nuclear

In years past, when my project work would divert me from posting about energy subsidies on the Earth Track blog, I'd get an incoming email from Michael Mariotte at NIRS.  This wasn't an intrusive inquiry.  Rather, he'd merely be checking in to be sure everything was okay, saying he'd noticed I hadn't posted in awhile and that he hoped I'd post again soon. 

Which of course I would.  Because if Michael could work on all of the projects he was working on; write salient and well-argued posts on his GreenWorld blog; track details big and small about the issues, people, and projects in the nuclear areas he'd been on top of for decades; indeed, if he could take time out to email me despite battling cancer -- surely I could find time to crank out a post or two.

So I guess it is somewhat fitting that, after another one of these blogging gaps, I end the hiatus by properly noting Michael's passing this past May from pancreatic cancer. 

You can read about the many things he accomplished during his life in far more auspicious venues than this one.  There were detailed obituaries in the Washington Post, the New York Times, the Washington City Paper where Michael had been their first editor, and of course, by his colleagues at NIRS. 

For me, Michael was like an information utility on all things nuclear.  His immense dedication to rational nuclear policy was always evident, as was his encyclopedic knowledge of every aspect of the field.  No matter the new paper or study that had come out, Michael already knew about it.  For nuclear policy issues percolating in the news or the NGO world, he knew the history, its evolution over time, the people who shaped that evolution and how, and the forces behind the current batles.  If I had questions, it would take but a brief email and he'd be back to me in short order.  He was always giving of his time, articulate in his responses, and, it sure does seem, nearly always right. 

The gap he has left is not one that will be filled any time soon, but the role he played was a critical one, and I am grateful to have known him. 

Subsidies to Energy Industries (2015 update)

Energy resources vary widely in terms of their capital intensity, reliance on centralized networks, environmental impacts, and energy security profiles. Although the policies of greatest import to a particular energy option may differ, their aggregate impact is significant. Subsidies to conventional fuels can slow research into emerging technologies, thereby delaying their commercialization. Subsidies and exemptions to polluting fuels reduce the incentive to develop and deploy cleaner alternatives.

Earth Track Blog Post

Last week, the New York Times ran an article ("Future of Solar and Wind Power May Hinge on Federal Aid" by Kate Galbraith) discussing the reliance of solar and wind energy on federal subsidies. Bernard L. Weinstein, associate director of the Maguire Energy Institute at Cox School of Business, Southern Methodist University, wrote a letter critiquing these subsidies, advocating instead a policy to push for more oil and gas exploration, arguing they would require "no new subsidies."  The Institute was funded by Cary Maguire of the Maguire Oil Company and prepares students for jobs in the field.

The Times requested responses to the letter for their Sunday Dialogue yesterday.  Mine was not selected, but covers some points not raised in the letters that were.  It is reprinted below.

To the Editor:

Bernard Weinstein has concluded that the “renewable power industry has become addicted to federal subsidies and probably can’t stand on its own without them.”  After more than twenty years of tracking subsidies to energy both in the US and abroad, allow me to suggest that the addicts’ ward is overflowing.  The nuclear industry has been pushing for massive government subsidies for decades, and won’t build a new facility without them.  Arguments that somehow other countries know how to “do it right” are more often based on an incomplete understanding of foreign subsidies than to some miracle economic model.    

New petrol refinery?  Coal plant with carbon capture and sequestration?  Big subsidies also rule.   Liquid biofuels producers (still mostly corn ethanol) are addicts too.  They are fighting hard to keep expiring subsidies alive even though the Renewable Fuel Standard (forcing us to buy their products at above-market prices) will quickly pick up the slack.

Weinstein’s figures are also inaccurate.  He focuses only on tax breaks, though it is total subsidies through all mechanisms that distort energy markets and investment patterns.  Missing are the critical, and often enormous, subsidies that flow to various fuels through loan guarantees, royalty exemptions, liability caps, nationalized supply security or waste management obligations, purchase mandates, and subsidized government-owned energy enterprises.  Even his tax break tally is picked from problematic data from the Energy Information Administration (EIA).  EIA’s numbers have consistently been at the far low-end of subsidy reviews.  They miss many tax breaks of great benefit to the energy sector; and ignore quite large variance in the tax subsidies they do include.  Incorporating tax subsidy estimates from both of the federal sources (Joint Committee on Taxation and Treasury) rather than just Treasury, for example, would have boosted EIA’s 2007 total subsidy estimates by a third, and the share to oil and gas by nearly 125 percent.

Expand beyond just fiscal subsidies and Weinstein’s academic framing of the simplistic “drill, baby, drill” argument totally dissolves.  A recent analysis by economists Nicholas Muller, Robert Mendelsohn, and William Nordhaus estimated that petroleum-fired electric power generation caused gross external damages five times the industry’s value added.  Coal-fired power had damages more than twice its value added.  A Harvard Medical School study in February pegged the external damages from coal well above $100 billion per year.  Shortfalls in federal highway funding, which is supposed to be paid through taxes on (the mostly petroleum) motor fuels, were $70 billion in 2007 according to analysis by Pew’s Subsidyscope project.  That number alone far exceeds total energy subsidies reported by EIA; and at $700 billion over ten years would cover more than half the initial deficit reduction target for the Super Committee.

Price signals do need to play a much bigger role in energy markets, including renewables, if we are move towards a cleaner energy future in an economically-efficient way.  However, Weinstein’s selective and inaccurate vision of market reform is unlikely to take us in the right direction.

Regards,

Doug Koplow
Earth Track, Inc.
Cambridge, MA 02140

 

What Would Jefferson Do? The Historical Role of Federal Subsidies in Shaping America’s Energy Future

Using data culled from the academic literature, government documents, and NGO sources, in this paper we examine the extent of federal support (as well as support from the various states in pre-Civil War America) for emerging energy technologies in their early days. We then analyze discrete periods in history when the federal government enacted specific subsidies.

Earth Track Blog Post

The Nuclear Regulatory Commission has ruled that Calvert Cliffs 3 ineligible for licensing because is violates the Atomic Energy Act's rules on foreign ownership, control or domination. 

The NRC staff has determined that UniStar’s application does not meet the requirements of 10 CFR 50.38. The basis of the determination is: (1) UniStar is 100 percent owned by a foreign corporation (EDF), which is 85 percent owned by the French government; (2) EDF has the power to exercise foreign ownership, control, or domination over UniStar; and (3) the Negation Action Plan submitted by UniStar does not negate the foreign ownership, control or domination issues discussed above.

This ruling was the result of dogged work by the NGOs copied on the ruling: Michael Mariotte of NIRS, Paul Gunter of Beyond Nuclear, Alison Fisher of Public Citizen, and June Sevilla of Southern MD Cares.  You can read their 2008 petition here, and a document history of the Calvert Cliffs 3 reactor here.

Earth Track Blog Post

A quite interesting summary of the challenges associated with the Iranian nuclear program has been written by Gregory Jones, and released by NPEC.  Some key points:

  • The Iranian production rate of reactor-grade enriched fuel has been increasing, not decreasing.
  • The conversion of fuel grade to 20% enrichment levels for "research" purposes has been allowed, and not considered a violation of Iran's responsibilities as a signatory to the Nuclear Nonproliferation Treaty.
  • Because most of work required to enrich uranium is expended at low concentrations, going from a 20% enrichment level to the 90% level needed for bomb-grade is relatively minor.  Jones estimates it would take only two weeks.  While this step would constitute a violation of the NPT, there would be little lead time to do anything about it.  Jones argues that while Iran also needs to develop a weapon in which to use the bomb-grade material, much of that process could be done in parallel.  Bottom line:  the cover provided by a wildly uneconomic civilian power program in Iran has eliminated most of the leadtime to produce a bomb. 
Earth Track Blog Post

Spineless subsidies part 1:  Ethanol

Ethanol blenders credit moves forward towards extension at current rates in the Senate.  Even more ludicrous since even without the excise tax credit subsidy we are still forced to buy the stuff at above market prices under the federal Renewable Fuel Standard.

Chuck Grassley makes a good point when he argues that you can't treat ethanol and oil subsidies differently:

The fact is, it's intellectually inconsistent to say that increasing taxes on ethanol is justified, but it’s irresponsible to do so on oil and gas production.

Grassley, a strong supporter of everything corn, uses this logic as a justification for keeping all subsidies.  Of course, the logic is even stronger in the other direction:  get rid of all of the subsidies -- to oil and gas as well as to ethanol.  Large fiscal and environmental benefits.  Such broad-based reform is difficult, to be sure.  But there have been successes.  New Zealand, for example, got rid of a wide swath of sectoral subsidies. 

Domestic producers will see little change in their subsidy capture once the Renewable Fuel Standard mandate premiums rise to offset the decline in excise tax credit subsidies.  Thus, Grassley's arguments about domestic energy security seem a bit hollow.  What then?  Perhaps it is the fact that without VEETC, producers can't export taxpayer subsidized ethanol to other countries.  Robert Rapier did a nice write-up of this issue on his R Squared blog.

Spineless subsidies part 2:  Nukes

In the House, legislation kicking in another $7 billion in loan guarantees for new nuclear reactors has passed.  It's another "opportunity" for taxpayers to participate in building what industry regularly claims to be a low-cost energy resource over the long-term.. Seems like the massive bailouts of the last two years have made people forget that a $7 billion investment into a private firm is hardly the norm throughout the history of the United States.

Think the money is safe?  I don't.  In other nuclear industry news:

  • The Oyster Creek Plant in NJ will close early rather than properly manage its water use (virtually every one of the billions of gallons of water used per day at reactors across the country is free).  
  • The EIA's capital cost estimates for new nuclear plants are up 37% since last year -- despite a recession that has dampened construction costs generally and reduced pressure on the nuclear power supply chain.
  • Westinghouse has provided its Chinese partners with key technical documents on its designs.  They, and all of the other vendors competing for market share in the heavily state-subsidized Chinese nuclear power sector, fully expect their IP to be appropriated and applied by domestic Chinese competitors in short-order.
  • Key nuclear plant owner Exelon acknowledges natural gas will be their first choice to fill new generation needs (page 1) and that not much new generation is needed right now anyway (page 2).  And, despite ignoring many of the embedded subsidies to the nuclear fuel cycle, Exelon's new ghg abatement curve is still placing new build nuclear well behind many other options (page 6).

 

Earth Track Blog Post

A few useful resources on the potential links between civilian nuclear power and proliferation from NPEC.  Here's a couple of recent postings by Henry Sokolski on the technology sharing agreements with Vietnam and UAE.  A more detailed exposition of the nuclear nonproliferation treaty can be found here, with a variety of essays on what the NPT does and does not require in terms of technology sharing.

Twenty years ago, economic modeling of the cost of new coal plants never included an estimate for carbon controls.  Today, investors all expect to see it. 

In constrast, similar models of nuclear economics often ignore the many subsidies granted to the sector through federal tax, insurance, and credit policies.  None include even a placeholder for the proliferation-related costs that will be triggered by a widescale expansion of reactors and fuel cycle facilities around the world.  While commercial interests may explain the rationale for utilities to ignore these costs as long as possible, there is no excuse for the Obama administration doing the same.

Department of Energy: Further Actions Are Needed to Improve DOE’s Ability to Evaluate and Implement the Loan Guarantee Program

DOE has taken steps to implement the Loan Guarantee Program (LGP) for applicants but has treated applicants inconsistently and lacks mechanisms to identify and address their concerns. Among other things, DOE increased the LGP’s staff, expedited procurement of external reviews, and developed procedures for deciding which projects should receive loan guarantees. However, GAO found:

Earth Track Blog Post

Just last week, the Economist magazine noted in an editorial that:

However you measure the full cost of a gallon of gas, pollution and all, Americans are nowhere close to paying it. Indeed, their whole energy industry—from subsidies for corn ethanol to limited liability for nuclear power—is a slick of preferences and restrictions, without peer. The tinkering that will follow this spill will merely further complicate it.

As if on cue, out comes "The American Power Act."  For some reason, idle hands in Congress always find particular comfort in working on energy bills, and an early summary of the latest of a long line of government energy initiatives has just been released.  A short summary of that summary can be accessed here.  The American Power Act will dole out all sorts of goodies, with some huge potential gains to coal and nuclear power.

Before going into what the bill contains in giveaways, it is useful to note some of the key things it does not do.  It does not remove the government from the role of choosing technology winners and losers, and it does not build a neutral policy platform on which all energy technologies must compete for whatever public support is offered.  In fact, the bill summary views this not as a bug, but as a feature, noting that the bill is "investing in innovation across all energy sources."  Investing in everything is not a very good theory of change, as I've examined in detail previously.  Finally, it does not work to quickly establish greenhouse gas price signals for key energy and industrial sectors, but rather seeks to shelter them from these prices for many years.

In terms of the new subsidies in the bill, in depth analysis requires the specific legislative language.  However, some choice nuggets are already evident in the summary:

Nuclear

  • 5 year depreciation on nuclear reactors expected to last 60 years.
  • Formally increases Title 17 loan guarantees to nuclear by $36 billion, to $54 billion (there is an additional $2-4 billion above this total that is already in place for front-end facilities such as enrichment).
  • Introduction of a "loan guarantee retention fee" on nuclear loan guarantees, supposedly to expedite repayment of the guarantees.  (The language here is strikingly weak:  "to ensure that money is returned to the program as expeditiously as practicable").  The actual form and meaning of these fees is not clear from the summary however.  It could be a withholding from the loan guarantee amount (in which case firms will overstate need to create a buffer).  Also not clear is how the retention fee will interact with the credit subsidy payments already required.
  • A tripling of the coverage for nuclear delay insurance, from $2 billion to $6 billion in face value; covering 12 rather than 6 reactors.
  • Accelerated licensing and review procedures for new reactors, and elimination of some review steps.  How these complex projects can be properly overseen with the expedited process remains to be seen.
  • Increased research push on small reactors and fuel reprocessing.
  • Since production tax credits can only be earned once a plant begins operation, the bill adds a 10% investment tax credit that can be captured earlier, and likely even if the plant is never completed.  A 10% federal grant would be available to non-taxable entities involved with reactor construction, as such entities can't use tax credits.  Detailed legislative language is needed to see whether these can be combined with other subsidies, such as production tax credits, or much be used instead of them.
  • Allows nuclear to access Advanced Energy Project Credits, providing up to a 30 percent tax credit for manufacturing eligible project components (credits may be carried forward up to 20 years).  The credits have a national cap, so look for subsequent legislation to dramatically increase the available support.  The current cap of $2.3 billion is rounding error in nuclear projects, and remains low even after the APA's  additional $5 billion (Section 4003) in credits is included. 
  • Expanded use of tax-exempt private activity bonds in the nuclear power sector.  Because nuclear projects are so big, this provision may not be popular with other users of private activity bonds.  Usage of Build American Bonds (BABs), another tax-advantaged financing tool, by the Vogtle reactors is among the largest BAB projects in the country.
  • Allows existing production tax credit (PTCs) for nuclear to be entirely allocated to private participants on a project that includes both taxable and non-taxable entities.  This will increase the effective value of existing nuclear PTCs.
  • Extends suspension of import duties on imported nuclear components.  Although nuclear is touted as a solution to energy security concerns, many of the most expensive reactor elements are manufactured outside of the United States.

Coal

  • The bill provides some additional subsidies to advanced coal and carbon capture and storage.  However, the most valuable subsidies to the coal sector will likely come through the grants of emissions credits.  The impact of these schemes is difficult to gauge without more detailed language, but Section 1431 of the bill does indicate that where plants or utilities capture and store carbon, they will actually earn GHG allowances.  Under a strict cap and trade, such facilities would simply avoid the need to buy credits by reducing emissions. 
  • Section 798 appears to buy off up to 35 GW of premature closure of merchant coal plants by allowing them to continue to receive emissions permits even if the plant has been closed or repowered.  There is no detail suggesting that the buyouts will go first to the dirtiest plants (whether merchant or not), or require high levels of operations in order to be eligible.  The risk of this subsidy being gamed seems high.

Clean Energy Funding

  • Section 1801 establishes a "Clean Energy Technology Fund" to promote development of new energy technologies, though provides little additional details on eligibility, structure, or funding levels.  One concern is that the wording sounds like this could be an effort to implement some type of clean energy bank, along the lines of poorly structured earlier proposals for a Clean Energy Deployment Administration (critiqued here). 

Credit Offsets and Allocations

  • Title II of the bill attempts to establish some centralized vetting of offset claims, both domestically and internationally, to ensure that offsets are awarded for behaviors that actually reduce emissions.  This is a useful element of the bill, though likely extremely difficult to do well.
  • As with other climate bills, this one contains broad giveaways of carbon credits for a sizeable period at the inception of the new law.  As explained by Joe Romm, the bill also attempts to deal with credit price volatility through gradually increasing floors and caps.
  • Title IV provides widespread rebates and allowances to industrial emitters of GHGs, suggesting that key industrial sectors will see little price incentive to curb emissions.

"Fast" Mitigation of Hydrofluorocarbons

  • Though "extremely potent greenhouse gases," HFCs are to be reduced to 15 percent of baseline, but not for another 22 years.  Hard to imagine what "slow" mitigation looks like.

Oil and Gas

  • Section 1204 allows state opt-out of oil and gas drilling within 75 miles of its coastline (otherwise federal laws pre-empt state wishes).  While this provision was introduced in response to the recent Gulf oil spill, its actual protection of coastal resources may be more symbolic than real.  As of May 11th, the Gulf spill oil slick was 130 miles long and 70 miles wide -- enough to have blown through the proposed buffer zone.
  • Provides substantial subsidies to convert vehicles to natural gas (starting section 4121).  This is another example of government micro-managing technology selection.  The transport policies should be neutral with respect to any option (better engines, hybrids, electric vehicles, improved fleet management) that reduces oil demand.

Update:  The full bill, in all 987 pages of glory, has now been released.  It will obviously take some time to go through.