Out of Control

I have three quick comments on your essay, Bill.

First, the fact that some nuclear power facilities are making a lot of money for their owners at present says little about the profits that might be available from newly constructed facilities. The three generators that make up the profitable Millstone II and III facilities that you refer to, for instance, were collectively bought by their current owner (Dominion Resources) for all of $1.3 billion. If three new generators could collectively be built for $1.3 billion, rather than $18 billion or more, and if they could be delivered to their new owners in a matter of weeks rather than a matter of years, then you would be correct, Bill, that new nuclear power plants are economically attractive investments. Alas, buying real-live operating nuclear plants at fire-sale prices from distressed owners is not at all the same as building prospective facilities from scratch.



Second, you argue that "no one disputes that nuclear offers big cost advantages and returns over conventional fuels in the long run due to their low operation and maintenance costs." Well, that's just not true. I do. And so does Gib Metcalf, who's levelized cost estimates are reflective of total costs over the long run. In fact, you will find very few economists (actually, none that I can even think of) who would agree with you that the levelized costs of new nuclear power plants at present are less than those of alternative facilities.



Third and finally, you complain about an unlevel playing field for nuclear power. You are correct that the field is tilted … but it is tilted towards nuclear. According to the most recent study available on this matter from the Energy Information Administration titled Federal Financial Interventions and Subsidies in Energy Markets 2007 (SR/CNEAF/2008-01), nuclear power is the most heavily subsidized source of electricity in America (tied with wind energy for subsidy per unit of energy generated, but greater in terms of gross outlays). Regardless, the best remedy for an unlevel playing field is to level it by ridding the market of subsidy, not to distort it even more by larding on more subsidy for the alleged disadvantaged.

Comment by: Jerry Taylor at October 21, 2008 11:41 AM

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Correction: Table ES5 of the aforementioned EIA study on energy subsidies notes that nuclear energy receives $1.59 of federal subsidy for every megawatt hour of electricity generated. Renewables as whole, however, receive $2.80 of federal subsidy for every megawatt hour of electricity generated. Within the renewables category, wind gets $23.37 per megawatt hour while solar gets $24.34 per megawatt hour. Of course, one could argue that the EIA estimates ignore all of the regulatory subsidies received by the nuclear power industry, but the same charge could be leveled about how the EIA ignores all of the regulatory subsidies received by the renewable energy industry. Hence, Bill is right - nuclear is disadvantaged relative to renewable energy as far as government support is concerned.

Nuclear energy, however, is NOT disadvantaged when competing against coal (44 cents of federal subsidy for every megawatt hour generated) or natural gas (25 cents of federal subsidy for every megawatt hour generated). Hence, upping the nuclear subsidies to "level the playing field" against renewables makes the playing field even more unequal on balance given the harms done to those two industries which are the source of the lion's share of electricity being generated in the United States.

Comment by: Jerry Taylor at October 22, 2008 08:16 AM

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Another enlightening roundtable. The criticism of energy independence is on the mark. Why do the principles of free trade get thrown in the waste bin when the subject is energy? David Henderson and John Stossel have also mounted attacks on this brainless idea. See articles here, here, and here.

And cheers to Jerry Taylor for another masterful act of debunking what everybody knows that isn't so.

Comment by: Sheldon Richman at October 22, 2008 09:35 AM

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Jerry seems to be pushing for continued use of coal and natural gas.

The costs of fossil fuels are not just carbon but the air pollution deaths and health and business effects of particulates, smog, mercury, arsenic and acid rain.

There are 30,000 deaths/year from coal pollution in the USA. 3 million deaths from air pollution each year (World Health Organization stat). 5,000-10,000 deaths per year from coal mining. Plus coal contributes to the use of diesel fuel because of the energy to transport 6 billion tons of coal from mines to power plants via truck, rail and ship.

So nuclear power enhances safety and saves lives. Show me the deaths from the shoddy French and chinese nuclear plants. I can show you the deaths from the no-accident use of coal for energy. More deaths in the USA than from ten 9-11s. More deaths worldwide from air pollution from coal and fossil fuels than from 20 Hiroshimas and Nagasakis. More deaths than ten thousand Chernobyls.

"Risky" energy should have deaths and illness and damage. This is the case in spades for coal and oil and even natural gas.

In my URL, I link to my review of externE analysis of deaths per TWH from different energy sources.

Management Information Service has an analysis of US energy funding of all kinds from 1950-2006.

Comment by: Brian Wang at October 22, 2008 02:05 PM

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Jerry,

Thanks for digging up those figures on the subsidies for wind and solar. I had no idea they were so outrageously high.

The idea that nuclear is heavily subsidized is one of those legends that survives only by endless repetition. Most of the “subsidies” represent nuclear research. That does not make operating reactors any cheaper and is often related to the weapons program anyway. Until the production tax credit adopted in 2005 – which no one has yet begun collecting – there has never been any day-to-day subsidy for nuclear energy.

Every commercial reactor built after Shippingport in 1957 was constructed with private money. During the 1960s and 1970s, General Electric and Westinghouse lost millions competing with each other with “turnkey” projects delivered at fixed costs. They were willing to lose money because they were fighting for the future. Those are the same reactors that are now making a million dollars a day. Sure they were sold in the late 1990s at bargain prices but so what? Their construction costs had mostly been retired. The only reason the original owners sold them is because they were thought to be white elephants. Entergy, Exelon and other merchant companies figured out how to run them properly and raised their capacity factor (the amount time they’re up and running without safety and maintenance glitches) from 60 to 90 percent. That’s whey they’re now so profitable.

Utility construction involves long-term planning - very long term. Generating stations built in the 1970s are still running today and may last another 20-40 years. Any cost calculation based on today’s prices is relatively meaningless. You have to anticipate what going to happen 20 to 30 years down the road. Almost 100 percent of the new capacity built since 1990 has been natural gas yet that has become a very poor investment. Most of the time they sit idle because gas is too expensive. Gas plants now constitute 39 percent of nameplate capacity but produce only 19 percent of our electricity because of the run-up in gas prices over the last eight years. Meanwhile, nuclear, which constitutes only 11 percent, produces 20 percent of our electricity because reactors run so efficiently and are so cheap to operate. Sure anyone can now produce figures showing coal is now cheaper than nuclear. But if you were a utility executive would you bet that Congress isn’t going to impose a carbon tax somewhere down the road? Would you want to start investing in carbon sequestration? And how about insuring it? (Then we’re really going to need Price-Anderson.) Utility executives who want to build nuclear plants are simply the most sensible and forward-looking people in the industry.

The problem is not the costs surrounding nuclear but the regulatory regime. Japan is building new reactor in three years whereas here it will take at least three at least three years to get through licensing at the Nuclear Regulatory Commission. I just talked with an executive from Constellation Energy, which has contracted with the French to build a new reactor in Maryland, and he said they’re already hit the first roadblock. The NRC will allow them to begin site clearance without an environmental impact statement but the Army Corps of Engineers won’t. So already they’re sitting on their hands. The regulation of nuclear power in this country is so arcane and obdurate that even with “regulatory insurance” (which is what the government is offering), no one may be willing to take the risk. That doesn’t mean we’ll be generating electricity in the cheapest and most efficient way. It simply means we’ll go on producing it from aging coal plants until we gradually become a second-rate power.

Comment by: William Tucker at October 23, 2008 05:17 AM

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With Jerry and Bill’s permission, I would like to invoke my moderator’s privileges and ask one question from each:

Bill: You note that “nuclear is heavily subsidized as one of those legends that survives only by endless repetition.” But in his commentary, Jerry specifically mentions a whole slew of subsidies -- beyond the 1.8 c per kW hour production tax credit -- that seem to artificially lower the cost of nuclear. These include: Accelerated depreciation tax rules and $18 billion in federal loan guarantees. You don’t address these. Do other fuels – both conventional and unconventional – also enjoy something akin to these advantages? If you can show that they do, you would have a strong case that, given a level playing field, nuclear would succeed in the market. Otherwise, it seems to me, it remains an open question.

Jerry: Your contention that the regulations are no longer a serious obstacle to investments in nuclear is based on rather impressionistic evidence, namely, that you don’t hear too many complaints from the nuclear industry on this score anymore. But what about Bill’s point that even though the regulatory process might not be super onerous anymore, the problem is that the industry fears that whatever process exists right now can still be exploited by opponents to foist endless construction and other delays, something that you yourself agree are fatal for an industry with such high up front capital costs. Bill’s conversation with Constellation Energy executive seems to suggest that regulatory obstacles are hardly insignificant. Doesn’t that executive’s comments counter your impression that the industry in no longer complaining about the regulatory process?

Comment by: shikha dalmia at October 23, 2008 08:22 AM

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Allow me to answer Bill's reposte and, in so doing, answer Shikha's question as well.

First, Bill claims that "The idea that nuclear is heavily subsidized is one of those legends that survives only by endless repetition." Shikha is right to press Bill on this. Are we to believe that Gib Metcalf’s careful examination of the federal tax code as it pertains to energy, and his conclusions about the extent and impact of nuclear energy subsidies on the levelized cost of nuclear power, is not a real document, but is instead the stuff of legend? Well, I have the document right here. It's one thing to argue with someone's analysis - it's another to deny its existance.

Likewise, I have here in front of me EIA’s 2008 report on energy subsidies that, again, goes into excruciating detail about the direct subsidies received by the nuclear energy industry. They are indeed quite high; $1.3 billion in 2007 (compared to $1 billion for renewable energy of all kinds in that same year). Of course, those tallies are not comprehensive in that they do not reflect regulatory preferences, but regardless, there is nothing “legendary” about them.

Regardless, Bill contends that most of the subsidies are in the form of R&D. He is correct within the confines of direct federal expenditures and tax expenditures. According to the EIA, nuclear energy received $200 million in tax preferences in 2007 compared to $922 million in dedicated federal R&D (by means of comparison, renewable energy received $724 million in tax preferences and $108 million for R&D in 2007). The $922 million figure, however, does NOT include weapons-related expenditures: $319 million goes towards the “Nuclear Energy Research Initiative,” which is about new nuclear power plant designs and practices; $350 million goes for the environmental management of nuclear waste and fuel safety; and $253 million goes for research into power plan shut-down practices and program administration.

Regardless, if federal nuclear R&D is not making nuclear power any cheaper to generate (and I suspect that Bill is correct about that), then there is no reason for the taxpayer to keep those programs going.

Bill then argues that, until 2005, there has never been any day-to-day subsidy for nuclear energy. Here again, he is wrong. Even if we strictly observe his qualification regarding “day-to-day subsidies” (which I take to mean subsidies that might affect marginal production costs), the federal government has long had responsibility for the supply and enrichment of uranium but failed to charge nuclear power plants anything for the capital or inventory costs of the program. The 1978 Energy Research and Development Administration authorization further stipulated that federal enrichment services should be priced at levels not detrimental to industry. Federal uranium enrichment services were finally privatized in 1992. Hence, the claim that there was no day-to-day subsidy of plant operations until 2005 is simply incorrect.

But let’s not quibble: it makes little difference whether the feds are subsidizing facility financing or marginal operating costs. Both directly advantage nuclear power investors relative to other industries. Both represent wealth transfers from taxpayer to industry. Both rig the market to produce more nuclear energy than would otherwise have been the case.

Relatedly, Bill contends that "every commercial reactor built after Shippingport in 1957 was constructed with private money." Well, I guess it depends upon how you define “private money.” In that very same year – 1957 – Congress created a cooperative program in which the Atomic Energy Commission subsidized the construction of reactors sponsored and operated by private utilities (PL85-92). In 1958, Congress followed-up with a provision to allow NATO allies to receive U.S. tax dollars to purchase light-water-reactor technology under the Euroatom Program. Together, this represents something other than the rugged corporate individualism that Bill implies governed the industry until very recently.

Bill is quite correct regarding the chain of events that led to the profitable operation of merchant nuclear power plants. But he misses the point. New nuclear power plants are expensive to build because of the high up-front capital costs. If someone else eats those costs and sells you a plant for a tiny fraction of the construction costs, then yes, nuclear power will make you profits. But if you have to build the plant yourself – that is, if YOU are the party eating those costs – then the picture changes. Since we are talking here about the cost of new nuclear power plants, Bill's vignette about merchant generator profits is irrelevant.

Bill seems to understand the difficulty of defending nuclear energy investments given past experience; otherwise why write that "Any cost calculation based on today’s prices is relatively meaningless"? Regardless, you will have a hard time lecturing investment bankers about the obvious profits available from nuclear power plant investments leading with he claim that observable costs are meaningless. All we can know for certain are what observable costs are at present. Future costs are speculative. Predictions that nuclear power costs are sure to come down have been with us for half a century ... and people who bet billions on that proposition have gone bankrupt. They have yet to be proven correct.

Instead, Bill argues that "You have to anticipate what going to happen 20 to 30 years down the road." Well, good luck with that. See chapter 4 of Vaclav Smil’s excellent book Energy at the Crossroads (MIT Press, 2003). Predictions about future energy costs and market share have proven wildly incorrect from all parties and at all times. If past is prologue, we have no way of knowing for certain what nuclear power plant costs are going to be in the future. Predictions about it being “too cheap to meter” at some future data should be taken with a grain of salt.

Bill then talks about the high costs of natural gas-fired power of late. But be that as it may, gas-fired power plants are still more profitable than nuclear power plants if the levelized cost estimates of Metcalf and others are to be believed. Regardless, Bill's argument is misleading. There is more gas-fired production capacity than gas market share because many gas generators are peaking units. That is, they only operate when demand is at peak. That’s not because someone screwed up; it’s because they were built for exactly that purpose.

Finally, we get to climate change - the only real reason we're having this discussion. Bill thinks that carbon taxes are coming and, accordingly, "Utility executives who want to build nuclear plants are simply the most sensible and forward-looking people in the industry." But betting on the future direction of politics in this country is a hazardous business. That said, if it were so obvious that nuclear power plants are a great investment in the future, why won’t anyone on Wall Street – even before the recent financial collapse, when money was cheaper than water – loan these “sensible and forward-looking” executives as much as a single dime to build these dream-plants absent a guarantee that the taxpayer would make good on any bad loans?

Bill then comes back to his Ur-point: "The problem is not the costs surrounding nuclear but the regulatory regime." Yet when that very issue was put to Richard Myers, vice president of the Nuclear Energy Institute (the trade association of the nuclear power industry), at a Manhattan Institute conference on nuclear energy last year, Myers refused to blame the federal regulatory regime for the reluctance to invest in new facilities even when repeatedly invited to do exactly that. Rather, Myers positively GUSHED about the architecture of the current regulatory regime – as well he should given that it is a direct translation of the industry’s lobbying agenda of the 1980s and 1990s. You were there, Bill – heck, you hosted one of the panel discussions – so I know you heard that as well as I did. Nor is Mr. Myers’ perspective an outlier –I have heard the industry praise the current permitting procedures and regulatory standards time and time again.

Hence, when Shikha asks whether the high construction costs associated with nuclear power are due to to regulation, all I can say is that, were that so, the industry would almost certainly be the first to make that argument. And they do not. It turns out that building a nuclear reactor is a bit more labor and capital intensive than building a gas-fired turbine. Regulation has little to do with that.

I hardly think that Constellation’s problems at the Calvert Cliffs III site are, as Bill is suggesting, due to a demand that Constellation file an an environmental impact statement. Constellation's own estimates of the “overnight costs” of construction (that is, construction costs excluding the cost of financing) have skyrocketed from $1,900 kW/e in March 2007 to $2,700 kW/e only nine months later ... and this has nothing to do with environmental impact statements.

Regardless, if regulations are the problem, then fix them. Subsidies are not the appropriate remedy.

Comment by: Jerry Taylor at October 23, 2008 02:01 PM

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Wow. I’m glad we’re having this discussion because it has prompted me to do a little research of my own. Forgive me for not knowing this but the Nuclear Energy Institute put out a study by Management Information Services in September stating that over the last 50 years fossil fuels and hydroelectricity have all receives more subsidies than nuclear power or solar and wind energy. The report also indicates that renewables are coming on strong. http://www.nei.org/filefolder/Bezdek_Report.pdf Now granted this study was initiated and paid for by the nuclear industry, but it still makes some good points. Here is Management Information Services’ tabulation of federal help over the past half-century:

Oil – 14 percent
Natural gas – 13 percent
Coal – 11 percent
Hydroelectricity – 11 percent
Nuclear – 9 percent
Renewables – 6 percent
Geothermal – 1 percent.

The study makes several key assumptions, which don’t seem unreasonable. It excludes government research on fusion energy and atomic weaponry. Environmental groups have regularly lumped together nuclear power with nuclear weapons, which is what originally produced the notion that nuclear has lived off the federal government. When we stick to research that actually relates to producing electricity from fission, here’s what emerges:

· Oil’s subsidies have come mainly through tax policies, particularly the oil depletion allowances that were adopted as a temporary measure during World War I and not repealed until the 1980s. The deduction of intangible drilling costs has also been an encouragement to exploration. The report also counts dredging of major ports, which is largely done to accommodate oil tankers.
· Natural gas has received most of the same incentives as oil. Coal has received some tax breaks but not as much.
· Hydroelectricity is practically run by the government, with most major dams being federal projects. Prices are kept well below market while the government swallows the costs.
· Most of the support for nuclear power has been in the form of research. The government does not operate commercial reactors and there have been no special tax benefits as with fossil fuels.

As with all such studies, these figures will be open to dispute. The NEI doesn’t include uranium enrichment, as does Jerry – although as with many thing in nuclear, this was a case where the industry wanted privatization while the government insisted on keeping control. But the general conclusion that can be drawn is that, contrary to popular legend, nuclear power is definitely not a stepchild of the government. It has enough natural advantages so it would have developed without government patronage. Instead, most of the government’s involvement has been with regulation. (The report actually considers regulation an expense, which makes things a bit more confusing. The price controls on oil in the 1970s, for example, are counted as an “incentive” to oil production.)

All this puts into perspective, at least, the idea that the 1.5 cents/kWh production tax credit and the $18 billion in “regulatory” insurance in the Energy Policy Act of 2005 are some kind of overwhelming advantage. The production tax credit will only go to the first 6000 megawatts of new construction, whereas the same subsidy for wind and solar facilities is open-ended. And as Carey Fleming, of Constellation Energy, pointed out at that conference I attended, the total investment for the 27 new reactors now applying for licenses is somewhere around $100 million, so $18 million in regulatory insurance isn’t going to go very far.

Basically, both these incentives are only intended to prime the pump for new nuclear construction. In truth, the utilities are like lumbering circus elephants that will turn any way we prod them. If the government says go out and build windmills, they’ll go out and build windmills, even though it is an essentially useless task that will produce very little dispatchable electricity. The problem with new nuclear construction is nobody wants to be first out of the box. That’s the plant that will suffer all the regulatory delays. Once that’s settled, however (assuming it goes through), others will follow more easily and neither “regulatory insurance” nor production tax credits will be necessary. Almost everyone in the utility industry believes nuclear plants can be profitable. It’s getting over that first hump that will be the problem.

And by the way, don’t be surprised to hear NEI officials and utility executives singing the praises of the Nuclear Regulatory Commission. In fact the NRC is making an outstanding effort to speed up the licensing process – particularly in comparison to the way it worked in the 1980s. But it’s still somewhat bizarre that every new reactor will have to go through three years of regulatory review even though it may be identical to the last one. However, that’s the path we’ve chosen to go with nuclear power. It has nothing to do with the underlying advantages of the technology.

I don’t know whether anyone can say what a perfectly elastic, fungible, unfettered free market in energy would look like at this moment. Wind would certainly be gone but I don’t think nuclear would do badly. Coal would come in first place, as usual, but that’s only because coal is allowed to kill 30,000 people a year from lung conditions (according to the EPA) without being held accountable.

All I’m saying here is that nuclear power is definitely not a stepchild of the government. There’s an irrefutable advantage in the astounding concentration of energy in the nucleus of the atom - 2 million times the output as the same quantity of fossil fuels and 20 million times the output of solar energy. Nuclear power doesn’t need government assistance. It just needs a public that understands it as something more than a mysterious and terrifying technology.

Comment by: William Tucker at October 23, 2008 09:34 PM

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Believe what you like, Bill, but there is not one single published analysis that I am aware of that shows that new nuclear power plants are cheaper at the moment than coal or natural gas. All published analysis argues exactly the opposite of what you assert here ... and they all show the cost disparity to be quite large.

You imply that, outside of the United States, nuclear power plants are built cheaply and in a jiffy. How then to explain the fiasco in Finland mentioned in my initial essay? That facility is way overdue and over budget and not an environmental impact statement or NRC can be found to take the fall.

The contention that, once we get the first couple of plants built all will be gravy, is belied by experience. That's exactly what was said in the 1950s ... and how did that work out? To the extent that we find reliable data on nuclear power plant construction costs abroad - as my initial essay discussed - we find the same high cost numbers for new plants that we find here. Different regulatory bodies, different environmental review standards, differing amounts of government support, different track records regarding the number of plants built, but alas, more or less the same conclusions. Only in economies where the state builds (or subsidizes) regardless of cost do we find nuclear power plants.

Regardless, if markets froze-up and proved incapable of delivering new industries characterized by a lot of potential "learning by doing," then the American economy would never have gotten off the ground. That dynamic is not unique to the nuclear energy sector.

The fact that you cite the MIS study to justify government subsidy of nuclear power speaks volumes. If you Google MIS and energy, you'll find that they've published a load of such studies over the years and that they are routinely marshaled by renewable energy proponents to justify compensatory subsidies. That is, "we've been robbed" arguments are the last refuge of those who can't compete in the market. Regardless, any analysis that holds that oil price controls were somehow a subsidy to the oil industry is an analysis so unhinged at its core that absolutely nothing can be trusted therein.

That said, what difference does the MIS analysis make even were the analysis correct? That is, whatever advantages were accrued by the oil industry with the depletion allowance are long gone - and irrelevant to the power market today or the relative competitiveness of nuclear energy. Moreover, any gross estimate of subsides - past or present - tells us little about relative competitive advantage. If the subsidy in question reduced marginal operating costs, then it will affect prices and thus prove a disadvantage to competitors without access to the subsidy. If the subsidy in question does not reduce marginal production costs, it is a wealth transfer from taxpayer to industry but it does not affect prices and thus, does not disadvantage market competitors. Oil and gas subsidies in the electricity sector have had only trivial impacts on the price of electricity from those sources. Coal subsidies have had a larger impact on the margin, but regardless, gas and coal-fired electricity would be the main source of power on the grid with or without government interventions. Nuclear energy, however, requires a stunning array of subsidies to even exist - a point the industry itself makes whenever those subsidies are attacked in Congress.

Regardless, let markets actors sort this out. If nuclear is the good investment that you say it is, Bill, then new plants will come. If not, they won't. There is no concrete market failure that I can see that can explain the lack of investment in nuclear. Even with the feds guaranteeing 90% of the value of the loans for the first half-dozen or so power plants, no one will lend ... an observation that speaks volumes. Still, the way we resolve disputes in a free market economy about whether this or that is economically worthwhile is to let profit-hungry investors decide whether to go forward or not and, as long as we allow them to keep the profits or take the losses associated with their decisions, the "right" answer about the economic merits of this or that will be answered.

Again, the remedy for subsidies that unbalance the electricity playing field is to eliminate the subsidies at issue. The remedy for poor regulation is better regulation. There is no good argument for the current regime of nuclear industry preferences and even less argument for McCain-like plants to build x nuclear power plants in y years as if this were some Soviet-style economy being issued 10-Year plans from government.

Comment by: Jerry Taylor at October 24, 2008 04:05 AM

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Bill,

The claim that nuclear power is "under subsidized" is bizarre in the extreme. Nuclear power remains a catastrophic threat, because of human error, equipment failure, or military strike. Even discounting terrorism and the like, the notion that we are able to predict failure rates and assign probabilities with such a small sample space is absurd. The probabilities of failure are simply invented to support the argument of the writer. So what are the real costs and risks of nuclear power?

The best proof that nuclear plants are uneconomical is that no one is willing to ensure them. The government does so. All the research and development for the plants was subsidized, which I doubt went into your calculations, much as hidden subsidies to air travel never calculate the cost of airports, air traffic controller, military research into airplanes, etc.

The only measure by which to rationally assess the hazard of nuclear plants is to divide the number of plant years by the number of serious accidents. The exact result depends on how you classify serious accidents, but does not come close to 1 in a million that you would need for rational consideration when the catastrophic release of radiation is concerned. Any analysis based on history does not include improvements made in reactor safety, but also does not include degradation due to reactor age. Human nature being what it is, the infrastructure of the reactor will be allowed to deteriorate, and permits will be reissued, presumably until some point where it is clearly no longer safe. The question is, when will the regulators choke off the reactor, before or after catastrophe? And incidentally, what will happen to the low-level radiation in the plant equipment, who will be responsible for maintenance when we have all seen that the lifespan of companies is often less than 50 years in the market? Our society does not handle long-term planning well, our financial structures are all geared towards short-term costs, and yet the maintenance and cleanup of ordinary mothballed plants is something that will take centuries.

And finally, Chernobyl. The ultimate insult to intelligence is to cite a feeble statistic on the number of deaths at Chernobyl, when a visit to clinics in the area can easily demonstrate the vast numbers of middle aged people dying of "rare" cancers, or of birth defects. Chernobyl was and is a disaster of epic proportions, the death toll is merely a slow wave. If you can't even honestly face the reality of a situation you claim is abnormal, it severely damages your credibility on any other aspect of nuclear power.

Comment by: Dov Kruger at October 24, 2008 07:59 AM

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The IAEA report on Chernobyl http://www.iaea.org/NewsCenter/Focus/Chernobyl/#

indicates a preliminary increase in mortality from 16 to 18 per thousand, despite the fact that in solid cancers we would only expect to begin to see the wave of coming deaths. The report does not cover birth defects, of which I have also seen anecdotal evidence.

Presumably by the end, tens of thousands of deaths will have occurred.
And of course, the only reason the death toll is only this low because of massive evacuation.

Comment by: Dov Kruger at October 24, 2008 08:19 AM

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http://www.narucmeetings.org/Presentations/2008%20EMP%20Levelized%20Cost%20of%20Energy%20-%20Master%20June%202008%20(2).pdf

Levelized cost of energy comparison by Lazard shows competitive nuclear power. This is based on a facility life of only 20 years even though nuclear plants are getting operating extensions to 60 years now and all new plants are slated for at least 40 years.

Comment by: Brian Wang at October 24, 2008 02:03 PM

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Jerry - All of the studies that you point to are attempts to predict the future - they are not studies of actual costs because the projects have not yet started. What is lost in those studies is the fact that energy is a competitive business and not all of the competitors are short-sighted enough to release proprietary cost and schedule information to the public. In any large, complex enterprise like nuclear plant construction, there are thousands of components in the eventual cost equation.

Many of those components can be managed and controlled. Some of the managers are going to be better than others and they will be worth far more than a talented shortstop.

As a guy who has been around nukes (that is our nickname for ourselves) for more than 30 years, I can tell you that we share a few common characteristics. We love and understand hard numbers, we are constantly assessing our performance, and we work very hard to learn from our mistakes. Since many of us share a heritage as submariners, we also do not talk very much. (There are always outliers in any group. As a guy with an English undergraduate degree, I fall into that category within the community of nuclear professionals.)

My impression, based on attending and reporting on dozens of gatherings over the past five years or so is that the nuclear industry leaders believe very strongly that they have learned many lessons and are ready to begin building again. However, they are, like most executives at large enterprises, quite willing to use whatever political influence they can garner to get as much from the public purse as possible.

Anyone who believes that large American enterprises are led by free market thinkers has apparently not been awake for the past few months. There are more Rolex-wearing, Lexus-driving, private jet-flying hands looking for public assistance than you can shake a stick at. It is a shame, but the corporate leaders at NEI - most of whom are not true nukes but are more financial and legal specialists - are not much different in this matter than their country club friends.

The constant pressure for more subsidies is not a factor that should condemn nuclear technology. It is endemic among the corporate climbers and is really a separate topic of discussion.

Moving beyond the 30 or so commercial projects that are going forward at various rates, you have completely overlooked some exciting entrepreneurial endeavors like Hyperion Power Generation and NuScale.

Those are venture capital funded companies with some rather unique ideas about building nuclear fission power plants. They believe that the way to reduce costs is to build plants in series, in a factory, using interchangeable parts. They have this really bizarre idea that you can gain economies by building hundreds to thousands of identical power generators that are the size that the customers seem to want, based on their recent purchase history. (About 25-50 MWe) They even believe that making a product that is well within the budget capabilities of their customers will provide more sales than having only one product choice that is so large that it takes a complex corporate partnership to put together enough backers to buy one. Weird, huh?

Those subsidies that Metcalf mentions and that you continue to talk about are mainly imaginary in that they are not currently available to reduce anyone's cost. They are a promise for sometime in the future; a promise that might be changed with political action.

With regard to regulatory hurdles, I want to share my personal experience. I have made dozens of presentations over a 15 year period to investment bankers and venture capitalists with my company's business case analysis.

The primary hurdle that has prevented them from investing is the fact that we not only get delayed by the licensing process - which for us may take longer than the 42 months currently advertised for light water reactors - but we get to pay the US government $250,000 in an initial application fee plus $256 for every hour that an NRC staff member spends in reviewing our application.

If the government decides to have a meeting and invites 20 staff members - something that would NEVER happen, I am sure - the clock would be ticking to the tune of $5120 per hour. (Reason for my sarcasm - I have spent more than 30 years working for the US government.) If we decide that we need to have a few classes for NRC engineers so that they can become better versed in high temperature gas cooled reactors, we are on the hook to pay them to attend.

When we got to that point in the presentation and explained to the potential investors that we had no control over how long the process would take or how many billable hours the lawyers at the NRC could run up, they politely told us that they could not invest in our exciting technology because their time horizon is too short and because they could not quantify the risk.

This is the regulatory regime that makes it very challenging to introduce atomic technology, even if it is based on sound science and engineering with a good dose of sound manufacturing principles. The big companies that make up the NEI do not complain much about the licensing fees associated with new plants, some of them are getting their fees paid by the DOE in the form of grants.

All of those imposed hurdles are why Adams Atomic Engines, Inc. has converted itself into a new media company. We are trying to make a go out of reporting on the efforts of the rest of the industry to overcome five decades worth of resistance to the entry of a very disruptive competitor into the world's most profitable enterprise - energy.

Rod Adams

Founder, Adams Atomic Engines, Inc.

Publisher, Atomic Insights

Host, The Atomic Show Podcast

Comment by: Rod Adams at October 25, 2008 07:09 AM

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Rod, you are correct that levelized cost estimates are prospective and thus uncertain. But observed costs over the past two decades of facility construction are quite clear with regards to costs at present for conventional light-water plants. Likewse, construction risk is a very real - and not imaginary - problem even with the most recent projects.

I hope you are right about the economic promise of more radical designs, but we have not seen widespread construction of those plants anywere on Planet Earth so costs in practice (as opposed to in theory) remain to be seen. If you are correct, I'm sure that some country somewhere will demonstrate the economic promise of those designs by allowing them to go forward.

You are also correct that the loan guarrantees and whatnot associated with the 2005 Energy Policy Act have cost taxpayers nothing so far because nothing has been built. I hope that remains the case (being opposed as I am to federal loan guarrantees, not nuclear power per se). But the subsidies associated with favorable tax treatment, Price-Anderson, and the rest are hardly insubstantial.

You know more about the nitty-gritty of the permitting process than I do, so I will defer to you about the relative hurdles in play. While I would be happy to embrace positive regulatory reforms (not counterveiling subsidies or government construction orders) as a remedy, it does not strike me as outrageous to ask the industry to pay for the costs associated with processing industry permit applications. And given the liability cap associated with Price-Anderson, there a lot of room to argue that safety regulation is in order given the industry's incentives to underinvest in safety as long as Price-Anderson is on the books. Of course, the best remedy for THAT is to get rid of Price-Anderson, but if that's not possible, then safety regulation is not self-evidently bad.

Comment by: Jerry Taylor at October 27, 2008 07:51 AM

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Jerry: I am curious - where have you observed costs of facility construction with regards to light water plants in the past two decades? The only places where there has been a continuing construction program are certain Asian countries, and their cost and schedule experience seems to be quite favorable. For me, the Finland experience was completely predictable - the first time through any long, complex endeavor with a new team is ALWAYS challenging. An outside observer can always make money by betting on delays, but those close to the project will always be a little surprised on the exact nature of the problem that causes the delay.

If they knew the cause of the delay in advance, they would take action to prevent it. My experience is that the game is a lot like Whack a Mole, but my experience also shows that teams can get surprising results and learning based improvements as they work together on similar projects.

How do you feel about all of the tax benefits (accelerated depletion allowances, royalty forgiveness, and investment tax credits) that flow from taxpayers to producers of fossil fuels that compete directly with uranium and thorium based fuels? Do those suppliers pay remotely similar fees for the regulator costs associated with drilling and burning?

What is it about Price Anderson - which is essentially a government brokered agreement among industrial competitors for a mutual insurance program - that you find so offensive? It has actually been a source of income for the government, not a drain on the public purse. I also know enough about nuclear power risks to believe that it will NEVER cost taxpayers a dime. I know that is a matter of opinion and we know what opinions are worth, but mine was developed over a very long time with a lot of direct professional experience.

My challenge with the regulatory fees is that they are charged in advance and the regulator has no real incentive to be responsive. The longer the process goes, the more money flows from the customer to the monopoly supplier of regulatory services. If the customer is an entrepreneur with a great idea for a valuable new energy source that is based on sound science and proven engineering, he can still be driven into a very expensive bankruptcy. Is that really the model that Cato advocates? I am in favor of well designed government safety regulations and inspections, but I also recognize that regulations can be designed to be a terrific barrier to entry by the established players in an industry.

Your use of the term "radical design" is a clear attempt at slanting the argument. The specific design that I spent 15 years attempting to sell is based on a concept that originated with Farrington Daniels in 1946, was tested and proven by the Germans over a 21 year test and development program, is in operation at Tsingua University today. A follow-on larger unit is nearing the construction phase in South Africa. There is nothing radical or revolutionary about it - the reason I believe it is an improvement over existing designs is that it is more adaptable to a market that Westinghouse and GE did not particularly desire to serve. I also believe they avoided the simplicity of Daniels concept because it offered less chances to upsell their customers.

Comment by: Rod Adams at October 29, 2008 03:11 AM

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Regarding the Asian nuclear power experience, see Jim Harding, “The Economics of Nuclear Power and Proliferation Risks in a Carbon-Constrained World,” The Electricity Journal 20:10, December 2007 (not available electronically as far as I know). Harding marshals data suggesting that the overnight construction costs of new nuclear power plants that came on-line in Japan over the past two decades averaged $3,257 per KW in 2007 dollars. South Korean overnight construction costs were lower, but given the fact that labor costs are significantly lower in South Korea than in Japan or the United States, those cost figures are not as representative of prospective U.S. costs. Hence, the data does not support your belief that Asian experience “seems to be quite favorable” from an economic perspective.

Given the lack of new nuclear power plant construction in the United States over the past several decades, the Finnish experience is very likely a signal for what to expect here. While your “learning by doing” argument seems plausible, there is no trend towards lower overnight construction costs over time in Asia or elsewhere, which suggests to me that your belief that construction costs will come down over time represents the triumph of hope over experience.

As far as oil subsidies are concerned, I am against them. See our study by Ronald Sutherland titled “’Big Oil’ at the Public Trough: An Examination of Petroleum Subsidies” – available on the Cato website – regarding this issue. A more recent tabulation of oil subsidies can be found in the aforementioned working paper from Tufts economist Gilbert Metcalf. That said, Metcalf argues – and I agree – that the oil subsidies at issue do not distort the market in any consequential manner because they do not have any measurable impact on marginal production costs and, hence, final product prices. They are wealth transfers from taxpayer to oil company – and accordingly, not to be embraced – but one cannot say that those subsidies disadvantage those who compete against oil. Moreover, they certainly don’t disadvantage nuclear which, as you know, does not compete with oil for business.

I find Price-Anderson offensive because it puts a cap on the liability that nuclear power plant owners would face in the advent of a major accident. Arbitrary liability caps for damages is not something that libertarians support. It hasn’t cost taxpayers anything as of yet, but that’s not the point. The Price-Anderson Act is a backdoor means of channeling finance to a particular corporate interest group. Moreover, absent regulatory protection from liability, the nuclear power industry would not exist … at least, according to the nuclear power industry, which makes that claim every time the Price-Anderson Act comes up for reauthorization. The true economic cost of Price-Anderson is hard to determine, however, a point well-made by Anthony Heyes in “Determining the Price of Price-Anderson,” Regulation, Winter 2002-2003, pp. 26-30 (again, available on the Cato website).

Regarding those fees you complain about, nobody in the market - not the commercial bankers, not the investment bankers (before they ceased to be investment bankers that is), not hedge fund operators, and not nuclear industry executives – have fingered the permit fees as a significant obstacle for going forward with new power plants. These would be the first parties to make that claim if that claim had merit. How much of the $6-9 billion construction costs are tied up in regulatory fees? A trivial amount. That’s simply not the problem.

I did not intend to use "radical design" in any pejorative sense. Good luck with your new not-so-radical plant design. If you have indeed designed a better (atomic) mousetrap, then I’m sure it will do well in the market. There is no need for government to promote it.

Comment by: Jerry Taylor at October 30, 2008 07:06 AM

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The Tucker v. Taylor debate over the viability of nuclear power is superb, but Shikha Dalmia’s introductory piece debunking the “energy independence” myth is by itself an important contribution to the public square in this presidential election year. Indeed, it hard to remember an election in which the daily discourse was so divorced from economic fundamentals. On claiming Wall Street greed as the cause of the financial crisis, on global warming, on energy independence – both the Obama and McCain campaigns have embraced easy political slogans that are profoundly misleading.

Democratic Party demagoguery on trade and markets has been a given for years now, but the Republican Party – allegedly the bastion of “sensible” business types – has now also embraced the left’s populist rhetoric. After all, it was George Bush, not Nancy Pelosi, who coined the term “America’s addiction to oil” that now straitjackets our energy debate.

Like Nixon before him, Bush lunged at the phrase as insulation from Democratic accusations that his foreign policy was about protecting rich oil sheiks. But embracing leftist demagoguery did nothing to win over opponents who already despised him, and only put Republicans on a slippery slope to embracing state subsidies for wind power, clean coal, and other programs that would never make sense without the false premise of energy independence.

As a result, pols like Sarah Palin – a governor from an energy state who should know better – are compelled to deliver absurd stump speeches such as the one she delivered in Toledo October 29 (as reported by AP):

“Palin says the recent drop in oil and gas prices shouldn't prevent the development of alternative energy sources.” (Come again? If new products are too expensive for the market to bear, then, logically, no company will develop them.)

“Palin also called for the development of clean-coal technology.” (What does she know that engineers and MBAs don’t? There is not a viable commercial clean coal plant in America today. As any utility executive will tell you, the technology is not price competitive.)

By embracing unrealistic alternatives that the market has rejected, then, Republicans and Democrats inevitably offer the same solutions: More government intervention to pursue the mirage of energy independence.

And that, as Dalmia scathingly notes, means America – a First World country! – sets itself up to relearn the lessons of the Third World. “In their zeal for economic self-sufficiency, (Third World nations) embraced something called the import-substitution approach half a century ago,” writes Dalmia. “The upshot, however, was neither self-sufficiency nor prosperity. Rather, import-substitution raised production costs, making Third World goods uncompetitive in the global markets and prohibitively expensive at home, consigning these countries to decades and decades of economic stagnation that has not yet been fully reversed. Delinking America from global energy markets will wreak similar economic havoc.”

Do we really need to relearn those lessons?

Yet, possessed by Third World envy, Washington pols have been seeking advice from inferior systems on multiple energy fronts – including the recent flurry of travel to Brazil intent on mimicking its statist ethanol policies!

Words have consequences, and the reckless sloganeering of the 2008 campaign will come back to haunt us. Fortunately, the clear minds at Reason’s Roundtable have provided free marketers with plenty of ammunition with which to fight.

Comment by: Henry Payne, The Detroit News at October 30, 2008 09:36 AM

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Price Anderson offensive? What I find offensive is (fossil industry funded) groups like Cato harping on endlessly about programs like PA that at most amount to a tiny subsidy, while blithely (and probably deliberately) ignoring fossil plant subsidies that are orders of magnitude larger.

No, I'm not talking about monetary subsidies (which are indeed very significant). I'm talking about the massive "free pollution" subsidy that fossil plants recieve. According to EPA, coal plants cause ~25,000 deaths in the US alone, every single year, along with ~$100 billion in indirect economic damages. These plants get to inflict all this damage w/o paying a dime in compensation.

One can equate and compare this "free pollution" subsidy to Price Anderson. It's actually an apples to apples comparison. In both cases, it's about the (possible or certain) release of toxic materials into the environment, and the duty to compensate those who would be affected. The entire premise underlying Price Anderson, and nuclear insurance in general, is the assumption that if pollution is ever released, everyone who could possibly claim any impact would, of course, be highly compensated.

The whole question with PA is whether or not the industry has enough insurance to cover this obligation. What's mind boggling is that fossil plants routinely release enormous amounts of pollution, and cause enormous damage (much more, annually, than a worst-case meltdown), and they never have to compensate anyone! If nuclear was treated that way, it wouldn't need any insurance at all.

Numerically, it's easy to see that any Price Anderson subsidy is tiny compared to the "free pollution subsidy". We're talking about (possibly) "only" having partial insurance to cover a ~0.1% annual chance of a release that causes ~1000 deaths at most, versus the ongoing, and totally uninsured/uncompensated release of pollution that causes ~25,000 deaths every single year. Nuclear's risk is thousands of times smaller, and even that is partially ensured against, whereas fossil plants have thousands of times the impact and are completely uninsiured (as no compensation is ever paid).

Scientific studies agree with the common sense arguments above. External cost studies (e.g., the European Commission's ExternE project) show that coal and oil's external (unpaid pollution) costs range from 4-8 cents/kW-hr. In other words, if they had to compensate people for the effects of their releases (like nuclear would be required to) the cost of fossil power would double. Meanwhile, even opponents of Price Anderson estimate that any subsidy would only amount to ~0.04-0.4 cents/kW-hr (http://en.wikipedia.org/wiki/Price-Anderson_Nuclear_Industries_Indemnity_Act). Other, more neutral estimates put the subsidy at ~0.03 cents (http://siepr.stanford.edu/papers/briefs/policybrief_jan02.pdf).

Simply put, while the "free pollution" subsidy enjoyed by fossil fuels is enormous, any subsidy from Price Anderson is negligible. If both "subsidies" were removed, it is coal plants, not nuclear plants, that would go out of business.

Comment by: Jim Hopf at October 30, 2008 05:38 PM

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Speaking more generally (beyond Price Anderson), to say that the regulatory playing field is slanted against nuclear is a comical understatement. In terms of allowable risk, and the amount of money required to be spent to avoid one unit of public health risk, nuclear is held to standards thousands of times higher than fossil fuels.

In addition to being the leading cause of global warming, fossil plants cause ~25,000 deaths every single year in the US alone, while US nuclear plants have not killed anyone, or had any measurable health impact, over their entire ~40-year history. Even a nuclear plant with no containment dome and no safety systems would have a vastly lower public health risk than the most modern coal plants. And such a plant would compete with coal on cost.

Meanwhile, if fossil plants were held to nuclear's standards, they would not be allowed to emit any quantity of pollutants (SOx, NOx, mercury, particulates, etc..) or any CO2. Instead, like nuclear, they would be required to fully contain all their toxins/wastes and demonstrate, to a high standard of scientific proof, that they remain contained for as long as they remain hazardous. (Good luck on that, given the fact that these wastes are millions of times as voluminous, and last far longer than nuclear waste.) At a minimum, any such releases should be taxed to compensate society for their ill effects (which would double the power cost, as discussed in the last post).

Under any such (actually) level playing field, nuclear would compete just fine. The unwillingness of Mr. Taylor (or Cato) to acknowledge the huge double standard between nuclear and fossil requirements is incredible.

The argument that regulations are not unduly (or comparitively) strict because industry is not complaining is extremely weak. The industry recognizes the deep (decades-in-making) prejudice and fear that the public and politicians have against all things nuclear, and how they will always treat a negligible nuclear issue/risk much more seriously than a fossil (or any other industry) related risk thousands of times larger. They've given up on this, and realize that lowering nuclear's requirements to be similar to those imposed on fossil plants (such as removing the requirement for containements or any safety systems) is politically impossible. They're just happy that things may be slightly better than before.

On the other hand, raising the requirements on fossil plants to something remotely like what nuclear faces is indeed poltically possible, perhaps even probable. The primary (and very serious) failure of our current energy market has always been that fossil fuels' massive external costs are not counted, i.e., the fact that no economic value is currently placed on CO2 emissions, or killing 25,000 people every year, or soon being dependent on Russia and/or the Middle East for gas to fire our power plants. People are finally recognizing the very serious problems with fossil fuels and are starting to make policies that correct this tremendous market failure.

Under any system where CO2, air pollution, and foreign energy imports are limited or appropriately taxed, nuclear will have no trouble competing for baseload generation. And yes, I (and most nuclear supporters) am more than willing to put such policies in place, eliminate all subsidies, let the market then decide, and abide by the result.

Mr. Taylor dismisses these likely changes in policy as "speculation". His main "point" is that assuming no such policies, nuclear is more expensive and coal or gas. Everyone on this board (and in the nuclear industry) understands that obvious fact. We all understand that if we don't place any value (economic or otherwise) on reducing CO2 emissions, preventing 25,000 air pollution deaths, or being dependent on the Middle East for our electricity as well as our motor fuel, coal and gas will be the "better" choice, and will win out in "free market" competition. The question is, do we value the above things enough to pay a little bit more in direct cost for nuclear (or renewables) instead of using fossil fuels.

One final point concerns how Mr. Taylor (and Cato) can simply state that one energy source is (fundamentally?) more expensive than another, without the qualifier of "as currently regulated" or "under the current regulatory playing field". They should know better. They, if anyone, should appreciate that any industry or product can be regulated into oblivion (i.e., increased in cost to an arbitrary degree). On this (one?) issue, they seem to have a religious belief that if the existing regulatory playing field has been around for awhile, it simply must represent a fairly balanced playing field. Thus, if one source is not competative under the current field, it just must be fundamentally more expensive. In the case of nuclear power, nothing could be further from the truth. The current regulatory playing field is radically slanted against nuclear (literally, a black-and-white double standard).

One example that adequately describes this double standard is how drugs and foods are pulled from the shelves if there is any problem that may result in even a small risk of disease or death, while cigarettes (under normal function) cause 350,000 deaths per year, but are allowed to stay. With nuclear vs. fossil fuels, the double standard (i.e., the black-and-white difference in mind set) is literally that bad.

Comment by: Jim Hopf at October 30, 2008 06:50 PM

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@Jerry Taylor - Jim Hopf has done a good job of explaining how regulations radically shift the economic case against nuclear power when compared to fossil fuels. What he did not clearly state, but merely implied, is that the regulations were created partially as a result of pressure from the established energy interests who wanted to raise the barriers to entry as high as possible against their new competition.

Fossil fuel interests have engaged in anti-nuclear FUD ever since Fermi figured out how to make uranium split apart and Szilard figured out how to build a device that would cause the reaction to be self sustaining - like combustion.

What I want to address is the following statement:

"Regarding those fees you complain about, nobody in the market - not the commercial bankers, not the investment bankers (before they ceased to be investment bankers that is), not hedge fund operators, and not nuclear industry executives – have fingered the permit fees as a significant obstacle for going forward with new power plants. These would be the first parties to make that claim if that claim had merit. How much of the $6-9 billion construction costs are tied up in regulatory fees? A trivial amount. That’s simply not the problem."

First of all - I always like it when I get completely dismissed in a discussion and called a "nobody". Makes my day.

There are many reasons that the establishment does not complain about the fee structure. The most generous way to explain their complicity is that they view nuclear power like you do - only available in extra large project size where $60-100 Million in regulatory fees for the initial application plus $4 million per year per reactor disappears into insignificance.

The view is much different from my perspective. I am an energy entrepreneur who has spoken to a number of customers over the last 15 years who would love to purchase a power supply that has the characteristics of nuclear fission plants. However, they need smaller amounts of power - in the range of 1,000 to 50,000 kilowatts. They need the production models of those plants to cost between $10 - $150 million.

I know such power plants are technically feasible - I used to operate them. I also know where the costs are for those plants - I was in charge of one of them and have since spent about a decade and a half in various financial analysis roles that have given me deep insight that is not available in the public domain.

The plants I want to build can power large ships, supply islands that currently depend on diesel generators, and power towns in off grid locations. They will often compete head to head against oil fired power plants since it is easier to move relatively energy dense liquid fuel to those locations than to move coal there. IN the markets where I see opportunity, 14 cents per kilowatt hour would be a godsend - the customers in those markets pay as much as 40-50 cents per kilowatt hour so they use power very sparingly.

The NRC does not provide estimates, but I have received indications that they would expect a license process to cost at $60 - $100 million in fees. Those are certainly not the only cost of technology development, but they are large enough to matter in our spreadsheets. Since our system cannot enter the market or even get to a prototype stage without a license, that figure generally stops the conversation with capital investors.

NRC regulatory fees have erected a HUGE, government imposed barrier to entry. (Now, you cannot honestly claim that "nobody" is complaining.) Like many regulatory structures in the US, they are specifically designed to favor large companies doing very large projects. Those entities can make political contributions, supply executives for rotating door government assignments, and whisper in the ear of regulatory leadership at the golf course.

It is also interesting to dig deeper to find that GE and Westinghouse have not had to pay the full cost of the fees associated with licensing their ABWR or AP1000. Under the guise of testing the new, "streamlined" COL process that they helped to design, they were able to convince the Congress to give DOE money in the form of grants that they could use to pay the NRC application review fees.

If you are really interested in learning more, and not just denying that there is a problem that falls into the realm of policy advocacy that supposedly interests Cato, let me know. I live close to your institute and would be willing to make an educational visit.

Comment by: Rod Adams at October 31, 2008 01:46 AM

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We are getting to the point where the discussion is yielding more heat than light, so with this comment, I intend to let the debate on the comment page go forward without me. Rather than further repeat myself regarding permit fees (I have no problem in principle with a regime that asks for those applying for permits to foot the public bill for the review of the same, but no informed opinion about the merits of the present review process), I’ll wrap-up with comments about Jim’s claim that fossil fuel generators are getting a free ride from the regulatory system.

Jim argues that fossil fuels harnessed for electricity generation kill 25,000 or more Americans a year. Without a citation, I don’t know for certain what exactly he’s talking about. My suspicion is that the body count Jim claims for fossil fuels comes primarily from emissions of particulate matter. If so, the claim is on very uncertain ground as those familiar with the PM debate could well attest. For a brief summary of tenuous nature of these alleged body counts, see Joel Schwartz and Stephen Hayward, Air Quality in America (AEI Press, 2007).

The reason for the disagreement between those who put high body counts on the table regarding air emissions from coal-fired power plants and those who don’t can ultimately be traced back to the extreme difficulty associated with estimating the risks of low-levels of exposure to potentially dangerous substances over very large population groups. The difficulties associated with doing so were well demonstrated by a 2002 survey of the peer-reviewed academic literature on this subject by Thomas Sundqvist and Patrik Soderholm in The Journal of Energy Literature (“Valuing the Environmental Impacts of Electricity Generation: A Critical Survey,” December 2002 – unavailable in electronic form as far as I know). Sundqvist and Soderhold found that the environmental externalities associated with coal-fired electricity have been estimated to run anywhere between 0.004 cents per kilowatt hour to 67.72 cents per kilowatt hour. One can’t know which number might be correct because, as the authors note, “There exists no objective truth with which to confront the empirical estimates.”

That having been said, it’s certainly possible that coal plants are being favored by regulation that allows excess emissions (although it seems equally plausible to me that they are not). If that’s something you believe, however, then the correct remedy is to internalize those externalities via a tax or, if that’s not possible, to at least tighten emissions standards (a second-best remedy). Nuclear subsidies and preferences are an inappropriate remedy because it’s not altogether clear that nuclear energy is the lowest-cost means of improving air quality. If it is, then correct prices on coal-fired power plant (whether delivered via a tax or by tighter emissions standards) will deliver new nuclear power plants. If it isn’t, then correct prices will not deliver those new nukes. Best to let the market sort this out given our lack of God-like knowledge regarding such things.

For the record, however, I don’t believe we know enough about the environmental externalities associated with coal-fired electricity to have any confidence that pollution taxes or tighter emission standards will produce net economic or human health benefits.

Finally, Jim suggests (albeit in passing) that fossil fuels are being advantaged because “foreign energy imports” are not “limited or appropriately taxed” given the burdens those imports impose on the country. For my skeet-shoot of that idea, see my essay in the Summer 2008 issue of The Georgetown Journal of Law & Public Policy (“The Energy Security Obsession,” also available on the Cato Institute website).

Regardless, nuclear energy does not compete with oil – the main energy import into this country. It competes with coal and natural gas, and those fuels in the U.S. electricity sector primarily come from U.S. producers. Only 2 percent of our nation’s electricity comes from oil-fired generation. Hence, the fact that we don’t tax oil to reflect its alleged impact on national security is irrelevant to the economics of nuclear power – even if you, like Jim, think such taxes or regulatory limitations are a good idea.

Comment by: Jerry Taylor at October 31, 2008 09:37 AM

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I guess I have been summarily dismissed again. My detailed explanation for the obstacle to innovation posed by regulatory fees amounting to $256 per bureaucrat hour for a process that favors extra large corporation and extra large projects was called "more heat than light" and not worth any kind of response. Jerry from Cato has no problem with "a regime that asks for those applying for permits to foot the public bill for the review of the same" even if - as I explained - that regime has seen fit to subsidize the cost for certain selected applicants.

Jerry also makes a very interesting defense of coal's current ability to emit its deadly waste products with the following statement

"The reason for the disagreement between those who put high body counts on the table regarding air emissions from coal-fired power plants and those who don’t can ultimately be traced back to the extreme difficulty associated with estimating the risks of low-levels of exposure to potentially dangerous substances over very large population groups."

He is apparently unaware of the fact that is EXACTLY the same disagreement between those of us who have computed that even the worst case accident for a nuclear plant will not yield many health effects and those who claim enormous body counts that justify the obsessive regulatory scheme that has been imposed on nuclear generating facilities.

Aside: Please understand that I have no problem with well thought out regulation and believe that unbiased oversight is generally beneficial for any enterprise. Humans have a natural tendency to look for short cuts and quick returns whether the endeavor is hitting a baseball, trading stocks, loaning money, writing insurance policies or operating power plants. We do best when there is a fair hand of oversight keeping us honest. End Aside

No one who has any scientific credibility disputes the fact that normally operating nuclear plants pose little to no health risk to the general population, but there are some with credentials who compute large effects due to accidental emissions during accidents. However, the radiation doses even from accident scenarious are low enough to have very uncertain health effects where the range of possibilities starts with a health benefit (hormesis) and goes up to a very small percentage of potential cancers. The numbers that are used to justify regulation take the small percentage and multiply it times a huge "exposed" population to achieve scary numbers, not unlike the scary numbers used regarding annual coal related deaths.

The difference is that coal emissions happen CONSTANTLY while the worst case nuclear accident scenarios are fantasies that start with an impossible proposition like - suppose 50% of the core is vaporized and spread so that every member of a population receives a dose of fine fission product particles of the most dangerous possible physical and chemical form in their lungs.

One more thing before I bow out of this discussion as well - Jerry repeats the mantra that nuclear power does not compete with oil, even though I specifically stated that the plants I want to build are designed to compete in those markets where oil is still the primary source of fuel for electrical power. I also pointed out a large market for smaller nuclear plants - commercial shipping - that is completely supplied by oil. (About 6% of the world's oil is burned on ships.)

Jerry Taylor of the CATO Institute mentioned the current fact that oil provides less than 2% of the US electricity supply without recognition of the historical fact that oil produced about 15-20% of the US electricity supply BEFORE nuclear power took its market share.

In 1973, when nuclear power had a 4% market share and had doubled its production every two years during an 8 year period, oil burning power plants produced 17% of the US electricity supply. As nuclear power continued to increase in market share, oil burning in power plants began to decline. Petroleum reached its current low, but not insignificant market share by the mid 1990s.

Note: Nuclear generation increased from 3.7 billion kilowatt hours in 1965 to 83.5 billion kilowatt hours in 1973, increasing by a factor of 22 over just 8 years. Oil fired electricity production fell from a peak of 358 billion kilowatt hours per year in 1977 to a temporary low of 74 billion kilowatt hours per year in 1995. In 1995, nuclear power production was 673 billion kilowatt hours, about 2 times as much as oil was at its peak, but representing about the same portion of the electricity mix due to the overall growth in electricity consumption. The ever popular wind power produced just 32 billion kilowatt hours in 2007

(http://www.eia.doe.gov/emeu/aer/txt/ptb0802a.html)

Comment by: Rod Adams at November 1, 2008 04:39 AM

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Jerry,

The ~25,000 death figure is currently accepted by the EPA, as well as organizations like the American Lung Association. One of the main academic studies/references that forms the basis of this opinion is:

Abt Associates. Power Plant Emissions: Particulate Matter-related Health Damages and the Benefits of Alternative Reduction Scenarios. Prepared for the Clean Air Task Force. 2004.

Also, the govt. (EPA) accepts this figure as a basis for its estimates of the benefits of various programs like Clear Skies. The benefits of Clear Skies are outlined at the following EPA link:

http://www.epa.gov/air/clearskies/benefits.html

Given that these large annual avoided deaths and monetary savings are what would result of a reduction (vs. elimination) of air pollution (primarily particulates), the above information directly implies at least rough agreement with the 25,000 figure.

My one comment concerning the ~0 to 67 cent/kW-hr external cost figure is, why is the "correct" response to a large uncertainty in external cost to apply a cost of zero? Applying the average would make more sense to me. Suffice it to say that would be the response on the nuclear side. In fact, if the nuclear mindset (that governs nuclear regulation) were applied to the above situation, they would "conservatively" apply the 67 cent value (if not something even higher) when deciding penalties or regulations.

All the meltdown consequence figures we've all heard, including the ones you quoted in your article, are such ridiculous, unrealistic upper bound estimates (note that all such figures are preceded by the words "up to"). These figures are the absolute end of the tail of the probability distrution. The real, most likely consequences of even the most severe meltdown event are orders of magnitude smaller than this (which Chernobyl all but proved).

I fully concur that pollution taxes or more equal regulatory requirements between fossil and nuclear would be the best way to go. The problem is that there has never seemed to be any will to do anything about air pollution. Fortunately, it appears that the whole issue may be made moot due to global warming. Soon, new coal plants may have to sequester CO2. If they're already doing that, it may not be too hard to sequester everyting else as well. Nuclear will not need any subsidies to compete with coal w/ sequestration.

I also agree that a cap-and-trade or tax system (for CO2 or pollution) would be better than the subsidy system for choosing between clean alternatives. You don't have to tell nuclear advocates that a merit based system is better than one based on govt. picking winners (based on political popularity and/or influence). If it's based on political decision, renewables will be massively favored over nuclear every time, due to their much greater popularity. Indeed, renewables have been much more subsidied than nuclear, on a per/kW-hr basis, for some time now.

If there are subsidies, at least they should be roughly equal. Fortunately, with the exception of solar, which is massively subsidized, this seems to be the case for the most part. Just about all clean options, be it renewables, nuclear, sequestered coal (and even IGCC coal), get the same loan guarantees from the federal government. I even just read that Tesla motors gets the same loan guarantee to help it bring its Sedan model into production. Most such sources also get a similar (~2 cent) production tax credit. If we refuse to do anything about CO2, air pollution and energy imports in terms of regulations, limits or taxes, I favor such a balanced clean energy subsidy scheme, in lieu of doing nothing at all.

One last thing, here are some good links on energy source subsidies over the years. Much of nuclear's "subsidy" is reasearch, much of which has not helped the industry economically, directly or indirectly. Also, nuclear got almost all its overall sibsidy in the 50s and 60s. Ancient history is not than pertinent to the current energy playing field. Heavy nuclear subsidies have long since largely ceased.

www.eia.doe.gov/oiaf/servicerpt/subsidy2/

http://www.nei.org/resourcesandstats/documentlibrary/newplants/whitepaper/federa
l_expenditures_for_energy_development/

Comment by: Jim Hopf at November 1, 2008 03:53 PM

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