About That Nuclear Revival...

Washington, D.C. -- As the Senate gets ready to examine energy and climate legislation, America's most serious welfare dependent is back at the taxpayer trough again. Unsatisfied by a set of federal loan guarantees, subsidies, and other trinkets and baubles that would make the greediest gold digger blush, the nuclear complex is demanding still more. Passage of any legislation that requires those who emit carbon to pay for the carbon sinks they preempt will, appropriately and unavoidably, mean a competitive advantage for nuclear power. If carbon permits sell for $30 per ton of CO2, as the EPA estimates they would under the House bill, the cost of coal-fired electricity vs. nuclear would go up $.03 per kilowatt hour-- a healthy boost.

But that's not enough. Instead Republican senators like Lamar Alexander are calling for a federal commitment to build 100 new nuclear plants. It appears that what is envisaged is that the taxpayers actually pay for building these plants -- but not that the taxpayers would ever be repaid from the sales of electricity. No, the profits from this investment would flow to shareholders in big utility and nuclear companies. This is not even a bailout -- I guess you could call it a bail-forward. And it would be very expensive.

A new report  prepared for the Consumer Federation of America suggests that if we were to build 100 new nuclear plants, and they actually ended up producing electricity, the power generated would cost Americans between $1.9 and $4 trillion dollars in extra utility bills, with the power being billed at $.12 to $.20 per kilowatt hour.

In further bad news for the nuclear industry, the Nuclear Regulatory Commission has determined that eighteen of the country's existing nuclear plants haven't set aside enough money to pay for decommissioning their reactor shells after their useful life ends. Recent estimates indicate that the cost of dismantling existing nukes has increased by $4.6 billion, while the amount set aside to decommission them has declined by $4.4 billion because of loss of investment value.

Even the Business Round Table, in its recent study calling for major policy initiatives in the climate arena, conceded that in the absence of much larger subsidies than are currently available to nuclear, the most we can realistically expect is to replace the existing fleet of nuclear power plants as they are retired -- nuclear simply is not going to be a bigger part of our energy future unless we just keep throwing more money at it.

But there has always been an interesting question -- is the problem nuclear technology per se, or is it the nuclear industry and its culture of welfare dependence -- something that in other contexts is referred to as the soft-bigotry of low expectations? If we really made nuclear stand on its own, would it learn to build plants that make economic sense? It appears we will never find out.

Instead we are witnessing the collapse in Europe of a much bruited -- and publicly subsidized -- nuclear revival. This is the month that Finland's Olkiluoto 3 nuclear power plant was scheduled to go on-line, the vanguard of a new generation of safe, affordable nuclear reactors. Instead, Olkiluoto is at least three and a half years late and more than 50 percent over budget. A similar plant being built in France is 20 percent over budget and struggling to stay on schedule only 18 months after breaking ground. In Britain, where the nuclear utility is owned by the French utility EDF, there is no sign of new orders being placed, and EDF is complaining that it can't afford to build new plants if it must compete with renewables.

Amory Lovins has acerbically summarized how we should respond to the hoopla about allegedly reviving nuclear power:

But in due course, the aging advocates of the half-century-old reactor concepts that never made it to market will retire and die, their credulous young devotees will relearn painful lessons lately forgotten, and the whole nuclear business will complete its slow death of an incurable attack of market forces. Meanwhile, the rest of us shouldn't be distracted from getting on with the winning investments that make sense, make money, and really do solve the energy, climate, and proliferation problems, led by business for profit.

The nuclear industry's recent whining that it must never, ever be asked to stand on its own confirms that Amory's got it right about the "incurable attack of market forces."  And yet, many in Congress appear impervious to this logic. Since most of the advocates of the "build a hundred nukes" caucus in Congress are certified "free market" advocates, this seems oddly inconsistent. Perhaps the way to get them to reconsider is to call the industry's bluff. If the public's money is going to finance the next generation of nuclear power plants, provide for the waste disposal, protect against terrorism, guarantee the risks, and overpay for whatever electricity is generated, then perhaps we should recognize nuclear power for what it is -- a very expensive and socialist way of making electricity that, in the real world, is actually paid for and controlled by the government. It's no coincidence that the one nation widely cited as proof that nuclear power works is France with its socialist and hugely money-losing power sector.

University of Greenwich Professor of Energy Studies Stephen Thomas recently pointed out that to duplicate the French model in the U.S. "you would essentially have to nationalize your electric utilities and have all new power plant siting decisions emanate from the White House."

So why don't the cheerleaders for nukes like Lamar Alexander and Mike Crapo offer the only real nuclear option and see how many votes it gets: an explicitly socialist electricity model where plants are sited, built, paid for, and operated by the federal government (with profits, if any, used to repay our investment)?

Somehow, I don't think that idea would have many takers. But it would be a more honest approach than the one that Congress is currently being peddled (and that it seems likely to approve).

A Threefold Strategy for Carbon Reduction

San Francisco -- As Congress considers clean-energy and climate legislation, most of the fuss has been about whether (and how) to use price signals to encourage clean energy and reduce our dependence on dirty fossil fuels. Should we have a cap-and-auction system (as President Obama prefers), a carbon tax (as many economists have argued), or cap and trade (as the House recently voted)? Or, should we just pretend that energy markets work just fine without price signals, as the Republican leadership and the Chamber of Commerce seem to prefer? Markets where you don't have to pay for what you use (in this case, the planet's limited carbon sinks) used to be associated with communism. Now they're the heart of a weird cult that calls itself conservatism.

But the argument has begun to shift a bit. Now the question is, if we have a market price on dumping carbon pollution into the atmosphere, does that mean we don't need any other reforms of our energy sector in order to create a clean-energy future, cut our dependence on imported oil, and stabilize the climate? That's not the approach taken by the recently passed Waxman-Markey bill (H.R. 2454). It includes a robust, if partial, suite of investment and regulatory features. But some macro-economists (and some figures in Congress) clearly see a price signal as a substitute for comprehensive energy market reform. Harvard's Robert Stavins recently wrote  "the other titles of the bill include a host of conventional standards, many of which (under the cap and trade umbrella) will have minimal or no environmental benefits, but will limit flexibility and thereby have the unintended consequence of driving up compliance costs."

This belief that a price signal on fuel purchases alone will fix our energy sector is simply unfounded. Creating a clean-energy economy requires three key reforms. First, we need public investment to develop low-cost, low-carbon energy technologies faster than private R&D can get there -- just as we needed public investment to get the infrastructure for the information revolution in place. Second, we need to reform energy markets so that incentives are aligned and so that market failures fixed -- if banks won't take the energy efficiency of a new house into account when approving a mortgage, then builders simply can't put the most cost-effective furnaces, windows, and lights into the home -- because they can't recover their investment. And third, we need price signals -- not just on fuel costs, as a carbon tax would do but also on purchases of new vehicles and other energy equipment. That's because the price volatility of oil mean we can't always count on consumers to buy a fuel-efficient car to save on gasoline -- they need an incentive on the sticker at the dealer's lot.

These three strategies are at the heart of the Sierra Club's Climate Recovery Partnership. But you don't have to take the Sierra Club's word for this commonsense proposition that there is no single solution to our utterly broken, backward, and polluting energy economy. Last week the Business Roundtable issued a report documenting that the combination of price signals with technology development and regulatory reform would reduce our emissions of carbon dioxide twice as fast at half the price. So technology + policy reform + price = a package that is four times as effective as price alone.

(The Round Table's report also emphasizes its desire for huge new investments in nuclear energy and a greater emphasis on domestic oil production through opening up public lands and waters. Because H.R. 2454 doesn't, in its view, do enough for these pathways, the Round Table declined to embrace H.R. 2454, but commended the House for moving it forward -- putting it in the same camp as the Sierra Club, albeit for very different reasons.)

A concrete example of how policy, innovation, and price work together showed up on this morning's New York Times business section. Once the federal government set efficiency standards for lightbulbs, researchers began a race not only to find substitute for the conventional incandescent bulb but also to modernize the conventional bulb to make it efficient so it could meet the new standards.  According to Chris Calwell, a researcher with Ecos Consulting who studies the bulb market. "There have been more incandescent innovations in the last three years than in the last two decades." Think about that -- a simple government regulation increases the pace of innovation 700 percent!

Whether you think, with the Business Round Table, that combining price with other reforms improves performance fourfold, or take the lightbulb example as a better predictor because it's a real world example, in which case we will make progress seven times as fast, it's absolutely critical that we understand that we need a strategic combination of technology, policy, and pricing to solve our energy dilemma and start curbing the climate crisis.

Almost, But Not Quite, Mr. President

Washington, D.C. -- President Obama delivered some stellar remarks yesterday after the passage by the House of H.R. 2454, the climate and energy bill championed by Congressmen Waxman and Markey and steered through a narrowly divided House by Speaker Pelosi. President Obama pointed out, most importantly, that the bill is far more than the cap-and trade-system that has received most of the media attention and generated the political heat:

You look at the constituent parts of this bill -- not only a framework for cap and trade, but huge significant steps on energy efficiency, a renewable energy standard, huge incentives for research and development in new technologies, incentives for electric cars, incentives for nuclear energy, clean coal technology. This really is an unprecedented step and a comprehensive approach.

President Obama also focused heavily on the importance of energy reforms designed to encourage a shift to getting far more work out of each BTU of energy that our economy uses and on the number of new jobs that would be created by the combination of investments in new energy, regulatory reform of the energy sector, and capping carbon emissions. The president's emphasis on the importance of combining a cap with investments and regulatory reform was strongly reinforced from an unexpected quarter -- the Business Round Table.

In a massive analysis of proposals to limit carbon dioxide emissions by putting a price on carbon -- whether through a cap or through a tax -- the Roundtable concluded that combining price mechanisms with regulatory reform and investments would enable us to reduce carbon emissions roughly twice as fast at roughly half the cost to the economy. For example, the Roundtable determined that a price mechanism alone would be unable to drive auto fuel economy beyond 32 mpg -- but with policy support for new technology and market reform, we could get over 50 mpg. In the commercial building space, a cap or tax alone would reduce emissions by only perhaps 15 percent -- but with regulatory support at a lower cost we could cut emissions by 35 percent.

And the Roundtable's study confirmed what environmentalists and the president have already been saying -- that policy support is essential if we are going to harvest the potential value of the new economic growth and green jobs that could come with reducing carbon.

The Roundtable study is -- in my view -- thoughtlessly focused on the desirability of opening up the coast to oil and gas. It spends a disproportionate amount of its time on nuclear energy but interestingly concludes that nuclear energy is likely only to maintain its present market share, not grow rapidly. But it provides a very powerful validation for the importance of policy -- as well as price -- in moving us forward to a new energy economy.

This interaction is illustrated by the one part of the president's remarks that I thought missed the boat. Asked by the media about the provision in the bill that would require, after 2020, border-adjustment fees levied on imports of energy-intensive products such as steel if the exporting country had not entered into the global climate-protection agreement, the president fell back on the suggestion that such fees, per se, might be protectionist. He correctly pointed out that the bill contained a number of other mechanisms to help protect against trying to eliminate pollution from industry by exporting the industries. But, long-term, if certain countries want to try to grow their share of the global steel industry by allowing their steel mills to continue emitting carbon pollution, there needs to be a price signal to discourage that behavior -- and the current WTO prohibition against such "process" standards will need to be modified.

Now, this needs to be done in a smart and fair way. The U.S. can't declare that, if Korea or China doesn't go our way on climate, we will simply prohibit the importation of their steel. But if these countries are running dirty steel industries, then trade sanctions seem entirely appropriate, especially once the world has agreed on a set of standards for the steel sector globally -- those standards need to be enforced against all countries. So here again, a price mechanism needs to be combined with appropriate standards and regulations to work.

That's the big challenge as the debate moves to the Senate. The House bill contains some of the right regulatory mechanisms, but it's also missing some important ones. It sets up a price mechanism but then allows too many potential ways around it. It invests in clean energy but also invests too much in keeping dirty technologies going. Getting the three legs of the climate-solutions stool -- new technology, regulatory reform, and carbon limits -- all in place at one time will be tricky, but nothing else will do the job.