Federal Nuclear Guarantees Going Begging

I have written before that the nuclear power industry still requires subsidies to cover its enormous environmental and financial risks. But even with a big pot of money for loan guarantees, the industry may still not be economical. The New York Times reports that most of a multi-billion pot to support nuclear power is being left on the table:

WASHINGTON — In an effort to encourage nuclear power, Congress voted in 2005 to authorize $17.5 billion in loan guarantees for new reactors. Now, six years later, with the industry stalled by poor market conditions and the Fukushima disaster, nearly half of the fund remains unclaimed. And yet Congress, at the request of the Obama administration, is preparing to add $36 billion in nuclear loan guarantees to next year’s budget.

It's one of the rare instances of government money going begging:

Only $8.8 billion of the 2005 guarantee has been allocated — to a twin reactor project in Georgia. Ground has been broken on the fourth candidate, a twin reactor project in South Carolina, but its sponsors may get a better deal in the commercial finance market.

Supporters of the guarantees claim the cost to the government is very small:

A federal loan guarantee is a little like a parent co-signing a child’s car loan; if the child makes the payments, the parent pays nothing. Under the 2005 law, borrowers pay a lump sum to the government to compensate the Treasury for the risk it is undertaking, and if the companies finish the projects and can pay back the loans, the government makes a profit.

The precise shape of new loan guarantees is uncertain, but when “scoring” the provisions for the purpose of calculating their expense, the White House says they cost nothing, and Congress assumes they cost 1 percent of the face value. But they are not without risk. 

If the builders default, as happened on some nuclear construction projects in the 1980s, the taxpayer liabilities could run into the billions of dollars.

The loan guarantees cover 80 percent of construction costs, but the industry is still having trouble finding investors to cover the other 20 percent.

Obama Pushes to End Oil and Gas Subsidies

For reasons passing understanding, our federal government subsidizes the fossil fuel industry, as President Obama pointed out in a letter to Congressional leaders today:

While there is no silver bullet to address rising gas prices in the short term, there are steps we can take to ensure the American people don’t fall victim to skyrocketing gas prices over the long term. One of those steps is to eliminate unwarranted tax breaks to the oil and gas industry and invest that revenue into clean energy to reduce our dependence on foreign oil. Our outdated tax laws currently provide the oil and gas industry more than $4 billion per year in these subsidies, even though oil prices are high and the industry is projected to report outsized profits this quarter.

Obama took note of the fact that John Boehner just said he might consider cutting these subsidies:

I was heartened that Speaker Boehner yesterday expressed openness to eliminating these tax subsidies for the oil and gas industry. Our political system has for too long avoided and ignored this important step, and I hope we can come together in a bipartisan manner to get it done.

Obama gets it right in proposing that subsidies can be better used to promote 21st century clean energy technology. Nothing I have read in economics or corporate strategy suggests that fossil fuel subsidies actually increase the supply of fossil fuels.

RGGI Is Not Causing High Energy Costs

The News Journal has published an op-ed by Dr. Chad Tolman on the Regional Greenhouse Gas Initiative and the science of climate change:

Emissions-control program not to blame for high energy costs

The April 14 opinion piece by State Rep. Jack Peterman, like his recently introduced bill -- saying that Delaware should withdraw from the Regional Greenhouse Gas Initiative -- is based on bad science, bad economics and misleading statements.

While he doesn't say so, like the Caesar Rodney Institute he quotes, he denies the science of climate change, which is now generally accepted by the best climate scientists.

The U.S. National Academy of Sciences recently issued a report titled "Climate Stabilization Targets: Emissions, Concentrations and Impacts Over Decades to Millennia." The summary in an accompanying booklet, "Warming World: Impacts by Degree," says, "The impacts of human activities -- particularly emissions of carbon dioxide ... are so vast that they will largely control the future of the Earth's climate system. This future could ... deliver an extreme change from today's climate to entirely different climate conditions that will last many thousands of years. The eventual course of the climate system over millennia will be determined largely by the actions taken this century."

Keep in mind that Delaware is very vulnerable to sea-level rise -- both because the land is sinking and because Delaware has the lowest average elevation of any state in the country. Sea-level rise might be 5 feet (1.5 meters) in the coming century, and could be more. Rep. Peterman's constituents in coastal communities along the Delaware Bay in his District 33 should be concerned about that.

Rep. Peterman's bill, HB 86, says that Delaware has 50 percent higher electricity costs, that employers leave the state for that reason, and that Delaware homeowners pay about $500 per year in higher energy costs -- implying that RGGI is to blame. In fact, during the last three auctions of carbon-dioxide emission allowances under RGGI, the market price has been less than $2 per ton of CO2. That corresponds to about 0.2 cents per kilowatt-hour for electricity produced from coal and about 0.1 cents per kilowatt-hour for electricity from natural gas. These are about 1 percent of the retail cost of electricity -- about 15 cents per kilowatt-hour from Delmarva Power for residential customers -- adding less than $1 a month to a typical home electricity bill.

That money is used to help weatherize homes, buy more energy-efficient appliances and promote renewable energy development -- especially solar power.

The main reason for higher electricity costs in Delaware is the lack of adequate generating capacity in the state and the need to bring in electricity over congested power lines.

The problem would be eliminated with sufficient development of our abundant renewable energy in the form of offshore wind and solar power -- which the Caesar Rodney Institute opposes. Apparently it wants to see as much fossil fuel burned as possible.

Rep. Peterman, like the Caesar Rodney Institute, chooses to ignore the health and environmental benefits of moving from burning fossil fuels to using renewable energy sources. A recent complete life-cycle analysis of the real cost to citizens of burning coal for electrical power ("Full cost accounting for the life cycle of coal," by Paul Epstein and others) found a best estimate of 17.8 cents per kilowatt-hour for the health and environmental damage of burning coal for electricity.

Rep. Peterman also ignores the great work that Gov. Jack Markell, Alan Levin of the Delaware Economic Development Office and Collin O'Mara of the Department of Natural Resources and Environmental Control have been doing to bring new green industries and jobs to Delaware.

That's where the future is -- not with the old energy technology of the past century. We should be supporting the governor in moving forward -- not moving backward. For this reason, we should reject HB 86.

The League of Women Voters of Delaware, the Delaware Chapter of the Sierra Club, the Delaware Nature Society and Delaware Audubon Society all support an active and comprehensive energy/climate change plan that can make Delaware the First State in the coming green energy economy. Join us.

Is Wind Power a Mature Industry?

The Caesar Rodney Institute (CRI) today sent me its latest bit of analysis, which purports to show that wind power is a mature industry, and thus not deserving of government incentives. Prompted by this startling news, I checked the numbers from the Energy Information Administration website: Wind power provided 1.8 percent of our electricity in the U.S. in 2009; offshore wind power provided exactly 0.0 percent.

Instead of looking at generating capacity in place, the CRI chose to focus on new capacity being built. The CRI asserts that because wind accounted for 35 percent of new generating capacity built since 2007, it is a mature industry. This would be like asserting that desktop computers was a mature industry in the early 1980s, or that jet airliners was a mature industry in the early 1950s.

This is but the latest in a series of preposterous pronouncements on renewable energy, such as the assertion that wind power could actually be bad for the environment.

The CRI's concern for energy subsidies hardly seems even-handed. The organization neglected to offer a word of support for Congressman John Carney when he introduced a bill to cut a modest $50 million in subsidies for the oil and gas industry.

What the S&P Rating Announcement Means

With all the attention being given to the Standard & Poors (S&P) announcement on the U.S. debt, it's useful to read the release itself. S&P hasn't lowered its rating of U.S. debt, but has placed it on watch with a negative outlook, meaning that the AAA rating could be lowered in the future. This paragraph sums up the risk:

We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns.

And this paragraph sums up what the federal government would need to do to restore the stable outlook:

Some compromise that achieves agreement on a comprehensive budgetary consolidation program--containing deficit-reduction measures in amounts near those recently proposed, and combined with meaningful steps toward implementation by 2013--is our baseline assumption and could lead us to revise the outlook back to stable. Alternatively, the lack of such an agreement or a significant further fiscal deterioration for any reason could lead us to lower the rating.

S&P was careful to point out that it doesn't have an opinion on how the deficit should be reduced. The rating agency's interest is in measuring the likelihood that the federal government will continue to make payments on its debt.

E.J. Dionne on America's Elites

E.J. Dionne looks with rare moral clarity at the distance between America's elites and the rest of society:

Listen to David Cay Johnston, the author of “Free Lunch” and a columnist for Tax Notes. “The effective rate for the top 400 taxpayers has gone from 30 cents on the dollar in 1993 to 22 cents at the end of the Clinton years to 16.6 cents under Bush,” he said in a telephone interview. “So their effective rate has gone down more than 40 percent.”

He added: “The overarching drive right now is to push the burden of government, of taxes, down the income ladder.”

And you wonder where the deficit came from.

If the ruling class were as worried about the deficit as it claims to be, it would accept that the wealthiest people in society have a duty to pony up more for the very government whose police power and military protect them, their property and their wealth.

The headline of Dionne's column is "America's elites have a duty to the rest of us." Why is this such an odd sounding idea?

John Carney and Fossil Fuel Subsidies

It's good to know that John Carney can show a little good humor these days. A story in the News Journal catches him letting off a little steam:

The fiscal 2011 spending issue, he said, "should have been put to bed weeks ago" so lawmakers could move on to the more difficult and significant issue of next year's budget. Republicans were trying to insert a "right-wing conservative social agenda" into the spending bill and creating "one more roadblock to doing the business we were sent here to do."

He paused to catch his breath.

"Everything else is fine," he said, laughing.

I like it that he proposed taking even a small step towards cutting the pointless subsidies for fossil fuels:

Carney has introduced two proposals as the lead sponsor. One would create a national park in Delaware. The other was an unsuccessful measure to eliminate $50 million for oil and gas research and development. President Barack Obama's proposed fiscal 2012 budget supported eliminating the oil and gas money, but the measure was opposed by 82 Democrats.

"My takeaway from that is that the oil and gas industry has a lot of people doing their bidding," Carney said. "It just kind of shows you what we're up against in terms of moving towards energy independence and in terms of addressing climate change."

Given the mood for cutting the deficit, I see no justification for continuing subsidies for a mature and immensely profitable industry.

Energy Issues in Delaware

I thought it would be useful to review the various energy issues being debated in Delaware, mostly out of the public eye.

The Renewable Energy Task Force yesterday reviewed a study estimating the number jobs being created or sustained by the solar component of the Renewable Portfolio Standard or RPS. By nurturing steady growth in the industry, Delaware should reap $304 million to $681 million in total economic output in the next ten years.

The Caesar Rodney Institute has engaged the American Tradition Institute to conduct a study of the economic costs of Delaware's RPS. I don't expect the study to offer a favorable view of the policy; the American Tradition Institute maintains that renewable energy standards violate the Commerce Clause of the U.S. Constitution.

House Bill 27 would dilute the RPS for the Delaware Electrical Coop and the municipal energy companies by allowing them to count progress on the Energy Efficiency Resource Standard towards the RPS. Delmarva Power would still have to meet both standards separately. A House Energy Committee hearing on HB 27 was cancelled after the sponsor agreed to table the measure for the time being.

HB 86, introduced earlier this week, would pull Delaware out of the Regional Greenhouse Gas Initiative or RGGI. Yesterday the News Journal published an op-ed by the bill's sponsor, Representative Jack Peterman, which opens with the observation that support for cap-and-trade cost Mike Castle a Senate seat. HB 86 wil likely be taken up by the House Energy Committee when legislators return from their two week break.

The most significant finding on the costs and benefits of renewable energy is found in Delmarva Power's Integrated Resource Plan (IRP), now being reviewed by the Public Service Commission. According to the IRP, the benefits of current plans to shift from coal to renewable energy are estimated to be $1.8 billion to $4.3 billion over the next ten years. That's $2,000 to $4,750 for every Delaware resident, and 12 percent to 30 percent of retail electricity sales in Delaware. The PSC has extended public comment period on the IRP to May 31, and will likely hold hearings on the plan afterwards.

Could Natural Gas Be as Dirty as Coal?

The New York Times reports that a study by Cornell professor Robert Howarth, not yet published, argues that natural gas may not be better for the climate than coal.

The problem, the studies suggest, is that planet-warming methane, the chief component of natural gas, is escaping into the atmosphere in far larger quantities than previously thought, with as much as 7.9 percent of it puffing out from shale gas wells, intentionally vented or flared, or seeping from loose pipe fittings along gas distribution lines. This offsets natural gas’s most important advantage as an energy source: it burns cleaner than other fossil fuels and releases lower carbon dioxide emissions.

Methane is a potent greenhouse gas, though it does not last as long in the atmosphere as carbon dioxide. An industry executive disputes the numbers:

Mark D. Whitley, a senior vice president for engineering and technology with Range Resources, a gas drilling company with operations in several regions of the country, said the losses suggested by Mr. Howarth’s study were simply too high.

“These are huge numbers,” he said. “That the industry would let what amounts to trillions of cubic feet of gas get away from us doesn’t make any sense. That’s not the business that we’re in.”

Just how much gas is escaping is not well known, which is in itself a problem. What the study doesn't dispute is that natural gas burns cleaner than coal, so much so that burning landfill gas is considered far cleaner for the air and the climate than letting it escape. It's the fugitive emissions that worry Howarth:

The GHG footprint of shale gas is significantly larger than that from conventional gas, due to methane emissions with flow-back fluids and from drill out of wells during well completion. Routine production and downstream methane emissions are also large, but are the same for conventional and shale gas. Our estimates for these routine and downstream methane emission sources are within the range of those reported by most other peer-reviewed publications inventories (Hayhoe et al. 2002; Lelieveld et al. 2005).

Despite this broad agreement, the uncertainty in the magnitude of fugitive emissions is large. Given the importance of methane in global warming, these emissions deserve far greater study than has occurred in the past. We urge both more direct measurements and refined accounting to better quantify lost and unaccounted for gas.

An advance copy of the study is available online via The Hill.

Joseph Stiglitz on Financial and Nuclear Meltdowns

As part of the Guardian's ongoing debate on nuclear energy, economist Joseph Stiglitz compares recent nuclear and financial meltdowns.

These wizards of finance, it turned out, didn't understand the intricacies of risk, let alone the dangers posed by "fat-tail distributions" – a statistical term for rare events with huge consequences, sometimes called "black swans". Events that were supposed to happen once in a century – or even once in the lifetime of the universe – seemed to happen every 10 years. Worse, not only was the frequency of these events vastly underestimated; so was the astronomical damage they would cause – something like the meltdowns that keep dogging the nuclear industry.

There is another similiarity between financial and nuclear risks: both industries have required government assistance. The banks needed assistance when things went south. But, as I have pointed out, the nuclear industry can't get financing without government guarantees, even when things aren't melting down.

Who Will Get the Blame for a Government Shutdown?

Washington Post opinion writer Michael Gerson, who worked in the George W. Bush White House, offers this assessment of the looming government shutdown:

This maneuver has also placed House Speaker John Boehner in exactly the position he wanted to avoid. Obama’s offer is more than reasonable. A $30 billion reduction, after all, was the initial Republican negotiating position back in early February. Given that Republicans control only the House, this level of cuts would normally be viewed as a remarkable success. But a portion of the Republican conference longs for a confrontation that results in a government shutdown, preferring a fight over a victory. And the only worse outcome for Boehner than a politically risky shutdown is a deeply split conference, pitting the Republican establishment against Tea Party purists — a result that would undermine all future Republican progress.

I don't know how things will turn out, but I hope he's right. E.J. Dionne isn't so sure, and points to this poll that finds that voters would apportion blame evenly.

We're into improvisational politics here; public opinion on the last shutdown depended heavily on who appeared to be more reasonable. With the Tea Party right itching for a fight, this may be more difficult for the GOP than for Obama.

My instincts tell me that most voters like politicians who work things out, which is why Jack Markell is more popular (and more effective) than Scott Walker. The problem for Republicans is, as Ezra Klein puts it, "It increasing feels like the House GOP doesn’t want to take “yes” for an answer." The question of who gets blamed for a government shutdown may depend on the question of who is seen as wanting a deal and who is seen as wanting a confrontation.

TommyWonk at the Guardian on Nuclear Power

Over at the Guardian, I have a piece questioning the economics of nuclear energy. Some climate advocates are calling for more nuclear power to reduce greenhouse gas emissions. But if renewable energy has to pass the cost test, what about nuclear?

If the costs and benefits of nuclear power are so attractive, where are the investors? At least with wind and solar power, it is possible to see the cost curve dropping to the break-even point in the near future. Nuclear power, by contrast, may never be able to convince investors to put their money down without government guarantees.

There's an old adage, "If you don't know the numbers, you don't know the business." After more than fifty years, it's hard to nail down the true cost of commercial nuclear power.