To Be or Not To Be a Nuclear Subsidy

Let’s talk subsides: after all, the nuclear energy industry can barely survive without them, right? And the industry has snuffled its nose in the federal trough for so long that it is virtually addicted to the sweet, sweet lucre that it finds amongst the slop.

Right?

Well, let’s say up front that all energy sources receive subsidies of one kind or another – that’s a consequence of the government wanting to ensure that privately run concerns direct their attention in useful ways. Various kinds of tax credits can ensure that certain actions are taken or energy types encouraged.

Having said that, nuclear energy has received one of the smallest amounts of federal subsidies over time for any energy source. I’m not going to propose reasons why this might be so, but over the past decades, the nuclear industry has received less federal support than renewables and far less than coal and oil.

A recent study analyzed all federal energy expenditures from 1959 to 2006 and found that of the $725 billion that was distributed, 73 percent ($530 billion) went to oil, natural gas and coal; 18 percent ($130 billion) to hydro and renewables; and 9 percent ($65 billion) to nuclear.

Not peanuts, of course, but the report takes in a lot of ground that one might not think of as subsidies: R&D, tax policy, disbursements, regulation, market activity and government services. Some of the money is seen by companies, often as tax credits, but the Department of Energy and the national labs do a fair amount of research on nuclear energy topics, not all of which will find commercial application. In any event, the report’s approach seems to me judicious.

I have seen studies – usually ones unfriendly to nuclear energy generally – that try to lump in loan guarantees among the subsidies. Loan guarantees are emphatically not subsidies – just the reverse, really, as the government collects credit subsidy fees to cover any risks associated with the loans.

Loan guarantees imply no cost to the taxpayer; In fact, they have the potential to lower electricity prices for consumers – because the guarantee encourages private lenders to finance a new plant at a lower interest rate - and the industry pays the cost of using the guarantee.

It’s easiest to see them as a trade: a credit subsidy fee for a much lower interest rate, an exceptionally beneficial quid pro quo. Everybody wins: consumers get lower cost clean energy and thousands of workers get jobs to help build the reactors.

Why look at subsidies right at this moment? Well, there has recently been a report purporting to show nuclear energy as soaked in subsidies and even requiring them to survive. Leaving aside motivations for the report, it makes some fairly elementary errors about what is and isn’t a subsidy to make nuclear energy look just as bad as it possibly – even impossibly - can.

Reporters covering its unveiling seemed to recognize this and the report hasn’t gotten much traction, so it’s not really worth a direct response. But the subject of subsidies is poorly understood, so now seems a good time to demystify them a little.

The World Nuclear Association has an interesting take on subsidies in the international nuclear sphere. See here for that. Money quote:

Today, apart from Japan and France, there is about twice as much R&D investment in renewables than nuclear, but with rather less to show for it and with less potential for electricity supply.

A boy and his skull. Because Laurence Olivier is so associated with Hamlet, one tends to forget he (Hamlet, that is) is supposed to be quite young. The gravedigger in the play says Hamlet is 30, but other lines in the play make him even younger. Hamletophiles will puzzle over this one forever.