Thursday, January 24, 2008

Bafflegab: Energy Subsidies

I've tried to keep the articles objective, except where the discussion requires some insights into the thinking of political activists. Even there, we're on reasonably firm ground because nuclear opponents have been staunchly consistent and have always communicated their opinions freely.

But the subject of subsidies is altogether different, and that is the point of this article. I am only covering the US situation; I don't understand what goes on in other countries. I don't fully understand what's going on in the US and I don't think anyone else does, either. But the reason this comes up is that nuclear opponents wish to prove that nuclear energy costs more than its price shows; that if it weren't subsidized it would be hopelessly expensive.

The first murky issue is, what constitutes a subsidy? A subsidy is supposed to be a transfer of money (or possibly property) to an economic entity as a financial benefit. No energy sources get subsidies. But a tax credit is the same thing, so all energy sources get subsidies.

In the current energy plan, the first 6000 MW of new advanced-design nuclear plants can receive up to 1.8¢ per KWH in tax credits for up to 8 years. Up to six new plants could qualify for a subsidy to offset the cost of designing and permitting.[source] Clean renewable sources can receive up to 1.9¢ per KWH for up to 10 years.[source]

So those seem clear enough. But plants are also offered loan guarantees. That clearly benefits the utilities that build them. It also benefits investors. But it only costs taxpayers if the utilities default on the loans. So is that a subsidy? And if it is, how does one evaluate the probability of a default?

Nuclear opponents always cite federal underwriting of nuclear insurance as a subsidy. That could be considered a benefit, but it only costs the taxpayers if there's an accident exceeding 10 billion dollars in damages. In the history of the program, taxpayers have never paid out a cent. Is that a subsidy? And if it is, how does one evaluate the probability of an accident?

Nuclear opponents consider money spent in the past on research and development to be a subsidy. But the R & D money went to make nuclear plants safer, not cheaper. In fact, the research achievements raised the cost to utilities because they had to upgrade their plants when new technology became available. It could be that the superior technology prevented expensive accidents, but the main beneficiaries were members of the public. So, should R & D expenditures be considered a subsidy?

But these considerations don't slow nuclear opponents down for a second. They throw numbers around as if they meant something, and never try to justify them. Here are some examples:

"In the last 50 years, nuclear energy subsidies have totaled close to $145 billion; renewable energy subsidies total close to $5 billion."[]

"Between 1948 and 1998, the federal government spent $111.5 billion on energy research and development programs. Of this amount, 60 percent, or $66 billion, was dedicated to nuclear energy research, and 23 percent, or $26 billion, was directed to fossil fuel research."[PIRG]

"Management Information Services, Inc. (MISI), conducting a study of the cumulative effects of energy subsidies, found that by 1997 Federal subsidies for energy had amounted to $564 billion (1997 dollars) over the last five decades, roughly half of which went to the oil industry in the form of tax expenditures. MISI considered eight categories of Federal activity and quantified subsidies in six. In contrast to other findings, MISI found that subsidies to renewable sources ($90 billion) outpaced those to natural gas ($73 billion), coal ($68 billion), or nuclear energy ($61 billion)."

"While the bill's environmental objectives are a strong advance, one provision remains misguided. Despite the provision of billions of dollars in subsidies to the nuclear industry in the 2005 Energy Policy Act and over $85 billion in historical subsidies, the bill introduced today contains additional nuclear subsidies that NRDC continues to oppose."[NRDC]

But let's take the wildest of the these guesses,'s 145 billion dollars. Spread over the 17,111 billion KWH nuclear plants have generated, the cost of this purported subsidy is 0.8¢/KWH. In contrast, the subsidy for geothermal, wind, and solar, using's 5 billion dollars spread over 485 billion KWH, would be 1¢/KWH. Or, if we use MISI's estimates, the subsidies would be 0.4¢/KWH for nuclear and 18¢/KWH for renewables.

If we were to believe nuclear opponents, they all are stalwart Defenders of the Public Purse. They are deeply concerned that taxpayers will have to support uneconomic nuclear power plants. Renewable energy sources are different, though. Taxpayers should be glad to support them.

But these numbers show that this is all a red herring. Even if we accept nuclear opponents' exaggerated projections of nuclear subsidies, most renewables still won't compete. On economic grounds, the choice is between nuclear and coal.

So why is coal so cheap? It's because the federal government has a deliberate policy of allowing coal-burning utilities to emit so much pollution into the air that thousands of Americans die every month, all in the interest of holding down electricity rates. Just counting deaths among adults over 25, the estimate ranges from 33,000 to 121,000 per year in the US [table]. Nuclear energy can't compete with coal and neither can anything else, not even conservation.

Subsidies for nuclear energy are not necessary. If air-pollution controls were adequate then windpower, nuclear, and conservation would all be cost-competitive. But if we set a policy that coal-burning utilities are free to poison the air, and we want at the same time to make them stop operating, then we can't just leave it up to the market to decide.

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