Today's question: Is John McCain right about the need to build more nuclear power plants in the United States? Previously, Taylor and White discussed T. Boone Pickens' alternative energy plan and offshore drilling.
Too subsidized to be sustainablePoint: Jerry Taylor
John McCain is wrong. As I argued on Tuesday, John, if an investment has economic merit, government does not need to subsidize it or order the market to consume the fruit of that investment. But if an investment lacks economic merit, no amount of government favoritism will turn that ugly economic duckling into a beautiful, wealth-creating swan.
Without subsidies, nuclear power plants would never have been built in the first place, and certainly wouldn't be built today. Let's briefly look at all of the handouts going to that industry:
* A federal law called the Price-Anderson Act protects nuclear power plant owners from liability above a certain point in case of an accident.
* Federal regulations relieve the industry of the need to pay third parties to accept the risks imposed by waste disposal.
* The federal government provides both uranium supply and enrichment services but fails to charge nuclear power plants anything for the capital or inventory costs.
* The federal government recently budgeted $18.5 billion to guarantee the loans necessary to build the next several nuclear power plants.
* The federal tax code provides a 1.8-cent-per-kilowatt-hour subsidy to nuclear energy producers.
Research by Tufts University economist Gilbert Metcalf shows that, absent the subsidies presently on the books, nuclear power is almost twice as expensive as coal-fired power -- and that's probably optimistic. Recent power plant construction costs overseas demonstrate that cost overruns and construction delays still remain the rule rather than the exception.
How then do France, India, China and Russia build cost-effective nuclear power plants? They don't. Government officials in those countries, not private investors, decide what is built. Nuclear power appeals to state planners, not market actors.
How then do we explain all those permit applications in front of the U.S. Nuclear Regulatory Commission to build new nuclear facilities? Simple: Permits are a low-cost means of reserving the right to go forward with new construction. They obligate the utilities to nothing, and even pro-nuclear proponents argue that unless the feds do even more to promote nuclear power, the much ballyhooed "nuclear renaissance" will be die in its crib.
Enter John McCain.
You might be tempted, John, to argue the case for nuclear power to address greenhouse gas emissions. But you should resist that temptation. If we slapped a carbon tax on the economy to "internalize" the costs associated with greenhouse gas emissions -- the ideal means to address emissions if such an issue will ever be addressed by policymakers -- then the "right" carbon tax would likely be too low to jump-start nuclear power plant construction, if the economists are right.
If new plant designs or other technological innovations brought nuclear costs down enough to attract private investors, then fine, I would have no complaint. But until that day comes, it will be guys in pinstripes from Wall Street, not guys in tie-die from Berkeley, who will keep those plants from coming on line.
Jerry Taylor is a senior fellow at the Cato Institute.
McCain's nuclear fantasyCounterpoint: V. John White
Jerry, you pinpoint the first problem with McCain's nuclear power fantasy, which is the cost. You do a good job of listing the mind-boggling array of government subsidies that the nuclear industry enjoys. The supposed revival of nuclear energy in the U.S. is the financial equivalent of billions of dollars in new subprime mortgages with no money down and no ceiling on how much of the cost the government will back.
The owner of the proposed Calvert Cliffs 3 Nuclear Plant on the Chesapeake Bay in Maryland is a limited liability shell corporation with no assets. Still, the unknown future costs of the plant are completely guaranteed by the U.S. and French governments. No bank or corporation is willing to bet any part of its own balance sheet on new nuclear plants. Carrying out McCain's nuclear plan will depend on the full faith and credit of the federal Treasury.
Conventional nuclear power has two other fatal flaws. Each plant generates a huge volume of highly radioactive waste that must be safely stored for thousands of years. Finding a permanent repository for the huge volumes of high-level nuclear waste has, so far, proved impossible. And McCain's reliance on reprocessing nuclear waste into plutonium ignores the long-term threat of nuclear proliferation and the risk that terrorists or rogue states could acquire bomb-making material from nuclear plants. McCain's emphasis on the nuclear threat posed by Iran is at odds with the proliferation risk posed by conventional nuclear plants.
Some nuclear power advocates point to the possibilities of new reactor designs and new ways to process fuel, which can someday overcome the downsides of current nuclear plant technology. Research into ways of reducing the toxicity and volume of nuclear waste and creating a safe nuclear fuel cycle should continue. But nuclear power is inherently not sustainable and involves large technological and safety risks. It cannot make a difference in reducing our fossil fuel dependence for many, many years.
I agree with you, Jerry, about the virtues of a carbon tax to help speed the transition to a low-carbon energy economy. I disagree, however, with your opposition to subsidies for sustainable, low-carbon technologies. We have an abundance of opportunities to improve efficiency technologies, including cogeneration of heat and electricity, fuel cells, solar energy and power-storage methods. We have huge untapped wind, solar, geothermal and biomass energy resources that could eventually meet a large share of our electricity needs.
We can create a more flexible, interconnected, low-carbon grid that takes advantage of the synergies between several kinds of renewable energy. The public has to share in the costs of these investments, or the technology won't come to the market as soon as we need them. But the payoff -- in the form of increased energy security, green jobs, global leadership in new technologies and a safer, sustainable environment -- will be huge.