November 3, 2009

November 3, 2009 | Backgrounder on Energy and Environment

Boxer-Kerry Cap-and-Trade Bill's Nuclear Provision Won't Fuel a Nuclear Revival

Key Points

  1. Boxer–Kerry, the Senate companion to the Waxman–Markey cap-and-trade bill, is an economically harmful bill that will dramatically raise energy costs for Americans. The pro-nuclear-energy provision in Boxer–Kerry fails to address real reform and instead relies on needless government expansion.
  2. Critics recognize the provision’s flaws but offer few sound solutions of their own. Their proposed solutions call for more loan guarantees and a government commitment to building new nuclear power plants.
  3. Rather than handing out more subsidies and imposing more mandates, the government should reform the excessively slow permit process, introduce market reforms for nuclearwaste management, and allow recycling of spent fuel.
  4. Government subsidies perpetuate the status quo. Promoting competition will allow new technologies and methods to emerge—which will shield Americans from paying taxes for what industry can provide, and will benefit Americans through lower energy costs.

Abstract: America needs a clean, safe, and sustainable energy source. Nuclear power could be part of the solution -- with the right set of free-market reforms. Congress, the nuclear industry, and many Americans agree that reform of U.S. nuclear policies is necessary, but cannot agree on what those reforms should look like. The nuclear provision in the Senate's new Clean Energy Jobs and American Power Act is a nice nod to nuclear power, but leaves the waters muddied. Heritage Foundation energy experts Jack Spencer and Nicolas Loris provide some clarity.

Senators Barbara Boxer (D-CA) and John Kerry (D-MA) recently introduced the Clean Energy Jobs and American Power Act (S. 1733),[1] which will serve as the Senate companion to the American Clean Energy and Security Act (H.R. 2434) sponsored by Representatives Henry Waxman (D-CA) and Edward Markey (D-MA). Like in the Waxman-Markey climate-change bill, the key provision of the new Senate act is a cap-and-trade program to reduce greenhouse gas emissions, most notably carbon dioxide, 83 percent below 2005 levels by the year 2050. Unlike Waxman-Markey, Boxer-Kerry recognizes the critical role that nuclear energy can have in reducing America's CO2 emissions by including a nuclear provision that attempts to jumpstart an American nuclear revival.

However, no one should mistake the nuclear provision for something that makes the overall cap-and-trade mandates good for America. Indeed, it is not even good for the long-term future of nuclear energy. More nuclear power plants could help meet America's growing energy demands, yet current policy barriers are preventing Americans from enjoying the full benefits of that technology. Therefore, Congress should address nuclear energy issues either as a separate piece of legislation, or as part of any comprehensive energy bill.

The nuclear provision in Boxer-Kerry should be looked at separately from the overall value of the bill. Many critics -- even Senator Kerry -- have recognized the shortcomings of the nuclear title. The market reforms that are necessary, such as for a more efficient and open reactor-design certification process, the plant-permit process, and nuclear waste disposal, are completely missing. Unfortunately, many of the critics' proposed remedies, including potential mandates for new reactors and extended loan guarantees, do nothing to strengthen the nuclear section, and incorporate troubles of their own.

Major Flaws of Boxer-Kerry Nuclear Provision

The Boxer-Kerry nuclear provision has three major problems. (1) It needlessly expands government influence and creates unnecessary, often-overlapping bureaucracy. (2) It subsidizes industrial expansion and workforce programs, parts of the nuclear industry that are already growing. (3) It proposes not one regulatory or nuclear waste management reform that would allow for a broad expansion of nuclear power in the U.S.

Needless Expansion of Government. The Clean Energy Jobs and American Power Act's statement of policy, which sets the tone for the rest of the bill, states that government should boost the nuclear industry by reducing the "financial and technical barriers to construction and operation." While these may be laudable and necessary goals, they are not necessarily the responsibility of the federal government.

Washington has a role to play in reducing financial barriers, but not by funding projects with taxpayer dollars. The regulatory costs and uncertainty posed by the federal bureaucracy represent significant risk to the success of the nuclear industry, just as regulatory uncertainty significantly affected the timing and budget of past nuclear plant construction.[2] Indeed, this risk and uncertainty results in the higher prices that are most often used to justify government subsidies for nuclear projects. Efforts to reduce that risk by reforming the most obvious areas, such as the regulatory process and waste management, are nowhere to be found in the bill.

Instead, the bill attempts to reduce the financial risk caused by regulatory delays and technological development by expanding the federal government's responsibility -- and authority -- on the technical side. It promotes government intervention into areas that are either unnecessary or that should reside solely in the private sector. For example, the Boxer-Kerry bill creates a research and development program to assess plant aging, improve plant performance, engineer safer fuels, and lower overall costs. These are all areas currently being addressed by the private sector and already supported by public institutions and funds.

The legislation does prescribe that information collected by these programs be passed on to the Nuclear Regulatory Commission (NRC) to inform its decision making on reactor-life-extension programs and other activities. But separate programs are unnecessary because the NRC has already been cooperating for years with nuclear operators to successfully provide reactor-life-extension permits.

Aside from wasting taxpayer dollars and creating a new layer of unneeded bureaucracy, building the nuclear provision around unnecessary and redundant activities detracts from the government successfully carrying out the responsibilities that legitimately lie in the public sector. While it creates the impression that Congress is advancing nuclear energy, the bill adds no value to the country's nuclear energy policy, and in all likelihood will create more problems since additional government intervention will distort normal market forces, create additional costly and cumbersome bureaucracy, and subject industry to destabilizing political uncertainty.

Unnecessary: Nuclear-Worker Training. A true demonstration of the shortsightedness of the nuclear provision is that some of the most substantive proposals in the bill would subsidize nuclear-workforce training and industrial-base expansion. The problem there is that these sectors are already growing.

A new nuclear plant has not been built in the United States in more than 30 years; as a result, many industries and universities rightly scaled back their nuclear energy investments. This trend has begun to reverse, as recent government and public enthusiasm for new nuclear power has increased. As of now, industry appears to be staying ahead of the demand curve for nuclearenergy. Indeed, no nuclear plant has stalled due to a lack of manpower or infrastructure. In essence, Congress is not only attempting to solve a problem that does not exist, but could create one: Federal money creates industry dependence, leads to requests for more federal handouts, and results in complacency of private-sector investment.

Adequate infrastructure and a capable workforce are certainly prerequisites to any substantial expansion of nuclear energy, which is why the private sector is making those investments right now, absent any federal handouts. It is something the nuclear industry, not the American taxpayer, can supply and is supplying.

According to the Nuclear Energy Institute, by the end of 2008, "private investment in new nuclear power plants has created an estimated 14,000-15,000 jobs."[3] This investment makes sense. Though upfront costs are high, operations and maintenance costs are low and predictable, nuclear energy is environmentally friendly, and it is produced domestically. The result is a major influx of applications for new reactor construction. Indeed, in recent years, 17 applications have been submitted to the Nuclear Regulatory Commission to build nearly 30 new reactors, with construction scheduled to begin in the next few years.

Large universities are expanding to meet the nuclear industry's demands for more engineers and skilled laborers. At least 31 major universities continue to offer a degree in nuclear engineering and many of those programs are expanding at rapid rates.[4] Since nuclear engineers are well paid and the demand for them is steadily increasing, it should not be a surprise that more students are enrolling in those programs. Community colleges are also beginning to collaborate with private companies to offer education and training in skilled and craft labor.[5]

Necessary: Real Regulatory and Waste-Management Reform. The predominant theme missing from the Boxer-Kerry bill, and often from the public debate over nuclear energy in general, is the sense that real reform is necessary. Even Senator Kerry argued recently in a piece co-authored with Senator Lindsey Graham (R-SC) in The New York Times that the U.S. should enact a streamlined regulatory process for permitting new reactors.[6] Yet Kerry's bill does nothing to fix the regulatory burden, nor does it address the critical issue of nuclear waste management and disposal.

Critics Recognize Shortfalls -- But Fall Short on Remedies

Advocates of nuclear power have been quick to criticize the shortcomings of the bill. They make valid and important points, but unfortunately many of their proposed solutions miss the mark or lack detail. One critic is long-time nuclear-power proponent Senator John McCain (R-AZ), who identified four requirements that he wants the Boxer-Kerry cap-and-trade bill to add: (1) a government commitment to build new plants, (2) loan guarantees to support them, (3) solutions to waste storage, and (4) recycling of used nuclear fuel.[7] Each of these conditions requires a significantly altered approach from what most congressional proponents of nuclear power are currently proposing.

A Commitment to Build Nuclear Reactors. The federal government simply has no reason to commit to build new nuclear plants. That is something for utilities, private and public, to do. Instead, the federal government should commit to reducing the regulatory burden and political uncertainty for nuclear projects and to meeting its current obligations -- such as opening the Yucca Mountain used-fuel repository.

As an alternative to a cap-and-trade proposal to reduce greenhouse gas emissions, Senator Lamar Alexander (R-TN) has taken the notion of committing to build new reactors a step further by advocating that the U.S. build 100 nuclear power plants by 2030.[8] Even if not a mandate, such advocacy from the federal government, backed up with lush subsidies, centralizes too much control in Washington. The result of such centralized planning is that it protects the entrenched interests associated with the supported technologies, while denying consumers access to technological innovation that could have resulted under free-market conditions.

The market may well bear 100 new plants over the next two decades. While 100 reactors would, as Senator Alexander says, place "the United States within the goals of the Kyoto Protocol on global warming by 2030,"[9] -- a significant reduction in carbon emissions--building those reactors should be driven by supply, demand, and technological innovation, not government incentives or dictates. Ultimately, supporting a set number of new reactors will reduce technological innovation and stifle competition (thus keeping prices high) within the nuclear industry. Such overt support coupled with subsidies would also undermine the incentive for other energy industries to seek lower-cost alternatives that may not yet be commercially available. Overt support and preferential treatment from Washington crowds out opportunities for these industries. The result would be an inflexible industry incapable of long-term economic sustainability without government support.

Loan Guarantees. The only thing worse than Washington calling for a set number of new reactors is to guarantee the loans to finance their construction. While a loan guarantee may be good for the near-term interests of the individual guarantee recipient, it is not good for consumers, taxpayers, or long-term competitiveness. This direct subsidization of capital will be paid for by every American through higher interest rates and higher consumer prices. While the cost of the subsidized nuclear energy may be less, those costs will be transferred to other consumer goods or services.

Loan guarantees are direct government intervention into capital markets, which distorts normal market forces, stifles competition and innovation, and encourages government dependence. Moreover, loan guarantees suppress private-sector solutions to financial-investment questions. Companies frequently invest in major projects with substantial risk and do so without government loan guarantees. If investors believe that the potential reward justifies the risk, they figure out a way to secure financing.

Waste-Storage Solutions. The Boxer-Kerry bill fails to address nuclear waste storage and disposal, and Senator McCain is exactly right to demand that this issue be resolved as part of any CO2 reduction bill whose mandate would require a substantial expansion of nuclear energy. It is also essential for creating future sustainability of nuclear power. Technically, there is no waste-storage problem. Current laws name Nevada's Yucca Mountain as the nation's waste repository, and numerous government and independent studies show that spent nuclear fuel can be stored there safely, and more than $7 billion have been spent on preparing the repository.

But political considerations have overtaken scientific and technological realities. The near-term result is that President Barack Obama has decided that Yucca Mountain is no longer a storage option for spent nuclear fuel. While this has few, if any, implications for near-term nuclear construction (the NRC has stated that used fuel can be stored safely on site for at least a century), it is a major concern for the long-term prospects of nuclear energy.[10] Either opening Yucca Mountain in a timely fashion or identifying a replacement would address Senator McCain's waste-disposal concerns and benefit the industry as a whole.

Recycling Spent Nuclear Fuel. The Boxer- Kerry climate-change legislation also makes no meaningful inroads toward allowing spent nuclear fuel to be recycled. Not only could recycling help reduce the overall volume of high-level nuclear waste, it could also significantly expand the fuel supply for American energy producers. To generate power, reactor fuel must contain 3 percent to 5 percent enriched fissionable uranium (uranium-235). Once the enriched uranium falls below that level, the fuel must be replaced. Yet "used" fuel generally retains about 95 percent of its fissionable uranium, and that uranium, along with other byproducts in the used fuel, can be recovered and recycled.

Often thought of as a single process or technology, the reality is that nuclear fuel can be recycled in many ways. Each method has different advantages and disadvantages, and those attributes themselves depend on the type of reactor technology being employed. Since a true nuclear renaissance would include multiple nuclear technologies, which would each likely produce a different type of waste, it makes little sense for the government to decide now which technology should be employed. Indeed, choosing any technology at this point would serve only to lock the private sector into a limited number of technological options for the future. So, while Senator McCain's demand that any climate bill include nuclear fuel recycling provisions, these provisions should be limited to removing any policy or regulatory barriers that limit the private sector's pursuit of recycling as part of its comprehensive plans to manage spent nuclear fuel.

It's the Permits, Stupid. No matter how many subsidies, mandates, and preferences that Congress throws at nuclear power, nothing is built without a permit. That is why reform of the arduous permit process is so critical. While the current process is itself an attempt at streamlining, which, on paper, seems superior to the overly bureaucratic permit process that contributed to the death of American nuclear power in the 1970s and 1980s, the fact is that it is still not working.[11] The four-year permit process, rooted in the 1970s and codified in the early 1990s, cannot support the nuclear expansion necessary to meet the CO2 reductions required by cap-and-trade legislation. This is because, whether it is public perception, energy demand, or experience, the conditions surrounding nuclear energy today are far different from the those in the 1970s, when the NRC culture was formed, or in the 1990s, when the specifics of the current process were being legislated.

Today, the U.S. nuclear industry is expanding, Americans enjoy the benefit of 50 years of safe commercial operations, and multiple nuclear technologies are ready and waiting for commercial application. Because the permit process was established for another time and under different conditions, it should be no surprise that it takes too long and is too unpredictable for today's requirements. As Senators Kerry and Graham wrote, "We need to jettison cumbersome regulations that have stalled the construction of nuclear plants in favor of a streamlined permit system that maintains vigorous safeguards while allowing utilities to secure financing for more plants." Representative Joe Pitts (R-PA) introduced the bipartisan SAFE Nuclear Act earlier this year that would do exactly that.[12]

How Congress Should Boost Nuclear Energy

While a robust pro-nuclear-energy provision does not make up for the economic devastation that will result from cap and trade, nuclear energy can help the U.S. meet a diverse set of energy objectives, including reductions of CO2 emissions. That is why, whether as part of separate legislation or as part of a larger energy bill, Congress should:

  • Reject additional subsidies. The Energy Policy Act (EPACT) of 2005 provides loan guarantees, standby support insurance to protect against government delays, and production tax credits to mitigate the effect of decades of regulatory uncertainty for approximately the first six new nuclear reactors built in the U.S.[13] Congress and the nuclear industry believed these provisions would provide predictability after years of erratic regulatory hurdles through targeted and limited temporary assistance. Unfortunately, this thinking has evolved into subsidy creep. If Congress truly wants nuclear energy to be sustainable in the long run, it should allow the industry to succeed on its own.
  • Enact an efficient permit process for new plants and reactor designs. Creatinga permit schedule that reduces the current four-year timeline to two years could get the nuclear renaissance on its feet. Representative Joe Pitts (R-PA) introduced legislation that would allow applicants that meet certain conditions to enter an expedited program.[14] To qualify, a new plant must have a NRC-certified design, be located on or adjacent to a site that already has a plant, and be operated by an experienced nuclear operator. Establishing a more efficient permit process is not adequate, however. The NRC must also be better prepared to regulate reactor technologies beyond large light-water reactors. This lack of regulatory support is a major barrier to market entry for alternative reactor technologies.
  • Promote competition. Promoting competition among nuclear technologies would be a welcome step for industry -- and, ultimately, energy consumers--and does not rely on the American taxpayer. Instead of mandating that a specific nuclear technology be wedded to a specific plant design,[15] Congress should direct the Nuclear Regulatory Commission to develop a set of guidelines for technology-neutral nuclear plant designs. The new guidelines would allow other nuclear-reactor technologies to be used in a nuclear power plant, creating a significant step toward building a more diverse and competitive nuclear industry. Promoting competition should apply not only to domestic nuclear technologies; it should also open up the global marketplace by reducing protectionist policies. Opening the enriched uranium market to competition would be a prudent first step to increase the supply of uranium to fuel a nuclear renaissance.
  • Reform waste-management policy. The federal government's inability to fulfill its legal obligations under the 1982 Nuclear Waste Policy Act has often been cited as a significant obstacle to building additional nuclear power plants. Given the potential of nuclear power to help solve many of the nation's energy problems, now is the time to break the impasse over managing spent nuclear fuel. The current system is driven by government programs and politics. There is little connection between used-fuel management programs, economics, and the needs of the nuclear industry. Any successful plan must grow out of the private sector, be driven by sound economics, and provide access to the funds that have been set aside for nuclear-waste management.[16]
  • Demand that the Nuclear Regulatory Commission reach a scientific conclusion on Yucca Mountain. Under any realistic waste-management scenario, there will be a need for long-term geologic storage. To ensure that its conclusions are legitimate, the NRC must have the freedom to pursue a transparent, fact-based process in a non-adversarial environment. While concerns from local stakeholders must be addressed, the NRC must be allowed to make decisions based on good science and engineering in a timely manner.

Real Reform

U.S. nuclear-energy policies are in dire need of reform--but the Boxer-Kerry climate-change bill is the wrong vehicle. However, the bill's nuclear provision could be an opportunity to build a comprehensive legislative agenda that -- since it would likely have broad bipartisan support--could have long-term implications for U.S. nuclear energy policy. But regardless of the legislative outcome of Boxer-Kerry, reform of U.S. nuclear-energy policy is crucial. Nuclear energy can help the United States meet its environment, energy, and economic goals and responsibilities. But to enjoy the full benefit of nuclear technology, Congress must first implement a reform agenda that allows market principles to promote a sustainable, competitive, and safe industry. It is time for Congress to support real reform now.

Jack Spencer is Research Fellow in Nuclear Energy, and Nicolas D. Loris is a Research Assistant, in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

About the Author

Jack Spencer Vice President, the Institute for Economic Freedom and Opportunity

Nicolas Loris Herbert and Joyce Morgan Fellow in Energy and Environmental Policy
Thomas A. Roe Institute for Economic Policy Studies

Related Issues: Energy and Environment

Show references in this report

[1]Clean Energy Jobs and American Power Act, S. 1733, September 30, 2009, at http://www.opencongress.org/bill/111-s1733/show (October 23, 2009).

[2]For more details, see Jack Spencer, "Competitive Nuclear Energy Investment: Avoiding Past Policy Mistakes," Heritage Foundation Backgrounder No. 2086, November 15, 2007, at http://www.heritage.org/Research/EnergyandEnvironment/bg2086.cfm.

[3]Nuclear Energy Institute, "New Nuclear Plants: An Engine for Job Creation, Economic Growth," at http://www.nei.org/resourcesandstats/documentlibrary/newplants/whitepaper/new-nuclear-plants-an-engine-for-job-creation-economic-growth (October 23, 2009).

[4]Angela Neville, "Generation Next: Strategies for Recruiting Younger Workers," Power, Vol. 152, No. 7 (October 27, 2009).

[5]See, for example, Shireese Bell, "Florence-Darlington Offers Pipe Welding Academy," SCNow.com, June 5, 2008, at http://www2.scnow.com/scp/news/local/pee_dee/article/florence_darlington_offers_pipe_welding_academy/7380// (October 27, 2009).

[6]John Kerry and Lindsey Graham, "Yes We Can (Pass Climate Change Legislation)," The New York Times, October 10, 2009, at http://www.nytimes.com/2009/10/11/opinion/11kerrygraham.html (October 23, 2009).

[7]Darren Samuelsohn, "Senate Dems Opening to Nuclear as Path to GOP Support for Climate Bill," The New York Times, October 7, 2009 at http://www.nytimes.com/cwire/2009/10/07/07climatewire-senate-dems-opening-to-nuclear-as-path-to-go-28815.html?pagewanted=1 (October 23, 2009).

[8]Press release, "Alexander Announces Plan for 100 New Nuclear Power Plants in 20 Years," Lamar Alexander, May 27, 2009, at http://alexander.senate.gov/public/index.cfmFuseAction=PressReleases. Detail&PressRelease_Id=e5abef2e-ea81-4323-b15f-11f8b3107440 (October 23, 2009).

[9]Ibid.

[10]Remarks of NRC Chairman Dale E. Klein,Dry Storage Information Forum, Bonita Springs, FL, May 12, 2009, at http://www.nrc.gov/reading-rm/doc-collections/commission/speeches/2009/s-09-012.html (October 23, 2009).

[11]Spencer, "Competitive Nuclear Energy Investment: Avoiding Past Policy Mistakes."

[12]Streamline America's Future Energy Nuclear Act, H.R. 3448, at http://www.opencongress.org/bill/111-h3448/show (October 23, 2009).

[13]Christian Joppke, "Decentralization of Control in U.S. Nuclear Energy Policy," Political Science Quarterly, Vol. 107, No. 4 (Winter 1992-1993), pp. 719-720.

[14]For more details, see Jack Spencer, "Time to Fast-Track New Nuclear Reactors," Heritage Foundation WebMemo No. 2062, September 15, 2008, at http://www.heritage.org/Research/EnergyandEnvironment/wm2062.cfm.

[15]All 104 reactors in the United States are light water reactors.

[16]For more details, see Jack Spencer, "A Free-Market Approach to Managing Used Nuclear Fuel," Heritage Foundation Backgrounder No. 2149, June 23, 2008, at http://www.heritage.org/Research/EnergyandEnvironment/bg2149.cfm.