May 2, 2011

Picking Nuclear, Picking a Winner?

By Lewis Milford

UCS report cover nuclear 2011In my recent post, I tried to counter the myth that the government should not be in the business of “picking winners,” a charge leveled against some recent Obama Administration energy proposals.

I tried to explain that government has always been in business of supporting technologies, especially new ones. I cited a study and might have been a bit academic. So it’s worth taking a real world example in the energy area to prove the point a bit stronger.

A recent report from the Union of Concerned Scientists details the aggressive federal government support for nuclear power going back over five decades. Whether you agree that was the right or wrong policy is not the point. The point is what the government did to “pick winners” in the nuclear energy area.

As the report noted, “historically, investment tax credits, accelerated depreciation, and other capital subsidies have been the dominant type of government support for the industry.” These subsidies have had the effect of significantly reducing the cost of electricity from nuclear power, ranging from 2 cents to 7 cents per kilowatt hour. This has made nuclear seem artificially cheap compared to alternatives. Also, the way that nuclear plants are approved and financed has generally shifted the costs of overruns and other financial risks to the public ratepayers, rather than to the private investors in the plants.

Perhaps the most stunning effect of these subsidies is their financial scope as compared to the amount of power the subsidies produced.

…subsidies to the nuclear fuel cycle have often exceeded the value of the power produced. This means that buying power on the open market and giving it away for free would have been less costly than subsidizing the construction and operation of nuclear power plants.

Those who argue against picking winners are really using the dog whistle to say “I don’t want to subsidize your preferred technology.”

An honest debate about what energy source to subsidize is useful. But that debate should not rely on any claim about picking winners, which has happened in energy for decades and it will continue to happen. So let’s shift the debate to more productive areas of argument.

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