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Deregulation of Nuclear Power Saves Money and Reduces Pollution

Adam Peshek
August 3, 2011, 2:23pm

“Deregulation, Consolidation, and Efficiency: Evidence from U.S. Nuclear Power,” a working paper out of Berkeley’s Energy Institute at Haas, finds that the deregulation of the nuclear industry in the ‘90s created a 10% increase in efficiency, which led to approximately $2.5 billion in savings annually and a decrease of 40 million tons of carbon emissions in the atmosphere each year.

The efficiencies that resulted from deregulation are impressive. It’s even more impressive when you consider that this was entirely from gains in efficiencies, not increases in the number of plants or transmission lines.

Our results imply a substantial increase in electricity production. In 2009 U.S. nuclear reactors produced 800 billion kilowatt hours of electricity, about 20% of total U.S. electricity generation. We estimate that the increase in electricity production due to deregulation and consolidation exceeds 40 billion kilowatt hours annually. At current average wholesale prices, the value of the increased electricity production is approximately $2.5 billion annually.

Granted, economic improvements associated with deregulation may not impress those who are in favor of regulation. Well how about environmental improvements?

In addition, because the increased electricity production displaces mostly coal‐ and natural‐gas‐ fired power, these gains in efficiency also have substantial implications for the environment, implying an annual decrease of 38 million metric tons of carbon dioxide emissions. Using a conservative estimate for the social cost of carbon dioxide ($20 per ton) this is an additional $760 million in benefits annually. To put this into perspective, this is more carbon abatement than was achieved by all the U.S. wind and solar generation combined during the same period. Whereas there are explicit programs directed at promoting low‐carbon energy in the case of wind and solar, this decrease in carbon emissions is noteworthy because deregulation is not usually envisioned as a means for achieving environmental goals.

The study of the nuclear power industry is especially useful for discussions of energy deregulation because, unlike other industries, nuclear power is always used as a “baseload” generation. In other words, they are constantly running and do not respond to fluctuations in demand.

Another reason to study nuclear deregulation is that there is a very clear sample – of the 103 reactors in the U.S., 48 of them were sold by states to independent companies at a very rapid pace during the ‘90s.

Deregulation is certainly not one of the methods environmentalists and enviro-bureaucracies look to when trying to limit greenhouse gases in the U.S.  But, by opening up the industry to competition, states across the country provided incentives for firms to do what companies are created to do: increase efficiency and cut costs to create value for the consumer and increase their own profits.

That is what is seen.

What are often missed by those who favor of regulation are the unseen benefits of the competitive market.  In this case: profit-inspired efficiencies that reduced emissions more than the entire “green” energy industry in the country without a single government subsidy, political battle, or increased cost to the consumer. That’s a policy environmentalist, industries, and politicians should all get behind.

Adam Peshek is Research Associate

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