Wednesday, July 6, 2011

Nuclear Industry Subsidies Part IV: Conclusions on Koplow

This is Part IV of my review of Doug Koplow's "Nuclear Power: Still not viable without subsidies." In Part I, I examined the definition of subsidies and looked at several limiting cases, including subsidies to an energy related project, the Cape Wind Project. Par II focused on Government policy toward the domestic Uranium mining Industry, and the National Defense context of that policy, and questioned both the intended and actual benefit of these policies for the nuclear power industry. Part III examined the relationship between United States military interest and the interest of the Nuclear power industry, and concluded that the relationship between the two had not served the interest of the Nuclear Power Industry.

Despite the fact that I disagree with many of Doug Koplow's contentions, especially with respect to his farcical account of the so called "legacy subsidies," and his utter failure to compare U.S. Government subsidies to the renewable power industry to subsidies to the nuclear power industry. Koplow is not entirely on the wrong track. Not entirely, but certainly partially.

Lets look first at some issues that on which Koplow is clearly on the wrong track. First nany of Koplow's so called legacy subsidies are down right silly. For example, Koplow notes,
In enrichment, the federal government historically took on all financial risk for building up capacity, and for many years it sold the enriched fuel to commercial reactors below cost.
Koplow adds,
The U.S. enrichment picture, via the privatized U.S. Enrichment Corporation, now has a more complicated mix of policies that seem primarily aimed at keeping a U.S. firm in the enrichment market rather than keeping low-enriched uranium (LEU) prices low. Government subsidies to the sector globally, however, appear to spur overcapacity, generating artificially low fuel costs.
Koplow's argument seems to run close to the tail wagging the dog. We have seen in Part II of this review that nuclear generated electricity would continue to be competitive even if the cost of nuclear fuel was much higher. The primary enrichment technology which the United States Government has employed is the obsolete Gaseous Diffusion technology. The Gaseous Diffusion systems uses 50 times more electricity than the more modern gas centrifuge process. An even more advanced laser enrichment processes is being developed.

The United States built three very large and expensive Uranium Enrichment plants during World War II and the Cold War. Even before the end of the Cold War the United States had acquired all the Highly Enriched Uranium it needed to fight several global nuclear wars. Thus objectively the continued operations of the American Gaseous Diffusion Plants was not a military necessity, and thus their continued operation was no longer required, but for both military and political reasons, the United States Government wished to maintain its uranium enrichment capacity. The huge World War II K-25 plant in Oak Ridge, was however in physically bad shape, due to its hurried World War II construction it had a leaky roof, that lead to all sorts of problems. Since K-25 was no longer required the decision was made to shut K-25 down and junk it. The life of the other two Gaseous Diffusion plants was prolonged by selling LEU to the nuclear power industry, although to do so, the plants had to operate at a loss. But was this intended as a subsidy to the American Nuclear Power industry, or an attempt to keep military assets available after the end of their useful life, as well as a pork barrel program. Keeping the Gaseous Diffusion Plants open meant thousands of jobs in industrially depressed Western Kentucky and Southern Ohio. Not only did Gaseous Diffusion plants play roles subsidising local economies, but the plants' voracious appetite for electricity, meant that several local coal mines would be kept open.

Koplow's treatment of the Price-Anderson Insurance system is more subtle. He acknowledges that Price-Anderson creates an insurance pool that is not government subsidized. Thus the only subsidy which might be created by Price-Anderson is its liability cap. Whether or not this is a real world subsidy, is a matter for debate. (See also here, and here. The second link is to a Policy Brief published by the Stanford Institute for Economic Policy Research, and titled "Does the US Subsidize Nuclear Power Insurance. Geoffrey Rothwell concludes that the answer is no,
While there is the potential of federal payments to nuclear accident victims, there has been no direct subsidy of the nuclear power industry through the PAA.
Thus Koplow's inclusion of Price-Anderson in a discussions of nuclear subsidies is problematic. And his inclusion of the liability cap as a subsidy, with out noting Geoffrey Rothwell is simply in excusable. Koplow does note Rothwell research when it does support his nuclear subsidies contentions. This is called cherry picking. Koplow does some interesting things to say about potential reforms in Price-Anderson, but this properly belongs in another report, since he has not established that Price-Anderson is contains a nuclear industry subsidy.

Koplow decision to base global recommendations about energy industry subsidies on the basis of one very flawed study of nuclear subsidies is, of course, a monumental error. Koplow claims
the industry received massive subsidies at its inception, reducing both the capital costs it needed to recover from ratepayers (the “legacy” subsidies that under- wrote reactor construction through the 1980s) and its operating costs (through ongoing subsidies to inputs, waste management, . . .)
This is not the case. Investments made for R&D for military nuclear programs were no more subsidies to the commercial nuclear industry, than military investments in aircraft technology during World Wat I, World War II, the Cold War and the post-Cold War era, were subsidies to the domestic air industry. Nor was government investment in radio technology R&D beginning in World War I and continuing into the 21st century radio industry subsidies. Koplow has not demonstrated his case, which he argues by compounding errors.

Koplow claims,
In addition to legacy subsidies, the industry continues to benefit from subsidies that offset the costs of uranium, insurance and liability, plant security, cooling water, waste disposal, and plant decommissioning.
We have seen that Koplow ignores the role that national defense interest have played in establishing uranium costs, and the questionable nature of the case that the government subsidizes NPP insurance. NPP security is a national defense issue. It is appropriate for the national government to set security standards, and, even play a role in NPP security operations if that is needed. Water permits are hardly a big deal, in terms of economic benefits. Nuclear Waste disposal is primarily a political issue, and the current system is for the NPPs to play the national government for waste disposal services which it does not provide. This is not a subsidy by the government. In fact the NPP industry takes care of its own waste and most likely will do so for years to come. Finally NPPs pay a fee for plant decommissioning. It might be debated whether the fee is sufficient, but the current system does not involve direct government subsidies of decommissioning systems.

Koplow account of nuclear power industry subsidies is disingenuous if not dishonest. Furthermore Koplow knowingly ignores the relationship between nuclear subsidies and government subsidies to other energy forms. Government subsidies to the fossil fuel industries are much greater in terms of dollars spent, and government subsidies to to wind and solar industries are much higher per unit of energy those industries produce.

Koplow study singles out nuclear power for a mainly unjustified attack, and proceeds to launch that attack in a way that distorts and decreases the readers knowledge of the subject. Koplow's goal seems to be the crafting of Counter knowledge.

Both subsidies to energy in general as well as subsidies to nuclear power in particular ought to be the subjects of serious discussions. but subsidies to nuclear power should not be wholly separated from the wider topic. In addition the definition of subsidies should be clarified, alleged examples of subsidies examined, and rejected if they do not seem to fit within the topic. Furthermore, as we have seen supposed subsidies play complex roles in the operations of government. Government departments and agencies cannot subsidize each other, but they may transfer funds. Such fund transfers may have political purposes in mind. What may seem to be a government subsidy to an industry, may in fact be a transfer of funds to the workers in a different industry.

Much of what Koplow views as government subsidies to the nuclear power industry are not subsidies at all, but he is correct that the relationship between the nuclear power Industry and the government is an important area for study. It has been my conclusion, drawn from material I pointed to in this review, that we need to understand how government programs can damage as well as aid the interests of energy industries, and of energy consumers. This study would be useful if the goal of government is to better shape energy programs in order to serve the public interest.

Although he often misses his mark by a wide measure, Koplow's account is still not without its uses, as I have pointed out. Supporters of nuclear power should pay attention to its critics, just as supporters of renewable energy should focus attention on what their their critics have to say. The critics of the use of nuclear energy should listen to what its defenders say in response, especially when the defenders point out factual and thinking errors in the critics case.

I had intended to wrap up my series on nuclear subsidies with this post, but I now believe that at least one further post is required. We need to examine the circumstances under which subsidies to the nuclear power industry might be or are justified.


donb said...

The issue of "legacy subsidies" is really a red herring. While they may be instructional for current policy makers, they are "sunk costs". As such, the real issue is then how to move forward, given what we have now. It is silly to throw away a fully paid-for asset simply because it came about because of a previous subsidy.

On-going subsidies are another matter, and certainly require scrutiny. Here renewables do not have clean hands. Things like production tax credits and 'must-take' provisions for wind power need to be looked at carefully.

I submit that the nuclear power industry has been laboring under an 'anti-subsidy' of negative publicity (Mr. Koplow being only one of many contributors) and burdensome regulation. Any historic or present subsidies have served only to level the playing field somewhat, not to advance nuclear power ahead of (say) renewables.

pebble_energy said...

The entire US military defense budget can be argued is a subsidy for the oil industry. If America provided it's own energy from nuclear sources it would not need to go into Iraq or Afghanistan and stir up the terrorism against it.


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