Friday, June 13, 2008

In the Tank for Nuclear Energy? John McCain and Subsidizing New Plants

matthew_yglesias_140x140.jpg Over at The Atlantic, Matthew Yglesias takes a look at John McCain’s energy plans. He notes McCain’s refusal to consider subsidizing any form of alternative energy source except for nuclear energy. McCain, we noted during our week of Lieberman-Warner, was unhappy with the bill only in that it did not include subsidies for nuclear energy.

Yglesias concludes:

That's the kind of position you would expect a lobbyist for the nuclear energy industry to take -- not someone who's serious about reducing carbon emissions. Anything that puts a price on carbon, whether or not in includes explicit subsidies, will be good for the nuclear energy industry. And if additional subsidies on top of that are the price it takes to convince unprincipled Senators -- like, apparently, John McCain -- to vote for an overall good bill then that's a price worth paying.

It’s an interesting post, even with the drive-by swipe at McCain, so be sure to get the full flavor there.

We don’t really want to get into political bloviation here at NNN – you can get that at lots of different places, at incredible length – but we do have a notion how McCain might have been toting this one up.

Nuclear energy plants, unlike those of some other alternative energy sources, sees a mountainous share of their expense during construction rather than after they start producing those sweet jolts of low-cost electricity we prize them for. If you look at a plant’s costs only during its construction, it would rightly give you pause – but over the long term, the value of a nuclear energy plant increases considerably as its running costs decrease. Mitigating the jitters over those up-front costs is what government-backed loan guarantees are all about and may be what McCain had in mind, too, wanting to see more of them. So, we have a grasp of how McCain is squaring this particular circle, even where it seems to run counter to conservative economic argument (loan guarantees are only nominally a subsidy) and even McCain’s own stance on energy plant subsidization in other instances (wind and solar plants, for example, cost less to construct even if they do not produce electricity as economically as nuclear, but it makes them less vulnerable to skittish loan officers).

Yglesias says that any tax, called such or not, on carbon benefits nuclear energy, but nuclear energy and all its renewable cousins have been benefiting without it so far and are likely to continue doing so with or without cap-and-trade, which, depending on how it’s implemented, could be seen as a tax on carbon emissions (if the credits are auctioned) or a new marketplace for carbon credits(whether or not credits are auctioned – we can see where trades in carbon credits could be taxed, too).

In the realm of energy generation (well, really, any industry in which government inserts itself), government is often looking to find the right carrot and the right stick to get industry to where it wants it to go. This gives government a role without completely warping the normal stresses and strains of capitalism and, at the least, gives industry a sense of where public policy is likely to take it. We may conclude that the energy industry is now fully up-to-speed on what the federal government has in mind for it, however long it takes to get a policy together. You can compare it to those ads about the generosity of pharmaceutical companies giving away expensive medicine to deserving someones – big pharma sees the toast getting buttered and wants to be sure it’s on the right side of it.

We’re not sure McCain has fully cooked his energy plan and think Yglesias might be jumping a bit fast for a spoonful of a developing public policy. Certainly it’s fair to note that the details are not yet matching the big ideas and to really sound the alarm if the details never come together. But we’ll sit a ways back on this one for a spell and see where McCain and Obama take their arguments as the campaign picks up speed.

Political bloviation filter fully back in place. Whew! The hot air could boil a cat.

Photo of Matthew Yglesias. Now, there’s how a writer should be photographed – thoughtful, stroking chin, listening intently – 3/4 view of the face is pretty flattering, too. All that’s lacking is a pipe and a corduroy jacket.

2 comments:

jj mollo said...

Also, the broad spectrum subsidies risk attracting hordes of scam artists who get rich off subsidies for their cold fusion plants or dowsing to find geo-thermal sites.

Rod Adams said...

Based on dozens of discussions with potential investors, I can testify that the current uncertainty in carbon rules is a much larger benefit for quickly constructed - and depreciated - wind turbines and solar panels than it is for nuclear systems (including Adams Engines(tm)) that need analysis of payoffs over a much longer time frame.

Under current tax rules, wind turbines and solar panels qualify for both the Production Tax Credit (PTC) and 5 year accelerated depreciation. They also meet state imposed Renewable Energy Portfolio standards so they receive extra credit in the spreadsheets for avoiding penalties or receiving rewards (depending on the state, the mechanism for imposing REP varies).

Though the investors all agree that the federal government wants to discourage carbon emissions, there is a vast amount of uncertainly about how large the cost will be or how valuable each kilowatt of near zero carbon electricity will be.

When financing an investment that has to adhere to a 15 year or longer depreciation schedule and expects to be in operation for 30-80 years, a bit more numerical certainty would aid in the already difficult analysis.

That is especially true since the large carbon emitters have already proven that they have a lot of power to write the rules to protect their own interests and raise the barriers for all others. (Think about the grandfather clause that has allowed old coal plants to continue avoiding the costs imposed by the Clean Air Act of 1992.)