heavy reliance on fossil fuels.

Nuclear is not just a little better than other power sources. It’s in a league of its own. And not just as a producer of power. But rather as a means of reducing an often too rudely intrusive human presence on the earth.

So, yes, let’s do as Jerry Taylor suggests, and eliminate all public subsidy for energy production and, at the same time, agree upon rules that protect air and water quality, ensure the integrity of sensitive biota and habitat, and preserve the power requirements enabling modernity. In this environment, nuclear would have nothing to fear.

5 Tom Blees { 04.09.10 at 1:17 pm }

“Regardless, ad hominem is the sign of a man running out of arguments. “
Earlier in the post:
“As expected, the atomic cult has taken offense.”

Perhaps you should practice what you preach.

6 Richard W. Fulmer { 04.09.10 at 4:25 pm }

This discussion demonstrates (yet again) three of the unintended consequences of government interference in the marketplace:
1. Gauging the relative merits of competing alternatives becomes difficult or impossible
2. Factions pop up to compete for government largess
3. The conflicts between these factions can become very intense

The answer to Rodney King’s plaintive, “Can’t we all just get along?” becomes “Hell, no!” when we’re forced to fight over who has the right to the fruits of one another’s labor.

7 katana0182 { 04.09.10 at 9:59 pm }

I can imagine that the reason why there is not this upswell of support from nuclear industry groups for shutting down the NRC and giving nuclear power a level playing field with other energy sources is because trying to shut down those who can easily shut you down (e.g. the NRC) is not the best idea in the world for a regulated industry to pursue.

Suggesting to NRC regulators that what they do is unnecessary, or advocating that they should seek employment elsewhere is perhaps not the best way of fostering a harmonious and productive regulatory environment. Instead, it is a great way to get the regulators to delay whatever you are trying to get accomplished for many decades while they pick through every minor detail in your plan, or if you’re already engaging in a regulated activity, it’s the perfect way to get the regulators to fine you, order expensive changes, or even pull your license for trivial reasons.

So, if you speak out against absurd regulation of the nuclear industry, you get to lose money rather than making what money you can under the regulatory regime that presently exists.

You see, the big difference between NRC regulation and EPA regulation is that NRC regulation is PROSPECTIVE, rather than retrospective.

Say you run a coal plant under EPA regulation. You emit too much sulfur dioxide, the EPA goes and says, “don’t do that anymore”. You do it again, the EPA says, “don’t do that anymore, and oh, by the way, here’s your fine”. You do it again, the EPA says, “ok, here’s your big fine, and you can’t do anything until you fix it”.

Now, what would life be like for that coal plant under NRC regulation? First, there would be the design phase of the coal plant. If the NRC even thinks that your coal plant has a remote possibility of potentially emitting ANY sulfur dioxide during its lifetime, then they order 5 years worth of research that you have to pay for out of your own pocket. Then, it holds public hearings as to exactly how much sulfur dioxide could be emitted in the event that the secondary scrubber fails due to an elephant stampede combined with a tornado; members of special interests opposed to nuclear power (oil/gas funded anti-nuclear groups) get to come and submit questions like “What would happen if the elephant stampede and a plane crash into the secondary scrubber happened at the same time as a tornado and an attack by a flying spaghetti monster?” Say these questions eventually get answered after years of research, and you finally get to build your plant. So you have to tolerate NRC regulators constantly testing every part of it to ensure that it can endure that hypothetical elephant stampede/tornado/airliner crash/attack by flying spaghetti monster without emitting so much as one atom of sulfur dioxide. Then, when it’s built, you have to operate it according to a strict manual – called technical specifications – that the NRC writes for you. If you depart from them in any way, you have to call the NRC and endure numerous inspections. If your employees are lazy, and you want to fire them, if they go and find a molecule of coal dust somewhere where it isn’t, they can then call the NRC, and get lifetime job security as a whistleblower.

It is a true testament to the strength of nuclear power that it even manages to survive with the level of regulation being what it is.

8 Dan McKay { 04.10.10 at 4:01 am }

” 500 eager students ” , as Rod Adams describes them, raises my hopes that science , in it’s truest form, is making a comeback. The nuclear industry in this country had all but dissolved. Manufacturing of nuclear plant components in this country is non-existent. Research and development stymied by the flip-flop of political whims. The once great knowledge of nuclear physics born and expanded by this nation’s brightest learners, lies in the dust. ” 500 eager students ” ……… There is still hope.

9 Ferdinand E. Banks { 04.10.10 at 8:20 am }

I call myself the leading academic energy economist in the world, and there are two things that I am sure of.
1. OPEC has become smart, but not smart enough to keep the oil price where it should be to make things better for us and them.
2. NUCLEAR MAKES ALL THE ECONOMIC SENSE IN THE WORLD. Why can’t we make people see that? Mr McKay provides a large part of the answer, and the rest is easy: the losers and mediocrities have become too important in the universities.

10 Jim Hopf { 04.10.10 at 3:03 pm }

You can’t discuss the relative economics of different energy sources w/o considering the effects of regulations on cost, and whether the regulatory playing field is remotely level. If anyone, Cato should grasp the concept of govt. being able increase the cost of something to an arbitrary degree, through regulation. As measured by dollars spent per unit of public health risk avoided, nuclear is clearly being held to standards thousands, if not millions of times as strict as those applied to fossil fuels.

Mr. Taylor asks for specific examples of over-regulation. I’ll give two insights on this. First, it is known that before the massive wratcheting up of regulations after TMI, nuclear power cost ~half what new nuclear would cost today. This, in response to an event that killed nobody and didn’t cause significant pollution. Even before TMI, nuclear was held to much more stringent standards than fossil. So, just for starters, it is clear that nuclear would be at most half it’s current cost, if not for over-regulation.

Second, here is a glimpse of what a playing field that is actually level would look like. Like nuclear, any fossil plant would have to completely contain all its wastes/toxins, and provide absolute scientific proof that they will remain contained for as long as they remain hazardous. I would relish seeing such a fair market competition between nuclear and fossil (coal or gas) plants. It would also be enjoyable to watch CO2 sequestration projects try to meet the same standards of proof being applied to Yucca Mtn. If such (fossil) requirements appear radical to you, it just shows how unlevel the current playing field is.

A final example of the double standard is to compare Yucca Mtn. to the shale gas drilling that is all the rage now. Absolute proof of no impact for a million years, versus a blanket exemption from the Clean Water Act! Shale drilling, as well as coal ash piles will have an infinitely greater risk/impact on ground water than Yucca ever will, end yet nothing is even said…

Mr. Taylor also tries to argue that the industry’s lack of resistence is a sign that it is not over-regulated. As “katana” points out, the industry has to work within the constraints of what is politically possible. Bringing nuclear standards down to what is applied to fossil fuels is politically impossible, and Mr. Taylor knows it. The industry has to work within the political reality, and do/get the best it can (small changes on the margin).

The only hope for a remotely fair playing field is that fossil requirements get tightened up. With CO2 limits, fossil may face requirements that are a small shadow of what nuclear is held to, still nowhere near equal, but at least a bit closer. Under a CO2-limited playing field, nuclear will win.

11 Jim Hopf { 04.10.10 at 4:00 pm }

The official EIA estimates of electricity costs from various sources is given below:

http://www.instituteforenergyresearch.org/images/LevelizedCosts2010.jpg

The data show that whereas nuclear is only a little bit more expensive than fossil sources, solar is much more expensive than nuclear (2-3 times). It is ridiculous to suggest that nuclear is like solar in terms of cost and needed subsidy. All nuclear is getting is a loan guarantee that reduces the interest rate a bit. A loan guarantee clearly wouldn’t be nearly enough for solar. Massive tax credits are also required, or better yet, govt. laws (portfolio standards) that require renewables to be bought, regardless of cost or practicality (essentially an infinite subsidy). That along with political decisions by various municipalities to buy solar even though it costs several times as much. Nucear gets no such benefits.

Mr. Taylor’s analysis of gas subsidies ignore the main subsidies that fossil fuels get. These are the free pollution subsidy and the costs of ensuring world supply/transit of gas and oil.

In addition to emitting 40% of our CO2, US fossil plants (mainly coal) cause ~25,000 deaths every single year, according to EPA. This equals the consequences of dozens of worst case nuclear plant meltdowns occuring every year.

And yet, whereas Cato, et al, scream “subsidy” over Price Anderson (the issue being that nuclear must pay out damages if it ever emits pollution, and MAY be insufficiently insured against said obligation), fossil plants get to inflict far more harm than a worst-case meltdown every single year, and are never asked to pay a dime in compensation. If we treated nuclear like fossil plants, and simply didn’t hold them liable in event of the release of pollution, no insurance at all would be necessary.

The “free pollution” subsidy is clearly orders of magnitude larger than any Price Anderson subsidy, and scientific studies show this. Studies of such external (pollution) costs (www.externe.info/) put the economic value of coal plant pollution at 4-8 cents/kW-hr. By contrast, nuclear’s total external costs are ~0.5 cents/kW-hr, and even nuclear opponents admit that any Price Anderson subsidy is only 0.04-0.4 cents/kW-hr. Mr. Taylor points to EIA data suggesting a total nuclear subsidy of ~0.16 cents/kW-hr. Pretty small in the grand scheme of things.

Then there is the (uncounted) oil/gas subsidy related to patrolling the Gulf and our general involvement in the Middle East. 3 trillion total costs for Iraq and Afghanistan. Tens of billions annually (I hear) to patrol the Gulf region (read, secure gas/oil supplies). There’s domestic shale gas, but oil and gas are a world commodity. If we announced that we would no longer do anything to secure would oil/gas production and transport, what do you think the price would do?

This is a huge subsidy, much larger than anything nuclear gets (or a mere $54 billion in loan guarantees). As Mr. Rockwell points out, the main reason for the loan guarantees is merely to have some govt. skin in the game, so they don’t screw the industry like they did in the past. Another reason the loan guarantees are needed, for now, is that we STILL don’t have CO2 limit legislation, or other policies that make fossil fuels account for their massive external costs. In a CO2-constained world, no nuclear subsidies will be necessary.

Finally, there is the issue of the future price of gas. Mr. Taylor thinks that current prices are the norm, and that the high prices of two years ago were the abberration. Many of us disagree.

Here we have a major supply bump (shale) occurring simultaneously with a world-wide depression, and the price is still ~$6/MBTU! Once the economy recovers, it will go much higher.

On top of that is the specter of peaking oil production. Since oil and gas are somewhat interchangeable, when oil supply falls short of demand, gas demand will soar to cover the gap, which (along with economic recovery) will lead to much higher gas costs.

Finally, whether Mr. Taylor likes it or not, limits on CO2 emissions in the future are much more likely than not. This will knock coal out of the picture, resulting in a massive increase in gas demand for power generation over the nearer term. This will greatly strain gas supplies and result in higher gas costs.

For all these reasons, gas costs well over $10/MBTU will be the norm in the future. At that cost level, nuclear will easily compete with gas, without subsidy.

I agree with Mr. Taylor, and Cato, on one thing, however. It should be left to the market to speculate on what future gas costs will be, and what type of power plants to build. The govt. should not pick winners (e.g., portfolio standards). However, the massive market failure of having fossil fuel plants be able to emit massive amounts of pollution for free must end. It should be left to the market, but it must be a fair market. Not having CO2 limits is not on the table, sorry.

Until fossil plants are held to account for pollution (held to some standard), any discussion of nuclear’s economics relative to fossil fuels is simply absurd. As the data in the link above show, nuclear costs the same or less than any other non-emitting generation technology (including coal or gas w/ CCS). This is something solar can’t say.

12 Gary Troyer { 04.11.10 at 9:46 am }

This article has some great points about subsidies, market presence, and drivers. I found the commentaries to date equally good.

My farming background says subsidies are bad as they have a tendency to preserve bad practices (Ayn Rand?). My father knew how to diversify and shift with the markets and the vagaries of weather. We could live on 2-3 years out of 5 as successful, but had to maintain the food storage cellar carefully. A big assist was/is cheap and reliable energy (electricity and fuel).

The Governor of Washington State has just recently approved a new 95 tower (2MW ea) wind farm in Kittitas County over the dissatisfaction of the locals. The project is expected to cost $384 Million with an estimated capacity factor of 30%. CY 2009 wind performance in the best developed area of Washington worked out to be 22%. Regardless, and assuming the estimated capacity factor, the projected equivalent development cost for 1000GWe is over $6 Billion, likely above a well run construction project for equivalent nuclear. We know how the reliability factors and expected lifetimes fail in comparison with nuclear. This does not include back-up power for the wind farm.

Factors not discussed in the article or commentary, and very important to me, are that natural gas is still a carbon fuel, a fossil fuel, and a limited resource for the long term. I am appalled that the gas industry is advertising 50 to 100 year supply as if that is the answer to all our problems. The advertised paranoid climate change horizons are in that realm. And if we elect more of its use, the time shrinks. So, I have a lot of distrust regarding the brain capacity of all involved. Much better to preserve this finite commodity, as well as any other fossil material, for long term benefit (fertilizer, plastics, etc.).

Nuclear loan guarantees could be considered a subsidy that, if successful, are a zero sum game with little long term cost. This mechanism is a necessary jump start for an industry which is 30 years behind the rest of the world. The Clinton administration did two things that were even more crucial and positive. The NRC is now willing to issue construction and operating (CAO) licenses together and they are extending the plant lifetime due to performance success, not to mention absolute necessity due to 20% market penetration. Without the combined license, investors were definitely scared away. Who would invest in construction if at the end, operational license required as much new effort and risk? The imposed skittishness is now being overcome with the CAO and the loan guarantees.

The NRC is a necessary vehicle to ensure a robust nuclear industry. But, it is also turning out to be an impediment to innovation and testing. Recently, the venture capitalists supported by Bill Gates asked for consideration of the traveling wave fast spectrum reactor. The NRC indicated they would have no such expertise for about 25 more years. The test version of this reactor is heading to China. The US shutdown its fast spectrum reactor in 1992 based purely on political paranoia. It was needed then and more so now.

Bjorn Lomborg’s first book showed that supply and demand, natural forces of commerce, will and should drive selection of energy sources. While I generally agree with him and the central theme of economics in this article, I think Lomborg did not completely examine the overall impact of environmental legislation implemented in the ’70s. That legislation cleaned up numerous eastern cities, but it also left devastation in the US manufacturing sectors. Government incentives, but predominantly central government controls affected the location of jobs, many driven overseas. Artificial interferences have actually hindered market selection of best available technologies for energy production. Nuclear has suffered more than many.

13 Richard W. Fulmer { 04.11.10 at 11:14 am }

Some years ago, I attended a DOE presentation of a study purporting to show that corn-based ethanol production yielded a 30% energy “profit.” After the presentation, I asked one of the report’s authors if they had included the energy needs of the personnel involved in ethanol production in their calculations. He replied that no study included such inputs. Yet they are inputs, and, under a free market, they would be included in profit and loss calculations via wages.

A more obscure energy cost of using ethanol stems from the damage it does to car engines. The energy needed to replace engines (and, more likely, entire cars) that wear out more quickly than otherwise is probably substantial.

Clearly, trying to track down all of the energy costs of using ethanol is a monumental task, and probably one that is outside human ability.

Both Mr. Taylor and those responding to him cite various studies to support their assertions that nuclear power is more or less costly than power generated from fossil fuels. Two observations:
1. The only reason such studies are necessary is that government interference has so distorted the market that normal profit/loss calculations are useless.
2. The studies are almost certainly wrong.

In an environment in which scientists are called upon to determine the indeterminate, science is inevitably corrupted. Public discourse is corrupted as well. Advocates, armed with (unavoidably) inadequate analyses, are reduced to ad hominem attacks, questioning the biases behind each other’s “science.”

As futile and as costly as such analyses and debates are, they will become ever more common as government allocates more and more of the nations’ resources, deciding who wins, who loses, and who pays.

14 Ed Peschko { 04.11.10 at 3:40 pm }

Mr Fulmer,

With regards to your arguments wrt studies (all studies are equal – equally corrupt that is), well give me a break.

That may be a tempting stance to take for someone who doesn’t have technical training, but anybody with one technical bone in their bodies knows that doesn’t hold water.

There are some facts which are unmistakable:

1. the energy source behind nuclear is 2-4 million times as dense as its nearest competitor.
2. nuclear is the only source of energy which contains all of its waste products.

Any given accounting of the energy costs should take these facts into balance accordingly. But as has been pointed out we cannot do this else all the other energy sources aside from nuclear would go out of business.

Anyways, there’s no reason why we can’t have our cake and eat it too regards to nuclear energy – the bald fact is that nuclear plants in the west are WAY too expensive compared to what they should be; and that a pervasive bias is the cause.

Mr. Hopf provides one clue that this bias exists – the doubling of construction costs after TMI and the advent of the NRC.

Another clue to the bias: in places where nuclear is accepted and where energy projects seem to be planned on technical merits – namely korea, china, taiwan and japan – construction costs are much lower. Large reactors are regularly being built there in a 3 to 5 year timeframe at 1500-2000 $/KW.

Think about this fact – the first nuclear reactors in the US came online within 3 years – and that was BEFORE WE HAD ANY EXPERIENCE WITH THE TECHNOLOGY WHATSOEVER. After a half century of experience, you’d think we’d be a bit better.

No – in short we shoot ourselves massively in the foot when it comes to large energy projects, and it is going to cost us dearly. Here’s a good source on the matter:

http://www.phyast.pitt.edu/~blc/book/chapter9.html

which goes through the horrific logic which made this all possible.

Anyways, as per solutions. In the west, we seem to have tied up ourselves in knots around this issue. With three simple reforms we could overcome this:

1. concentrate on miniature nuclear reactor models (such as hyperion) and their methods for rapid manufacture.
2. allow for certification of these reactor models rather than of combined model/locations, ie: let the NRC certify only the part of the system that produces the steam heat, and insure that it is passively safe. The rest of the system – both its citing and operation – would go through the same regulation that the siting of a combined cycle gas turbine.
3. Allow ‘physical trials’ of these models in non-commercial settings (ie: the military) as grounds for certification.

This would allow for manufacturers to actually create models for a smaller, more contained market (ie: the military) and overcome the crushing uncertainty that exists in todays, nuclear market. It would allow for utilities to take less risk, and would avoid manufacturing bottlenecks that large units face (forging units, for example).

And finally, I’d just like to suggest that we follow a parallel track with thorium MSR (or LFTR) reactors; my guess is that the above strategy would create truly cheap electricity by any measure.

15 Ed Peschko { 04.11.10 at 3:58 pm }

one more thing to think about.

From pitt.edu website – the dresden 2 and 3 nuclear stations were completed (both in the 1 GW range) at an overnight cost of $146 / kW. That translates to $780 / kW today. They have been in operation til today.

If THAT doesn’t show you how much bias there exists in our system, I don’t know what will.

16 Richard W. Fulmer { 04.12.10 at 11:59 am }

Mr. Peschko,
I did not say that all, or indeed any, of the studies are “corrupt.” What I did say was that trying to determine relative costs of the various power sources via studies instead of through market prices is impossible.

Also, I do have one or two “technical bones” in my body – my degree is in Mechanical Engineering.

17 Konstantin { 04.12.10 at 12:02 pm }

On the show when someone asked you why you don’t think regulations have driven the costs up you reply included that you understand that regulatory agencies can be a cartelization mechanism but you didn’t see how the those large corporations would benefit from the high monetary costs imposed by the NRC regulations.

My reply was meant to suggest that it may not be the nuclear industry that benefits from the NRC but the coal or oil industries.

Coal and petroleum industries are also competitors to nuclear.

Therefore the theory still stands that regulatory agencies benefit the main players in an industry to keep out their competition. It’s just not the exact same energy technology that the theory has to apply to.

18 Jim Hopf { 04.12.10 at 7:39 pm }

One more thing (that I forgot to mention) is the fact that nuclear is the only energy industry that actually pays to be regulated. They pay ~$250/hr for all of NRC’s “services”. Fossil fuel plants do not fund their regulatory body (EPA), taxpayers do. NRC has (unsurprisingly) grown enormously, and its costs are ~$1 billion per year. This is clearly a negative subsidy; one which more than offsets any loan guarantee subsidies.

In addition to the $1 billion cost, there is the perhaps even more important issue of the incentive structure it creates. With EPA, the more they drag out the permitting (and the more man-hours they spend) the more it costs the govt. With NRC, they have no such disincentive. In fact, if anything, there is a positive incentive to do more and more exhaustive reviews, taking more time and employing more and more staff, because (as everyone knows) govt. bureaucracies like to grow, if given the chance.

19 Ed Peschko { 04.12.10 at 10:43 pm }

> I did not say that all, or indeed any, of the studies are “corrupt.”
> What I did say was that trying to determine relative costs of the
> various power sources via studies instead of through market prices
> is impossible.

Yeah I get your point, and that’s wrong. You can do some quick, back-of-the-envelope calculations based on power densities and physical trends to get an idea of when the market is giving a false signal or a true one.

Take natural gas – the supply, and what people are doing to get the supply, may indicate a short term price drop but long term we’d be screwed if we only followed that trend.

Likewise with nuclear power, you can do some quick back-of-the-envelope calculations based on geologic studies – as well as look at some historical data – to come to the conclusion that we are currently in the US highly distorting the price of nuclear power to the high side; to the detriment of us all.

Your assertion that the ‘market is the master of us all’ is really naive, IMO. Reality is reality is reality – you can whitewash it to a degree w/statistics, but to think that you can’t use the scientific method and some good, plain math to overcome this bias, and to garner good possibilities for policy is just plain odd.

20 Richard W. Fulmer { 04.13.10 at 10:16 am }

Mr. Peschko,
What do your back of the envelope calculations tell you about (say) ethanol? Does corn-based ethanol result in a net energy gain or a net loss?

21 Chris { 04.13.10 at 4:07 pm }

What is good for the engineer, is good for the world. That is all.

22 Ed Peschko { 04.13.10 at 4:14 pm }

Mr. Fulmer,

The fact that reasonable people are arguing about whether ethanol results in a net energy gain or loss underscores the point; that it is a BAD IDEA.

Here’s my back of the envelope calculations: why on earth would you want to develop an energy source that is rooted on a process that is about .75% efficient (photosynthesis) on an energy flow that is itself diffuse (100 W/m^2 on average)? We seem to have relied on this low energy for the millenia before the industrial revolution – where low population densities, gross inequality, and slavery were endemic but necessary evils in order to sustain civilization.

The fact that the ‘market’ is garnering support in developing ethanol production (in exactly the wrong way) just shows the extent that markets can either be manipulated by politics or greed; ditto for wind and solar energy.

Natural gas has its own problems with both extraction cost and depletion – yet again, markets are in the short term business of making money for their investors, NOT for providing orders of magnitude improvement over the status quo for society.

And that is exactly the problem. We live in a society full of myopic profit-takers (like the author) who are so brainwashed by markets that they are blind to any true long term fixes that physics and science offers us. And fission offers one helluva long term fix, at least until space-based solar power becomes feasible.

Think about it this way – suppose your body is a ‘market’ and you are trying to maximize performance. Why don’t you take cocaine, meth, or metabolic steroids on a regular basis to gain advantage? Well, probably because you realize that the long term drawbacks far outweigh the short term benefits.

Our society – and its companies – are like the guys who have decided the opposite; to take anything and everything to get a temporary advantage relative to his/her peers – our ‘markets’ have become short term, next quarter quick fixes, and long term costs (even the question of our mutual survival) have been heavily discounted.

How you can take anything of use – other than glancing value – by the short term analysis of market prices is beyond me.

Ed

23 Rod Adams { 04.18.10 at 6:51 am }

Ed – good analogy. That is why I cringe every single time I hear a pundit, government official, salesman or corporate leader talk about some “on steroids” as if that is a good thing.

It seems to be a frequent construction but the speakers rarely seem to understand just how offensive the comparison is for people who know the dangers of actually taking steroids or who like to think about the long term implications of actions and reactions.

Example – http://biofuelsdigest.com/bdigest/2010/04/13/youchu2010-standard-alcohol-ethanol-on-steroids/

24 Roy { 04.19.10 at 4:36 pm }

Quoting statistics about, eg, the “power density” of nuclear as if that self-evidently proved it was the better energy source is not persuasive.

The difference between the market and somebody spinning factoids on a blog is that the investors actually intend to put their money where their mouth is. So, if you could really produce electricity “orders of magnitude” cheaper than existing technologies, then you could convince an investor of this. And if the investor were convinced of this, then he would be an idiot not to invest, seeing as how if your electricity were 10x cheaper he could make 3x of that in profit while still leaving the consumer a 6x saving.

But, you can’t, because your factoids are oversimplifications to the point of sheer meaninglessness, so you are reduced to complaining about how investors actually want to make money. Sadly, free people choosing freely often don’t freely choose to spend their money based on irrelevant factoids.

Claiming the problem is “long term” vs. “short term” is also nonsensical. The finance industry has plenty of ways to bring expected future value to the present and regularly does. Eg – 30 year mortgages.

The point that the government is tying nuclear’s hands with unproductive regulations is a much better point. And the best point of all is that the real problem is “uncertainty” – ie, should I invest in this nuclear plant given the large chance that it will be endlessly tied up in licensing hell by a bunch of demagogic clowns?

A few Charles Barkley responses to NIMBYists – “you can’t have my shoes, you can’t have my jersey, you can just pay your opponent’s legal fees, and go home” – would do more for the nuclear industry than any amount of dinking with subsidization formulae.

25 Rod Adams { 04.24.10 at 4:27 am }

@Roy – the power density of nuclear reactions is not “statistics” or “factoids”. It is a fact that can be verified and experienced. I was once in charge of a reactor that provided all the power needed to drive a 9,000 ton submarine around for 15 years from a volume of fuel that would fit under my office desk. I know how much that fuel costs and I know how much competitive fuels cost. Today’s operating reactors have a total production cost average of 1.86 cents per kilowatt hour, about 1/3 of the production cost from gas fired turbines, even with our current low gas prices.

The big challenge to a profitable investment in nuclear energy is controlling the cost of the initial investment. Of course, that is true of many investments.

I comment on blogs (just like you do), I also write my own blog, and I am also an investor who has put a good deal of money and other valuable resources in the same place as my mouth. Time may prove me to have been a fool, but I am betting on a technology that uses an abundant fuel source that is commercially available today for a cost that is roughly equivalent to purchasing oil at $2.90 per barrel. That fuel source also has a nice little “kicker” in that it can produce its heat even inside a sealed submarine. So far, so good with regards to my investments.

Here is a detailed accounting of some of the costs that ill designed regulations have added to the cost of nuclear energy plants. It is a bit dated, but many of the lessons from that era have not been applied during the recent efforts to “streamline” the process.

http://www.hawaiireporter.com/story.aspx?a103cbfb-4aa2-47b5-974e-669722dce965

BTW – though I defend loan guarantees and insurance pools enabling legislation that does not qualify as a subsidy because there is no cost to the taxpayers, I do not defend or support production tax credits, accelerated depreciation schedules, expensing of development costs or other gifts that cost a great deal of money and result in a direct transfer from taxpayers to corporations.

26 Aaron Rizzio { 04.24.10 at 9:42 am }

Although Mr. Taylor acknowledges “[n]uclear power is a swell technology” he asks for some “concrete accounting” behind the high costs associated with building reactors, incredibly he draws the conclusion that “it’s a technology that cannot compete in free markets without a massive amount of government support.” Here he confuses (or chooses to ignore) the primary cause for fission’s high construction costs — an obviously uneven regulatory regime — and instead focuses his libertarian indignation on the relative pittance of backhanded government subsidies.

Firstly, as Jim Hopf wrote above, until coal & gas generation (>70% of US electricity) are held to the exact same safety standards as fission (which would be technically impossible for them), any discussion of nuclear’s relative economics is absurd.

According to a recent National Academies study “Unpriced Consequences of Energy Production” 2010 a conservative estimate of air pollution costs associated with coal and gas are on the order of $60 billion. According to one of the study’s authors, this conservatively translates into ~10,000 premature deaths/year from coal and ~100 from gas pollution (excluding your occasional explosions). These mortality figures are arrived at from examination of atmospheric emissions alone of particulate matter, SO2, NOx, and VOC — excluding totally the more highly speculative CO2 related AGW impacts. To quote from the study “the mean damage is 3.2 cents per kWh” of coal generated electricity. That’s a pretty big subsidy for you Jerry!

Other studies published around the year 2000 by EPA contractor Abt Associates and the Harvard School of Public Health found between 24,000 – 30,000 excess mortalities associated with coal fly-ash and fallout plumes.

Natural gas kills “only” about 100 people per year just from its toxic emissions, or the equivalent of two Chernobyl accidents (Joint News Release WHO/IAEA/UNDP “As of mid-2005 . . . fewer than 50 deaths had been directly attributed to radiation from the disaster, almost all being highly exposed rescue workers, many who died within months of the [1986] accident but others who died as late as 2004). International concern over the Chernobyl type big graphite channel reactors (RBMK) was so great that the design was discontinued and most reactors have been shut down including recently one power plant that supplied most of Lithuania’s electricity. So-called “clean burning” natural gas generated electricity conservatively kills two Chernobyls’ worth of people every year in the US — just from emissions.

We actually have vary good records of the cost escalation and regulatory spiral that began in the early 1970s. The link provided by Ed Peschko above to Bernard Cohen’s work on the subject (written in the early 80′s and republished in the early 90′s) is a good place to start. In Julian Simon’s classic The Ultimate Resource Cohen cites the example of the 3 CT Milstone reactor units completed in 1971, 1975, & 1986. Milstone 1 was completed @ $800 per kW(e), Milstone 2 @ just under $2000, and Milstone 3 @ nearly $6500 (all in 2009 dollars).

Jack Spencer, Research Fellow in Nuclear Energy in the Thomas A. Roe Institute for Economic Policy Studies, cites the following:

http://www.policyarchive.org/handle/10207/bitstreams/13045.pdf

“[B]etween 1956 and 1979, the average construction permit review time increased fourfold. The average time required to bring a plant on line from the order date increased from three years to 13 years.”

“[D]elays often resulted from inadequate regulatory manpower. Workers had to spend inordinate amounts of time waiting for inspections rather than building the project.”

“[R]egulation increased the cost of constructing a nuclear power plant fourfold”

“Shoreham nuclear plant on Long Island [was] completely built but never used” — Never granted a permit by the state of NY, L.I. is electrified today mostly by burning oil — as are the Hawaiian islands.

“Of the 246 plants ordered in the U.S., only 104 operate today.”

“In total, $30 billion was spent on nuclear plants that were never
completed”

It is the front-loaded capital construction of the reactors that makes fission power so relatively expensive (although not so much as wind or solar) NPPs are mostly just steel and concrete; freed of the perverse regulations that have resulted in the deaths of some 100,000 Americans in the last decade, as those cancelled NPP projects would have been sufficient to supply the US today with most of our base-load electricity displacing coal, there is no fundamental reason for a reactor & its BoP to cost significantly more than an equivalent sized hydro or advanced IGCC coal plant, the material and worker inputs are similar.

Leave a Comment