On April 9, 2010, Jerry Taylor of the Cato Institute paid me the compliment of responding to a post that I labeled as a “smoking gun”. I gave the post that label since it provided an example of a man with evident ties to the fossil fuel industry working to discourage the use of nuclear energy. His post was published on MasterResource: a free-market energy blog under the title of Atomic Dreams (Nuclear power not ready for prime U.S. time) I promised a few days ago that I would produce a response, hoping to continue a dialog. I believe that it is important to understand why the two of us reach such different conclusions about energy.
Mr. Taylor’s first point is a request for a concrete accounting of the regulations that drive up the cost of nuclear power plants. Because of the complexity of arguing a full economic analysis of the cost of delays, I will focus on the direct payments that applicants for a new nuclear power plant must make to the federal government. Surely Mr. Taylor will acknowledge that quarterly Nuclear Regulatory Commission invoices for regulatory “services” are real costs that are not imposed on competitive energy choices.
An applicant for a new nuclear power plant must agree to pay the full cost to the government for the license review process. The cost of professional staff time associated with the review of the application is billed quarterly at the rate of $257 per hour. The fees are charged whether or not the application is approved and are not refundable if the applicant withdraws the application.
There is no estimate provided by the government for the amount of time that they intend to spend or the quantity of staff resources that they intend to apply. So far, there are no completed combined operating licenses, so there is no history on which to base an estimate for the total cost of that process. I have made a call to the NRC Public Affairs Office to find out if there is any publicly available accounting for the fees that current applicants have already paid.
The design certification processes that were “completed” for the ABWR, the System 80+, the AP600 and the AP1000 cost approximately $60-100 million and took 4-8 years. (Note: The word “completed” is in quotes because recent developments have reopened the process for both the ABWR and the AP1000 and no applicant is currently referencing the System 80+ or the AP600.) The uncertain nature of the cost and the licensing review schedule is a large deterrent to any private investor. I can testify to that based on dozens of presentations to and reactions from venture capitalists and other potential investors in Adams Atomic Engines, Inc.
Operators of licensed reactors pay an annual license fee of $4.5 million for each operating unit. Though this fee is relatively small for a typical 1000 MWe nuclear unit that may produce several hundred million dollars worth of electricity each year, there is no current provision in the law for the fee to be adjusted based on the plant capacity. A 10 MWe Toshiba 4S, 25 MWe Hyperion Power Module, a 45 MWe NuScale, and a 125 MWe mPower would be subject to the same annual fee under current rules. (Disclosure: A 10 MWe Adams Engine™ would also be subject to the same “per reactor” fee, so I have a personal economic interest in working to change the rules.) Even at a capacity factor of 100%, a $4.5 million annual fee would be a direct license fee cost of 2 cents per kilowatt hour for a 25 MWe atomic fission heated generator.
Aside: To be fair to the NRC, leaders have recognized that the current fee structure puts projects involving smaller unit sizes at a substantial economic disadvantage and they have initiated efforts to gather information that can support a rule making change. Based on demonstrated history, that effort might bear fruit sometime before I am eligible for social security. I submitted my comments to the NRC request for information about 11 months ago, but I have not seen any recent information about the rule making efforts. End Aside.
Mr. Taylor also denies that he has a natural gas bias, but his discussion focuses on whether or not subsidies for natural gas result in lower prices for consumers. He makes a good case that the tax preferences and other subsidies for gas do little to increase gas production and generally result in wealth transfers of at least $16.9 billion (totaling up the numbers in Mr. Taylor’s subsidy section) from taxpayers to oil and gas producers. In making that case, Mr. Taylor does a great job of explaining why investors preferentially choose gas projects over nuclear projects. They result in a larger and more immediate cash return on investment. That does not mean that they are better long term sources of power or better investments for the customer, it means that the bankers using other people’s money for the project can cash out early and get bigger bonuses.
Mr. Taylor also does not mention the vast amount of wealth that gets transferred from consumers to producers in those market situations where supply does not quite match demand, causing prices to spike. He does not acknowledge that natural gas producers have a strong economic incentive to do all they can to discourage the addition of low marginal cost nuclear generating capacity that can reduce the chances of the spike-causing market supply/demand imbalances. In just one year of excessive prices (2008), ExxonMobil captured enough free cash flow (nearly $100 billion) from its oil and gas production operations to have purchased 5-10 large nuclear power plants, but they chose to spend it in ways that did not increase energy supply capacity.
I think Taylor also makes a strategic debating blunder if he wants to convince a majority of Americans to accept his “free-market” energy prescriptions. He asks us to trust “investment bankers” to watch over our money. At this juncture in our economic history, I wonder just how many Americans have warm and fuzzy feelings about they way that their money has been put to use in exporting jobs overseas, building white elephant office and apartment buildings, or providing interest rate swaps to finance public sewer systems.
I remember a time in American history when people with steady jobs could obtain fixed rate, 30 year mortgages with reasonable interest rates of about 7-8% while at the same time they could save up for their down payments by putting regular deposits into a money market fund paying 5-6%. Local bankers had pleasant 9:30 am to 4:00 pm jobs with plenty of time for attendance at lunchtime Rotary Club meetings based on the difference in those two rates. These days, with Wall Street “investment bankers” rather than local bankers in charge, fixed rate mortgages are hard to find at any interest rate and my most recent monthly interest payment on a money market fund with a five digit balance was a whopping 15 cents!
Regular Atomic Insights readers will know that I have no love of subsidies or wish to allow accounting/legally trained bureaucrats to tip the scales of economic computations of cost versus rewards. I would dearly love to have a world where atomic fission could compete on a reasonably level playing field against any kind of combustion energy. Six orders of magnitude advantage in energy density and waste volume would overcome 150 years worth of infrastructure development in reasonably short order.
I love democracy and freedom and have no desire at all to live in Communist China, but I have to admire their logical decision making processes. The leaders in that nation generally respect mathematics and hard engineering. China is building nuclear plants as fast as it can for internal use; the currently announced plans will result in the completion of at least 70 units by 2020. Those units will be built with direct investment from the Chinese government, but that is no different from the direct investment that the Chinese government is making in securing other sources of reliable energy.
The engineers in charge of long term decision making in France, China, South Korea, and even Russia know that it is not money that makes the world go; it is reliable, physical power. For them, fission is a demonstrably superior source of that important measure of prosperity. If the United States is led by people who insist that natural gas extracted from tight shale formations is a better foundation on which to build our future economy because it is a better way for investment bankers and oil and gas companies to take money from the pockets of consumers, we deserve the resulting fate.
Perhaps Koch Industries funded libertarians who admire the investment decision making processes in the board rooms at Goldman Sachs and J. P. Morgan can accept that result. As a guy who has spent the past 33 years wearing a uniform either full or part time, manufacturing products in American factories, learning hard engineering skills, and defending freedom and equal opportunity, I cannot.
Update: (Posted April 14, 2010 at 05:46) Jerry Taylor has responded to the comments added to his initial Atomic Dreams post – “Atomic Dreams”: Response to Critics (why not a market test for nuclear too?). The new one is dated April 14, 2010, so it must have appeared in the past few hours, but it was not written in response to the above commentary.
Additional reading
New York Times April 17, 2010 – For Goldman, a Bet’s Stakes Keep Growing
I actually had a lengthy (private) conversation with Mr. Taylor following from your first post, where I got into several issues you raised, particularly some you’ve raised in prior posts (economic externalities of coal, etc.) I’ve found it to be a moot point to argue CO2 with an AGW skeptic, but there’s still the point to be raised about the other environmental hazards of coal, which I believe the analysis he cites to grossly underestimate.
Among other things though, I pointed out the incorrectness of his “50% default rate” number for loan guarantees (which he never recanted), the difficulties of the licensing process (particularly as it pertains to the new breed of small reactors), and the blatant incorrectness of his assertion that “Wall Street isn’t putting up a dime for new reactors.” (A quick review of the COL application agenda at the NRC website dispels that myth.) I also brought up the issue of the Nth of a kind costs vs. the first-of-a-kind costs, which is what we’re seeing now with the first new reactor builds.
To be frank, it was an exercise in frustration, in retrospect; I don’t really feel like any one of my points was ever heard, much less anything factually incorrect ever acknowledged (i.e., default rates, corporate financing, etc.). It certainly didn’t feel like a “dialog” – and this is coming from someone who in general has been overall sympathetic to the Cato Institute’s positions overall.
I deeply suspect the larger issue here – and why Mr. Taylor seems to insist, above all else, that nuclear is doomed to failure in the marketplace, is because of its past, not its future. That is, because it has received subsidies in the past, it is impossible that it could ever succeed in the future. (We both know that’s flatly incorrect.)
More to the point, though, I feel like Mr. Taylor sometimes comes across as having an axe to grind; it seems like many of us agree that we should have a -truly- free market in energy, but that includes substantial regulatory reforms that capture the costs of externalities as well as limit interference by such factors as an expensive and lengthy licensing review process. I feel like Mr. Taylor dismisses many of those concerns, as you point out, in saying, “But it’ll fail anyways.” Or, “NEI (the only reputable source of opinion on industry issues, apparently) says it’s okay.” How can you come to that conclusion that nuclear power can’t survive in the market if you are unwilling to even let it try?
Like I said, it was a frustrating – and honestly, a bit demoralizing – experience.
I can’t help but begin to think that Mr. Taylor might have a “broader agenda”; his libertarianism appears to be selective.
Selective libertarianism when it comes to a free market. hmmm, doesn’t sound much like libertarianism at all really.
I appreciate that a lot of us pro-nuke evangelists completely support a free market for nuclear and know full well that a truly flat playing field would only work to nuclear’s advantage. The key to this does not lie with the money (bankers and so on), it lies solely with the regulatory structure. How one reverses or eases the regulatory ratcheting; I believe the place to begin is with small modular reactor licensing. This is most likely to succeed and will pierce the NRC’s veil.
“It’s such a pity when you think of Shippingport which was built for $70 million. Most reactors built in the 1970s were about $100 million dollars. So they’ve gone up by a factor of 35 times as soon as the NRC was started, and as soon as the government, started regulating all this stuff.”
quote from Bonne Posma, Founder, Liquid Coal, Inc, from The Atomic Show podcast #096. Rod and Bonne had just agreed that a 35,000 – 45,000 barrel per day refinery would put out usable energy product roughly equivalent to a 1 GWe nuclear reactor, and that both would cost about the same, i.e. $3.5 – $4.5 billion (the show was done in 2008).
I don’t understand enough about what the changes were that the NRC (and other?) regulators forced on reactor design and construction, but I do understand that there are reactors that were built very cheaply in the past that have received license extensions out to 60 years along with the reactors that were the most expensive.
If I were debating a pro natural gas, supposedly market worshipping fanatic such as Taylor, I would point out, if I could, what I thought nuclear reactors could cost if a sane regulatory environment that was just as safe or safer than today’s was in place. The other example in support of this point I would make is to point to the experience of Duke, who were completing plants for 1/3 the cost of the average new reactor build in the US as late as 1985, and say this can’t be just Duke construction expertise – it must have been that Duke was better than anyone else fending off or limiting the effect of what they called the “instability of the licensing process” that finally drove them from the nuclear construction business along with everyone else in the US.
From my perspective, the Cato Institute and Mr. Taylor are simply second rate propagandists uninterested in debate unless they see it serves their interests. Some may say it is pointless to debate CO2 with such a skeptic, I would say denier, but if you find that when you do your portion of the debate is censored it becomes clear what is going on.
I thought Obama’s announced support for nuclear was like Nixon going to China. Are nukes going to dispute that Obama did this in large part because of Democratic Party concerns that nukes will be needed to combat climate change? So Taylor defines reasonable debate on nukes vrs natural gas as a debate that will exclude as idiocy the entire discipline of climate science, and everyone goes along. The debate with Taylor wouldn’t even be taking place if it were not for the warnings coming from not only climate scientists, but from the senior leadership of science itself worldwide. Its a bit astonishing to me, even though I have observed climate denial for more than twenty years.
Part of what Taylor is doing is similar to Goebells conducting a supposedly civilized discussion of how Germany society could be more humane, right in front of Auschwitz.
I hear there were railings in the toilet stalls so the German guards at the camps could steady themselves as they vomited.
Bzzzt … you’re out … and Godwin’s Rule of Nazi Analogies rears its ugly head.
Please don’t cheapen the arguments against Taylor’s flawed thinking with cheap Nazi references. You’re inspiring some vomiting yourself with that kind of tripe.
Thank you.
There’s nothing wrong with using that analogy where it’s appropriate.
From the link Brian Mays provided:
Godwin’s Law itself can be abused, as a distraction, diversion or even censorship, that fallaciously miscasts an opponent’s argument as hyperbole, especially if the comparisons made by the argument are actually appropriate. A 2005 Reason magazine article[citation needed] argued that Godwin’s Law is often misused to ridicule even valid comparisons. Others argue that the law is entirely self-serving bludgeon and that those who invoke Godwin’s law would more plainly state their position as “The longer it takes for you to submit and conform to my line of reasoning, the more incessantly I will imply to the rest of the audience that your continued resistance is a crime against humanity that is worse than Hitler.”[7]
Well, if you want to go on record defending the proposition that Taylor=Goebbels, then so be it.
(By the way, David Lewis, it’s two b’s, one l. If you’re going to smear someone with Nazi analogies, then at least brush up on your history enough to know how to spell the names of the principal players!)
Frankly, I fail to see how advocating that the government doesn’t spend money on something is equivalent to being a Nazi. After all, Nazi stands for “Nationalist Socialist,” and if there is one thing that Hitler did well, it was go get the German government to spend money on stuff.
Please explain how this analogy is at all “appropriate.”
Frankly, I find David’s analogy to be rather disgusting, and if I were a Jew, I would demand an apology.
Please explain how this analogy is at all “appropriate.”
Because it is an example of deceptive and manipulative propaganda.
Now, Finrod, stop and take a deep breath. Now please count to ten, slowly.
Don’t you think that references to Auschwitz is a little extreme?
Not really. I believe David Lewis is emphasising the hypocracy involved, rather than the magnitude of the suffering inflicted. Not that the argument for ultimate suffering inflicted could not be made, of course, given the consequences of delaying the transition to nuclear power.
Since I assume that we are talking about the “Big Lie” propaganda technique, bringing up Herr Goebbels is appropriate.
With that being said, at least, to me, global warming is a technical problem to be solved and moved beyond. The evidence shows that nuclear power is one of the strongest means to use against AGW as well as the incredible destruction that is routinely done to our environment – our inalienable natural heritage.
I would prefer to use nuclear power to make AGW obsolete and irrelevant rather than debating whether or not AGW is occurring ad infinium. We can have the debate while we build reactors to replace the boilers of old coal plants. If AGW is “the enemy”, does it matter whether AGW is defeated for “the right reasons”, or “the wrong reasons”? The answer is that AGW is the enemy – it only matters that the phenomenon is rendered incapable of causing further harm – the phenomenon is defeated – not what the reasons we have for defeating the phenomenon. (As Winston Churchill said when learning of Hitler’s invasion of Russia: “If Hitler invaded Hell, I would at least give the Devil a favorable mention in the House of Commons.”)
It doesn’t matter whether nuclear power is used for “the right reasons” or the “wrong reasons”, it matters that it is used widely, and as the technology matures and develops, it makes fossil fuels obsolete, so that AGW is rendered irrelevant. The natural systems of the planet – provided that further carbon contributions are minimized – will take care of the carbon surplus. It would, of course, be prudent to develop some geoengineering measures that can be held ready in the event of a clathrate event to prevent unfortunate positive feedback prior to the battle being fully joined by nuclear power. Assuming that we move promptly, hopefully we will not have to take those measures.
I am confident that the technology of nuclear power is capable of doing what we need it to do. So, then, let’s begin.
The growth of support for nuclear power in recent years has the remarkable feature of cutting across traditional partisan lines. Part of what Taylor is doing is an attempt to fracture that concensus and subtly invite infighting among those who should be united.
I posted this comment on The Master Resource yesterday, but it has been stuck in the moderation queue for a suspiciously long time so I would like to post it here instead:
I do not have the reference on hand, but I believe the 2007 update to the MIT study estimated that the levelized cost of nuclear was similar to gas if nuclear did not have to pay a risk premium for financing costs.
If true this would suggest that the