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Don't Let Nuclear Industry Get Hooked on Subsidies

Posted By Jeff Witt On April 23, 2010 @ 12:05 pm In Energy | Comments Disabled

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Nuclear energy is a hot topic in Washington these days. An important question that has stirred debate is whether the federal government should back up loans to build new nuclear power plants. On Wednesday, the Domestic Policy Subcommittee of the Oversight and Government Reform Committee held a hearing on the topic. Heritage Research Fellow for Nuclear Energy Policy, Jack Spencer along with three other panelists testified.

One member of the panel, Leslie Kass of the Nuclear Energy Institute, argued that loan guarantees [2] were good for ratepayers, taxpayers, and the nuclear industry and should be pursued. She argued that the federal government already provides loan guarantees for all sorts of industries and gave shipbuilding, steelmaking, rural electrification, affordable housing, and critical transportation infrastructure construction as examples.

This was an interesting list as many would argue [3]that few, if any, of these industries are market competitive. And this is at the heart of Spencer’s testimony, which made clear that he believes nuclear energy is critical to the nation’s future but that it must be built on a foundation of free market principles.

In his testimony [4], Spencer presented to the Committee his position that a limited loan guarantee program for nuclear energy can be an appropriate tool for spurring investment in the capital-intensive industry—with emphasis on the particular limits that must be built into any such program. But he warned that any expansion of the program beyond the $18.5 billion already authorized

“would transform the limited program into a broader one that threatens to institutionalize both existing systemic challenges as well as the inefficiencies that subsidies ultimately create.”

Essentially, building an industry dependent on loan guarantees threatens to turn the nuclear industry into the same sorts of non-market competitive industries that Ms. Kass listed as already receiving capital subsidies.

To avoid this outcome, while gaining the benefits of a limited loan guarantee program, Spencer recommended that any loan guarantee expansion come with the following conditions [5]:

First, End Further Loan Guarantees and Capital Subsidy Programs.

Second, Ensure That Recipients Pay the Full Cost of the Subsidy.

Third, Make Recipients Privately Refinance within Five Years of Project Completion.

Fourth, Limit Guarantees to No More Than Two Plants of Any Reactor Design.

Fifth, Limit to Two-Thirds of the Loan Guarantee Program That Can Support a Single Technology.

Energy subsidies not good policy

An interesting outcome of the hearing was all the panelists and attending committee members shared general skepticism of the efficacy of energy subsidies. Indeed, in part responding to questioning from Ranking Member Rep. Jim Jordan (R-OH), several panelists agreed that avoiding subsidies for any type of energy source is the best policy. One notable witness was former member of the Nuclear Regulatory Commission Peter Bradford who pointed out that it has been the case in the past that where electricity demand exists, utilities have found ways to secure private financing for nuclear projects to meet that demand.

A level of consensus was found among those testifying before the Committee that free market economics is key to America’s desired nuclear energy future. While exactly what that means is probably different for each witness, but nonetheless, Congress should heed this good counsel and put an end to the old way of doing nuclear in America. This Congress has the opportunity to move the country toward a competitive, subsidy-free 21st century nuclear industry, and it needs to do it.

Jeff Witt is a member of the Young Leaders Program at the Heritage Foundation. For more information on interning at Heritage, please visit: http://www.heritage.org/About/Internships-Young-Leaders/The-Heritage-Foundation-Internship-Program [6]


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URL to article: http://blog.heritage.org/2010/04/23/dont-let-nuclear-industry-get-hooked-on-subsidies/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/nuclear_power_cooling_tower.jpg

[2] argued that loan guarantees: http://www.nei.org/newsandevents/speechesandtestimony/april-20-2010-kass

[3] as many would argue : http://www.aei.org/docLib/200402171_book651chapter7.pdf

[4] In his testimony: http://www.heritage.org/Research/Testimony/Nuclear-Power-Federal-Loan-Guarantees-The-Next-Multi-Billion-Dollar-Bailout

[5] come with the following conditions: http://www.heritage.org/Research/Reports/2010/02/Conditions-and-Policy-Reform

[6] http://www.heritage.org/About/Internships-Young-Leaders/The-Heritage-Foundation-Internship-Program: http://www.heritage.org/About/Internships-Young-Leaders/The-Heritage-Foundation-Internship-Program

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