Monday, June 27, 2011

Nuclear Industry Subsidies Part II: The Mining Sector

Doug Koplow, in a Union of Concerned Scientists report titled, Nuclear Power: Still not viable without subsidies," has offered us an attempt to assess subsidies offered by the Government to the Nuclear Industry. Koplow charges that one form of government subsidy has to do with Uranium mining,
The mining and milling stages have historically been environmentally damaging, and available data (Table 15, p. 61) indicate the taxpayer cost to address these issues has rivaled the market value of the minerals extracted.
Yet the sale price of Uranium made fuel an almost insignificant part of nuclear power costs. The World Nuclear Association notes,
Fuel costs are one area of steadily increasing efficiency and cost reduction. For instance, in Spain the nuclear electricity cost was reduced by 29% over 1995-2001. This involved boosting enrichment levels and burn-up to achieve 40% fuel cost reduction. Prospectively, a further 8% increase in burn-up will give another 5% reduction in fuel cost.

Uranium has the advantage of being a highly concentrated source of energy which is easily and cheaply transportable. The quantities needed are very much less than for coal or oil. One kilogram of natural uranium will yield about 20,000 times as much energy as the same amount of coal. It is therefore intrinsically a very portable and tradeable commodity.
The WNA argues that increases in nuclear guel costs has little effect on the cost of nuclear produced electricity.
The impact of fuel costs on electricity generation costs
The WNA reports:
Doubling the uranium price (say from $25 to $50 per lb U3O8) takes the fuel cost up from 0.50 to 0.62 US cents per kWh, an increase of one quarter, and the expected cost of generation of the best US plants from 1.3 US cents per kWh to 1.42 cents per kWh (an increase of almost 10%). So while there is some impact, it is comparatively minor, especially by comparison with the impact of gas prices on the economics of gas generating plants. In these, 90% of the marginal costs can be fuel. Only if uranium prices rise to above $100 per lb U3O8 ($260 /kgU) and stay there for a prolonged period (which seems very unlikely) will the impact on nuclear generating costs be considerable.

Nevertheless, for nuclear power plants operating in competitive power markets where it is impossible to pass on any fuel price increases (ie the utility is a price-taker), higher uranium prices will cut corporate profitability. Yet fuel costs have been relatively stable over time – the rise in the world uranium price between 2003 and 2007 added to generation costs, but conversion, enrichment and fuel fabrication costs did not followed the same trend.

For prospective new nuclear plants, the fuel element is even less significant (see below). The typical front end nuclear fuel cost is typically only 15-20% of the total, as opposed to 30-40% for operating nuclear plants.
Kaplow claims that the Civilian Nuclear power industry is subsidized by government tax policies that benefit all mines.
Subsidies to uranium mining and milling come through three main routes. First, special percentage-depletion allowances for uranium allow highly favorable tax treatment for this mineral. Second,“hardrock” mining on public lands, including uranium mining, is governed by the arcane and archaic Mining Law of 1872. This law, which has withstood numerous attempts at modernization, enables extraction of hardrock minerals with very low payments and no royalties, and it includes patenting provisions that allow public land to be privatized for only a few dollars per acre. Third, there are bonding requirements for post-mining restoration, but they are too modest, resulting in significant residual damage at uranium mines—a public health and safety obligation that falls to the taxpayer. The government has also historically sought to main- tain a strategic stockpile of uranium, though the impacts of this effort on the industry have varied over time—sometimes reducing costs to users, and other times restricting cheaper supply and driving up prices (PNL 1978: 118–126).
But note that these government policies are not intended to subsidize the Civilian nuclear power industry directly.

Terms like Uranium mine or uranium minor do not give us enough information to determine whether the mine operator should be classified as part of the Civilian Nuclear power industry. So who owns the Uranium mines. I noticed that two American uranium mines were owned by Cameco , which also owns uranium mines in Canada and Kazakhstan. A glance at the Wikipedia reveals that Cameco stands for Canadian Mining and Energy Corporation. The Cameco web page reveals that Cameco would definitely belong in the Canadian Nuclear industry,
Refining & Conversion

Cameco is a major supplier of uranium processing services required to produce fuel for the generation of clean electricity.

Cameco's Port Hope conversion facility is one of only four commercial uranium hexafluoride (UF6) production plants in the western world. UF6 is exported to international customers, to be enriched for use in light water nuclear reactors. The Port Hope facility is also the world's only commercial supplier of natural uranium dioxide (UO2) conversion services needed to produce fuel for Candu nuclear reactors. Both processes receive refined uranium (UO3) feed from Cameco's uranium refinery located in Blind River, Ontario.

Cameco also has access to additional UF6 capacity through a toll processing agreement with the Springfields Fuels Limited plant located in Lancashire, UK.
Fuel Manufacturing

Cameco operates a fuel manufacturing facility in Port Hope, Ontario and a metal fabrication facility in Cobourg, Ontario. The company manufactures and sells the fuel bundles used in Candu reactors, serving nuclear utilities in Canada. The company also makes reactor components and provides nuclear fuel and consulting services to Candu operators around the world.
Power Generation

Cameco produces nuclear electricity through our 31.6% share of the four Bruce B reactors at the Bruce Power nuclear power generating site, North America's largest nuclear generating station, located in Ontario, Canada.
Thus Cameco is a part of the Canadian Civilian Nuclear power Industry. Camieco owns about half of the Uranium currently mined in the United States of America. But the American uranium mining industry is small compared to the Uranium mining Industries of Canada, Australia, and several other countries. Thus the tax subsidy policies of the United States Government has little effect on the cost of uranium ore. However, in the past this might have been different.

During World War II most of the Uranium used by the Manhattan Project came from Canada or the Belgium colony of the Congo. After World Wat II, the United States Government sought to develop domestic uranium supplies, for national security reasons. There is no doubt that during the 1940's and 1950's the United States Government heavily subsidized exploration for uranium as well as domestic uranium mining. The February 1949 issue of Modern Mechanix reported,
the Atomic Energy Commission desires desperately to uncover any new sources of worthwhile ore and the commission has announced that a $10,000 prize or bonus will be paid for the delivery of 20 tons of ore or concentrates that assay 20 percent or more in uranium oxide, provided that the material comes from a new, previously unworked deposit. In addition the commission will pay for the ore at the ordinary price. The offer applies to any discoveries inside the United States, its territories, possessions and the Canal Zone. . . .

The guaranteed minimum AEC price for uranium ores is at the rate of $3.50 per pound of uranium oxide that is recoverable from the ore, less refining costs, plus allowances for other valuable minerals that may be contained in the ore. Carnotite ores are priced on a different schedule at rates that vary from 30 cents to $1.50 per pound of contained uranium oxide, plus certain bonuses, plus allowances for other valuable constituents. Carnotite purchases are made in minimum lots of 10 tons. Ores that assay less than 0.10 percent uranium oxide or that contain excessive quantities of lime are not purchased.

During the Middle 1950's the United States Atomic Energy Comission (AEC) paid out over $2,000,000 for new uranium discoveries with some prospectors reportedly making $150,000 a month. For example uranium deposits were discovered near Moab, Utah
in 1952 by Texan prospector Charles Steen, who went on to make millions of dollars . . .
The AEC financed uranium rush was not intended to subsidize the domestic nuclear power industry however, rather
large uranium ore deposits were first tapped for the voracious Cold War nuclear weapons program in the early 1950s, . . .
The AEC purchased uranium to go into nuclear bombs, nuclear warheads, and reactors meant to power submarines, not domestic power reactors. Thus past domestic uranium subsidies were intended to produce uranium for military use, and not to subsidize the Civilian Nuclear power industry. The subsidies did not in fact produce a flourishing domestic uranium mining industry, and indeed once the military demand for uranium slowed, the domestic Uranium mining industry withered on the vine, because American produced uranium was more expensive than military surplus uranium, much of it coming from Russia, that was offered to civilian power reactors bythe United States Government. The intent of this program was to dispose of unwanted Russian weapons grade U-235 which the United States government feared would fall into evil hands and then used by terrorists and third rate failed states, to attack more peaceful countries.

Paradoxically if domestic uranium mining is to be counted as part of what is included in the American domestic nuclear industry. the sale of low cost Russian U-235 to the American Civilian Nuclear Industry has weakened the mining sector of that industry. But if the United States government had stockpiled Russian uranium which it purchased to keep it away from evil hands, the domestic uranium mining industry would not have profited nearly as much as foreign uranium mines, that do not receive receive U.S. Government subsidies. The price of uranium would have risen, but this would have little effect on the cost of producing nuclear power in the United States as we have seen.

Thus past large U.S. Government uranium mining subsidy policy was related to national security concerns, and failed on a long term bases to offer positive economic benefits to the domestic uranium mining, reactor manufacture and nuclear power production segments of the domestic nuclear power industry. Thus the so called "legacy" uranium mining subsidies would have been paid whether on not there was a domestic nuclear power industry, and much of it was paid before the inception of the civilian nuclear power industry.

The current subsidy to the domestic uranium mining industry large enough to effect its fate. Koplow acknowledges,
An estimate by the Texas comptroller (2008) pegged uranium’s share of this provi- sion at an insignificant $0.5 million for 2006, and that for coal at less than $30 million. In contrast, the Joint Committee on Taxation estimated total subsidies from percentage depletion flowing to fuels other than oil and gas to average $160 million per year between 2008 and 2012 (JCT 2008: 62). This figure, which applies to coal and uranium, is more than five times the Texas comptroller’s estimate.
Kaplow acknowledges the weakness of this data,
Three factors call both of these estimates into question.
And then plows ahead to claim on the basis of a guess that,
the subsidy value of percentage-depletion allowances for uranium is about $25 million per year.
Nor does Kaplow acknowledge the subsidies to the Oil, natural gas, coal, wind, solar thermal and photovoltaic industries.

Kaplow notes
between 1994 and 2007 the share of domestic uranium purchased by the civilian sector dropped from more than 20 per- cent to less than 8 percent . . .
Then he observes,
Surging uranium prices in the past few years have greatly increased interest in uranium mining throughout the West . . .
But the few U.S based active Uranium mines produce only a tiny amount of the Uranium produced by the United States nuclear power industry, and half of the uranium produced comes from Canadian owned mines.

Kaplow talks about legacy costs, for example claiming
Uranium-tailing remediation costs approach the value of ore. . . . The cost per pound of U3O8 produced, even using values only through 1999 (scaled to 2007 dollars), exceeded the average value of uranium during the period tracked by the EIA prior to the commodity price spikes that began in 2006. Even with surging prices included, socialized remediation costs were still more than 80 percent of the value of the ore produced during the period. Assuming full remediation costs, including all Title I sites, Title II sites, and unfunded liabilities associated with uranium mine and enrichment facilities, the degree of subsidy to upstream processes would grow even more substantially.
But most of those tailings were produced by the mining of uranium for military purposes. A small percentage of those tailings can be legitimately be assigned to to the nuclear power industry. Yet Kaplow appears to believe that every penny payed by the government for uranium mine site reclamation is a subsidy to the domestic nuclear power industry.
To cover the cost of proper mine reclamation, it is reasonable to assume that the price per pound of U3O8 would need to have roughly doubled. Based on data from the World Nuclear Association (WNA 2009b) on the contribution of raw uranium prices to the delivered price of nuclear power, the underpricing of uranium has generated a subsidy to nuclear power of 0.13 to 0.32 ¢/kWh of resultant nuclear electricity produced. It is striking that this range exceeds what the industry currently pays the federal government to take full responsibility for its nuclear waste from reactors.
Is government cleanup of domestic uranium mines that was on federal own lands, and were mined because the government was purchasing uranium for military purposes, really a subsidy? Or is the government taking care of a responsibility which was its all along. Kaplow argues that government policy should have included bonding of uranium mines for the environmental consequences of its mining, but the government through its various arms was the principal consumer of uranium during the uranium rush days, and it made the rules easy so that uranium would be easy to obtain. Thus the uranium tailings were the consequence of government desires to lower military costs, not to benefit a civilian nuclear power industry. Thus the tailings clean up responsibilities can be largely assigned to the United States government, and thus is not a legacy subsidy for the nuclear power industry.

In the nest part of this review, I will look more carefully at Kaplow's claims about the complex relationship between United States national security interests and the civilian nuclear power industry.

12 comments:

Anon said...

It should be noted that renewable energy installations such as large solar and wind farms tend not to be cleaned up when the subsidies (which unlike nuclear those sources need) run out.

BilloTheWisp said...

If Nuclear is "still not viable without subsidies", how come the French economy has not collapsed?

After all, 80% of their electrical generation is nuclear.

Even more peculiar is that the French also have the cheapest electricity in Western Europe and the cleanest air.

Strange subsidy. Funny type of non-viability.

Anonymous said...

The French economy is very close to collapse indeed. It wouldn't be entirely accurate to blame that solely on generous French govt subsidies to nuclear electricity though. There are so many econmic dislocations in France- distortions, misallocations, subsidies, special priviledges, social and finanical guarantees to various special interests, vast malinvestment, boondoggles, restrictive regulation, opportunity costs, arbitrary surcharges, taxes and the like. The magnitude of it all is so large that economic calculation is all but impossible there. That makes the French economy very unstable and far, far weaker than it otherwise would be. All that is required now is one suitably decent sized failure and it's all on for one and all. For example, if the Greek government ends up defaulting (as is more than likely), the French fractional reserve banking system lacks the capacity to ride out the losses they'll experience. They'll need a really really great big govt subsidy to get out from under. Of course the French govt itself is going to be too finanically weak to be able to shore the mess up with a fat cat bail out. So a even a wee default in Greece is more than likely going to be taking the French economy over a tipping point- perhaps into a nice deep abyss. After that it will be interesting to see what subsidies persist in France, nuclear or otherwise. Which of the French special interests have the best lobbiests....?

Sione

Anonymous said...

Anon

Yup. Interesting indeed.

No money = no cleaning up after.

Who is going to end up having to deal with it all I wonder?

Sione

Anon said...

Of course France does make quite a decent profit off exporting electricity so it's not very likely that they'd suddenly find themselves unable to pay for their nuclear reactors.

BilloTheWisp said...

Sion, Are you having a laugh?

Even after your xenophobic tirade against the French, the truth remains that their nuclear success lays bare the lie that nuclear generation is unviable unless subsidised.

Furthermore, to suggest that the French economy is on verge of collapse is both silly and infantile.

Domestic electricity in France is half the price in Denmark or Germany. The French economy is one of the strongest and most dynamic in Europe (probably due to low electricity prices)

As to cleaning up. Cleaning up after what? If you have some ill informed paranioa about nuclear waste, the French have been successfully dealing with radioactive waste for years and are leaders in the field.

They also have the cleanest air in Europe

Anonymous said...

Well, that is the problem right there. Do they make profit? They don't know that for certain themselves.

The trouble with economic interferences and dislocations of government is that they render economic calculation difficult if not impossible. For a good example in France- one which has now been well studied- consider the TGV. This was reported to be profitable by the French government and by many of the special interests involved. It was necessary for it to make a profit since European Union regs is that member governments are not supposed to subsidise transportation to the detriment of those systems operated by other members. For years TGV was promoted as a huge success and the books demonstaated a modest profit. Further the government was able to state that it did not subsidise it. All looked AOK. In reality it was consuming huge subsidy. A careful investigation soon demonstrated that the French government had split TGV and other rail ops into several different categories and placed each under the auspices of different (and separate) ministries/ govt departments. Thus expenditures were classified separately and were rendered invisible to enquiry. One example, maintenance of TGV track and electrical infrastructure was 100% subsidised but that was not declared as it was mixed in with other govt allocations and activities (including social welfare benefit pay-outs!). TGV in reality was a huge loss maker. This became a bit of a scandal when it was discovered. TGV management and various govt depts protested they were unaware of the issue. They didn't realise themselves. The whole business ended up being fought out in Brussels.

It is very difficult to know whether any of the French economic or financial data is accurate or reliable. For large industry sectors in France the problems of economic calculation are immense, bordering on impossible. It is a very unstable situation they are now in.

Sione

BilloTheWisp said...

This is my last comment.
Dear Sione,
However much you hate the facts...
1. French electrical generation from Nuclear power currently stands at 78% (i.e. 80% on a good day)
2. French consumers pay half as much for their electricity as the Germans or the Danes, and less than anyone else in Western Europe.
3. France is the biggest exporter of electricity in the world.
4. France earns in excess of 3 billion Euros every year from its electricity exports.
5. France is a stable modern industrialised country with arguably the best health system in the world.


So some politico's bigged up the TGV. So What? This never happened elsewhere or before?

Are you seriously suggesting that this shows that virtually the whole of the French power grid is somehow secretly subsidised by a massive 50 % discount?

The French are not stupid.

They have built 58 Nuclear reactors because they were cheaper, cleaner and more secure than other power systems.

If they had not been financially viable they simply would not have been built in such large numbers.

They could have built coal, or oil or gas. But they didn't. They built nuclear.

Good for them. They lead the way.

Anonymous said...

BillotheWisp

Believe what your faith dictates. Nevetheless arguing by insistence does not make a convincing case for you. Nor does running away and hiding rather than discussing matters in an unemotive and civil manner. Do calm down.

The point remains that French economic data is uncertain at best and more often than not unreliable. What has been discovered from hard experience is that further in-depth resarch and substantial adjustment of released economic data is required in order to gain an insight into economic matters relating to the French govt and the French economy. In France the economic dislocations of state interferences are severe to the point where economic calculation is near impossible for many sectors. That is known fact. With respect I recommend you read up on what bankers and economists (including their state employed analysts) actually involved in the situation are reporting.

The French economy is in an unstable situation presently. There is considerable risk of large magnitude dislocation. A debt repudiation or unilateral sovereign default by any of the PIIGS is going to devastate the French banking system. They are the most exposed in Europe. A sovereign bond haircut would make their technical insolvency specific and public. Further, the French govt lacks the horsepower to bail them out. Who would? Would the Germans come to the rescue? Can the next few generations of German citizens be expected to pay for failings of the French govt, banking system and economy? Can the Euro survive or will the temptation to inflate prove too great? There is a lot of attention directed towards this topic presently. Stay tuned.

Anyway, all this is going to affect what subsidies the French govt can continue to provide. Whether they continue is an interesting question. What would happen if they are rendered unaffordable and withdrawn? Stay tuned.

Sione


PS TGV data was not inaccurate or misleading due to the antics of some notional corrupt politicians. The inaccuracy was and remains an inherent systemic problem.

Anonymous said...

BillotheWisp

While we are here, let's deal with each of your numbered points specifically.

#1. I'm not disagreeing.

#2. And I'm not opposing your statement here either. Nevertheless I note that when I lived in New Zealand and later on in Australia I paid even less for my domestic electricity than when I lived in France. In NSW I understand the electricity is generated by burning coal...

#3. Not arguing against that point.

#4. Perhaps that is the revenue. I'll take your word for it. Unless the capital and operating costs are actually known with real precision, then you are in the position of not being able to determine whether this is in profit or in loss situation. For a start you are going to find it extremely difficult to determine the real capital position. Sure there are plenty of published figures, but as with TGV they are nowhere near an accurate discloure of reality. An analyst is going to have to chase data for years and years (even chasing up material in the social welfare acives, diplomatic bugets, defense etc etc etc) to get to the bottom of this.

What I am trying to point out to you is that in France it is extremely difficult to undertake economic calculation since there are so many dislocations and distortions throughout the French economy. TGV is but one (smallish) example. You do not have to take my word for it- check it out for yourself. Go there and live in Paris for a while. Start a business- you'll soon experience what I've pointed out.

#5. That's your subjective opinion. It happens to be false (especially the bit about the health system- had to laugh at that claim).


The French govt chose nuclear for subjective political reasons. They wanted to be independent of NATO, the US nuclear umbrella and what they perceived as US client states in the Mid East (OPEC members for instance). For some political context re their thinking at the time the initial decisions were made, read up on the French experience in Vietnam and what they thought of the US govt after that (getting English translations isn't really all that difficult).

Note that other countries in Europe are now withdrawing from the nuclear option. Their analysis and values (whether economic, risk, social policy, environmental, political, financial etc etc etc) are different from those of the French govt. Are you implying that all these people (tens of millions of them) are stupid?

Final point. You write, "If they had not been financially viable they simply would not have been built in such large numbers."

You simply do not know whether financial viability was the reason they were built in the first place. Besides, govts do things for many, many reasons other than financial viability. Indeed, most of what govts undertake is not finanically viable, nor meant to be.


Sione

PS. this isn't an implication of failings on the part of nuclear technology per se- what we are discussing here is economics and politics.

Anon said...

Whilst Australia burns a lot of coal and has very cheap electricity because of it, I wouldn't call Australia's electricity system clean (quite the opposite). France probably has pretty close to the cheapest clean electricity out there and certainly much cheaper than Germany and Denmark which have been wasting a lot of money on renewables.

I'd also like to know why Germany is defined as the rest of Europe? It ignores countries which are building reactors as fast as they can afford to pay for them. Germany will pay the price for their actions (and already are, a lot of industry has left due to energy costs).

BTW: Independence from NATO and the US nuclear umbrella doesn't require any nuclear power plants. France did get hit very hard by the Arab Oil Embargo and quite understandable didn't want it to happen to them again, they were also the biggest electricity importer in Europe.

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