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Emergency Spending Bill Not the Place for Energy Loan Guarantees

Posted By Jack Spencer On May 26, 2010 @ 4:30 pm In Energy | Comments Disabled

Wind generators [1]

Every special interest in Washington is looking to hitch on to what was supposed to be an emergency spending bill to provide critical funds for military and emergency response activities. While some may be legitimate programs, most are not an emergency and therefore should not be part of any such bill. Take the renewable and nuclear energy loan guarantee programs for example.

The administration is seeking $9 billion [2] in additional loan guarantee authorization for nuclear projects and $1 billion for renewables. The bill would also appropriate $180 million to support those programs. The authorized amount is what the government will back up while the appropriated amount is what is necessary to administer the program. Loan guarantees are attractive to companies because they subsidize the cost of capital to finance their projects. So while other investors must pay the market rate to borrow for their projects, loan guarantees recipients enjoy lower rates on their borrowing because they come with the backing of the American taxpayer.

There is some justification for a limited loan guarantee program to help mitigate regulatory and political risk [3] for the first few new plants. But there is already $18.5 billion in authorized guarantees on the books to do just that. While roughly $8 billion has already been used, $10.5 should be adequate to finance major portions of two more projects. Three projects should be sufficient to establish regulatory integrity, thus reducing the risk associated with new plants. That, in turn, should be reflected in lower interest rates. Therefore, expanding the loan guarantee program is little more than a direct capital subsidy.

Notwithstanding the value of expanding loan guarantees, which is questionable [4], there is no question that this spending is not an emergency, has nothing to do with fighting America’s wars, and is not needed to respond to any national disasters and thus should not be part of this bill.

Ultimately, the nation will likely be served well by having a robust, diverse and sustainable commercial nuclear energy industry. But the current approach of trying to subsidize nuclear power into economic viability is not a winning long-term strategy. Policy makers that really want nuclear to succeed should instead focus their efforts on fixing an onerous regulatory system that stifles competition and technological innovation or developing an economically rational waste management policy. These reforms [5], not more subsidies, are how to rebuild America’s nuclear industry.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2010/05/26/emergency-spending-bill-not-the-place-for-energy-loan-guarantees/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/100210wind-turbines.jpg

[2] $9 billion: http://www.platts.com/RSSFeedDetailedNews.aspx?xmlpath=RSSFeed/HeadlineNews/Nuclear/6063955.xml

[3] mitigate regulatory and political risk: http://www.heritage.org/Research/Reports/2007/11/Competitive-Nuclear-Energy-Investment-Avoiding-Past-Policy-Mistakes

[4] questionable: http://www.heritage.org/Research/Reports/2010/02/Conditions-and-Policy-Reform

[5] These reforms: http://www.heritage.org/Research/Reports/2009/06/Five-Free-Market-Priorities-for-a-Nuclear-Energy-Renaissance

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