Yesterday, the Obama administration announced its plans to guarantee an $8.3 billion loan to build the first nuclear reactors in three decades. The new initiative is not without its opponents. I think the move is a smart one and defended the effort on a few tv/radio shows since the announcement. Opponents have three common arguments that I think are worth examining, because I don't think they hold up.
50% Probability Of Default
Possibly the strongest-sounding argument against the government guaranteeing nuclear reactor loans comes from a Congressional Budget Office report (.pdf) from back in 2003. It found a 50% probability of default from such loans. Nuclear energy opponents love this finding. After all, a bipartisan Congressional budget authority says it's a bad bet! But it helps to actually read the report and not consider the statistic in a vacuum.
If you do, then you find out there are two reasons why that probability is so high. The first is the regulatory barriers that exist for building nuclear reactors. But in this case, that obstacle should be much easier to overcome: if the government is really serious about more reactors, it can work with regulators and the utility companies to succeed. And by the way, if the regulators never sign off, there won't be any guarantees anyway, so taxpayers won't lose anything.
Second, there's a very high initial cost in building these reactors, and current energy prices show the break-even a long ways off. But as fossil fuels become scarcer, energy will only get more expensive. And considering that the U.S. will eventually adopt a carbon pricing scheme, the economics change significantly, since nuclear emits no carbon. When nuclear reactor production begins again, costs will also decline over time, just like with all technology.
Finally, even if these loans do "default," it won't be as bad as it sounds. According to that same CBO report, the subsidy (loss) rate on the loans would probably be about 30%, since the reactors will get built and eventually provide some revenue. While less-than-ideal, if a $2.5 billion investment jumpstarts the nuclear energy industry again in the U.S., then I'd argue this money was well-spent.
Wall Street Hates It
Another argument is that Wall Street won't fund it, so why should the U.S. government? It's usually those very far to the left ideologically who rally against nuclear energy, so it's always amusing to hear them use Wall Street bankers -- who they generally decry as greedy criminals -- as their foundation for an argument. But the reality is that this is precisely the sort of investment that Wall Street hates and the government should be involved in.
One of the central reasons why bankers hate nuclear investment is because of the regulatory struggles I mentioned earlier. They create great uncertainty. But again, if the government assists with this, then this barrier becomes much more manageable.
But the bigger problem with nuclear for bankers is the style of investment it requires. It's very capital intensive at the front-end, and it takes many years to break even. As a result, it doesn't generally satisfy Wall Street's get-rich-quick philosophy. Private equity firms, for example, don't hope to be involved in a firm 30 years down the road. They want to get in, make a profit, and get out, as quickly as possible. The government, on the other hand, has the time and patience for a long-term investment to pay off -- especially if it significantly benefits the energy prospects of the nation.
Nuclear Is Still Dangerous
This is a common misconception. In fact, nuclear energy has proven over the years to be very, very safe. The most serious accident we've seen was the well-known Three Mile Island incident. While regrettable, there were no official deaths reported, and most studies agree that there was no perceptible effect of increased cancer cases for people who lived near the plant. In the end, the threat was contained. I should note, however, that there are some who dispute this.
And that was way back in 1979. Technology has come a long, long way since then. Imagine how much safer and more efficient new reactors would be that could better utilize new computing power and scientific advances. Three Mile Island, for example, was caused in large-part by human error, which better technology could help to correct.
Then there's the worry of a terrorist threat. What if someone flies a plane into a nuclear reactor? Thousands could die. Well, what if someone flies a plane into a giant building? Thousands could die. Should we not build them either?
Nuclear waste is obviously undesirable, but if it's carefully buried deep underground, it becomes harmless. And as Greenpeace co-founder Patrick Moore* (see note below -- Greenpeace disputes this) said a few years ago in a Washington Post op-ed arguing in favor of nuclear power, after 40-years the waste's potency is about one-thousandth what it was initially. New technology in nuclear waste recycling (used in France) also appears a promising way to get more power out of the same amount of nuclear material, reducing waste.
Nuclear energy is not the answer to future of energy in the U.S., but it must be a part of the solution. Wind and solar are important, and will have their place, but they can't do it alone, due to their unpredictability. Nuclear power can be used as a substitute for coal and oil in big power plants that must constantly produce power. There are obstacles, but we should work to overcome them, not use them as excuse to not bother trying to utilize a promising energy source.
A quick note on Chernobyl: A few commenters have brought this up. I didn't mention it because I meant the U.S. when I said "the most serious accident we've seen." I don't think it's fair to use Chernobyl as an argument against nuclear power in the U.S. for the same reason that an awful rocket failure with the Soviet space program wouldn't be a good reason to argue against the U.S. space program. That reactor was poorly designed, and we've certainly learned a lot about nuclear engineering since then to avoid those same mistakes.
* Greenpeace writes me to dispute that Patrick Moore was a co-founder of Greenpeace. Apparently, he must have had (and still has) the Washington Post fooled too, who still (3 years later) lists him as a Greenpeace co-founder beneath the op-ed I linked to above. His online profile at Greenspirit makes this claim, and indicates that he was an early member who served as Canada's Greenpeace president for nine years, and as an international director for the organization for another seven. Greenpeace doesn't dispute that, but does dispute that he was a founding influence. Ultimately, he had disagreements with the group and is no longer affiliated with the organization. To be clear, Greenpeace AGAINST nuclear energy. As Moore's op-ed indicates, he was too initially, but after 30 years, changed his mind.
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