Would a Carbon Tax Rejuvenate Nuclear Energy? Nuclear power emits virtually no greenhouse gases or air pollution, hut it has high capital costs and potential risk.

• Author: Kemp, David
• Position: ENERGY & NATURAL RESOURCES

Concerns about climate change have led many to advocate for future reliance on nuclear power, a constant, low-carbon energy source. Historically, nuclear's high upfront capital costs have precluded its being cost-competitive with coal and natural gas generators. Turbines fueled by coal and natural gas, of course, emit greenhouse gases and other pollutants, prompting calls that they and other emission sources be assessed a Pigouvian tax equal to their damage to the environment. That raises the question, would nuclear power be cost competitive if such a tax were adopted?

At the nuclear construction cost levels most recently experienced in the United States and Western Europe, the answer is no. Over the past two decades, projects in the United States, France, and Finland have suffered substantial construction delays and cost overruns, resulting in astronomical upfront costs. The reasons for these delays and cost increases are numerous. The projects have had problems with labor force management, supply chains, and quality control caused by a mix of the high level of nuclear regulation, design choices, and mismanagement.

Calculating the lifetime costs of a new nuclear power plant built at these construction costs finds that nuclear could be cost-competitive with coal power if there is a reasonable-sized carbon tax. The most efficient natural gas plants are a different story, requiring a carbon tax of over $200 per metric ton of carbon dioxide, an amount well outside the tax levels recommended by the U.S. government and academic experts. This suggests that nuclear power's current construction costs are not offset by the value of the avoided carbon emissions.

If the current high cost is a requirement of building an accept ably safe nuclear generator, then it is unlikely that carbon taxes within widely accepted ranges could induce private investors to invest in nuclear power rather than natural gas generation. However, many nuclear advocates argue that these high costs are primarily the result of overly burdensome regulations or poor design and construction choices. If this is the case, it is possible that nuclear costs could be reduced.

Comparing the costs of nuclear to fossil fuels at construction costs substantially lower than recent U.S. nuclear projects shows that nuclear power could be a viable option for private investors, but only if other conditions are just right. Namely, if nuclear had construction costs 65% lower than the Vogtle Electric Generating Plant, now under construction near Waynesboro, Georgia, and if future natural gas prices are high, nuclear would be cost-competitive with natural gas generation if there is an average carbon tax of roughly $70 per metric ton over the next 30 years. This is in line with carbon tax recommendations from the U.S. government and academic experts. At lower natural gas prices, however, the carbon tax would need to be higher than currently recommended carbon taxes.

Thus, if the climate damages of carbon emissions are included in electricity prices, nuclear's appeal to private investors still relies on substantial reductions in construction costs and a high natural gas price. Though the long-term path of natural gas prices is unclear, the history of nuclear plant construction in the United States does not support hopes that nuclear's high cost will be reduced enough to make nuclear energy competitive with gas.

NUCLEAR PLANT COSTS

Can nuclear power's high construction costs be reduced? Nuclear plants are massive, complex structures built to precise standards. They require some of the largest cranes in the world to assemble and they incorporate enormous amounts of piping, valves, cables, concrete, and steel. However, the scale and difficulties of reactor construction are not entirely exceptional. Other projects such as chemical plants and coal power plants are also large and complex. And nuclear construction in Asia has had a more positive track record.

The costs of building nuclear reactors are typically quantified as "overnight construction costs" (OCC), estimated as dollars per unit of electrical capacity of the reactor. OCC only considers the engineering, procurement, and construction costs and other owner's costs, but excludes the financing costs incurred during the duration of the project. In other words, OCC estimates the cost of construction as if the reactor were built overnight. OCC's benefit is that it allows for an easier direct comparison between construction projects that take different amounts of time to complete (and between projects with different financial profiles).

Historically, the United States and Western Europe have experienced increasing OCC trends for nuclear. In the United States, early demonstration reactors built in the 1950s and '60s saw costs decrease over that period. But during the era when the majority of U.S. reactors started construction, between 1967 and 1978, construction costs increased astronomically. The 48 reactors that began construction during this period and were finished before the Three Mile Island nuclear accident in 1979 saw construction costs increase by 190% over the era. An additional 51 reactors that were completed after Three Mile Island had an increasing OCC trend of 50%-200%.

Experiences in France, Canada, and West Germany are similar, though the scale of cost escalation is smaller. Early reactors started in the 1950s to early 1970s saw construction cost declines over time. But all countries had a later era, from the 1970s into the 1980s, when the bulk of their nuclear fleets was built, with large cost increases. The general story in the West is that nuclear construction costs increased as nuclear capacity increased. This result is the opposite of what would be anticipated for most technologies. As capacity is increased and more construction experience is gained, construction costs are expected to decline as firms learn how to build more efficiently. In the case of nuclear, it seems that some combination of managerial factors and increasing regulations offset any learning done by individual utilities and construction firms.

Are regulations to blame? / Disentangling the effect of regulations from management problems and design decisions is difficult. It is apparent that during the 1970s and '80s, the expanding nuclear industry experienced a large growth in safety regulation, requiring increases in both the materials and labor needed to build power plants. In the worst cases, regulatory instability compelled extensive reworking mid-construction to meet new, higher standards, creating especially large delays and cost overruns. But whether the increased number and stringency of regulations is cost-effective is unknown.

Some of the regulations are based on actual experience, implying that there is at least some justification for the standards. For example, a 1975 fire at Browns Ferry Nuclear Plant in Athens, Alabama, burned a cable spreading room that contained cables for several redundant safety systems. The incident led the Nuclear Regulatory Commission (NRC) to create new fire protection standards. Ever since, the nuclear industry has argued that the standards are excessive and costly.

Other regulations are based on hypothetical accidents with exceedingly low probability...