Is Nuclear Power Too Risky?

Are some energy investments so unpredictable and potentially unprofitable that governments should promise to cover the downside risk for private companies involved? The nuclear power generation industry seems to think so.

Many energy investments carry significant risks of expensive disaster. Examples:

• The Buffalo Creek Flood (Pittston Coal Company dam failure) of 1972 cost 125 lives and destroyed hundreds of homes.
• The Piper Alpha disaster in the North Sea in 1988 cost 167 lives.
• The Three Mile Island accident of 1979 cost the plant's owners, General Public Utilities and Metropolitan Edison, more than a billion dollars in containment and clean-up costs, legal settlements and other costs, as well as loss of electricity sales from the destroyed reactor, which had only been on line for 13 months, and from the other reactor at the site which was shut down until 1985.
• Two hundred thirty-four people died in the Chuandongbei natural gas field explosion in China in 2003 (see NYT article).
• In 2006 12 coal miners were killed in the Sago mine disaster in the U.S.
• Twenty-nine coal miners were killed at the Upper Big Branch disaster in the U.S. in 2010.
• The Deepwater Horizon disaster and resulting Macondo blowout cost the lives of 11 rig workers and cost BP roughly $10 billion.
• The ongoing nuclear power plant disaster at Fukushima Number One will probably cost around $50 billion, of which its owner will only be able to cover about half. (See this post.)

Existing Subsidies

In the United States the nuclear power industry is protected from much of the liability that would be associated with a disaster like that at Fukushima by the Price-Anderson Nuclear Industries Indemnity Act of 1957 and related legislation. Under the act, the industry is only required to have $375 million of liability insurance per plant. Industry liability from a nuclear incident is limited to $12.6 billion (from a fund generated by industry payments of $111.9 million per reactor, to be made in the event of an incident with liability exceeding insurance coverage). Beyond that the Federal government picks up the tab.

The offshore oil drilling industry receives similar limitation of liability through the Oil Spill Liability Trust Fund. A tax of eight cents per barrel of oil produced in or imported into the USA has built up a fund of some $1.6 billion. In return companies have their liability for damages limited to $75 million, paid from the fund. The fund also pays for some government operation on an annual basis. Costs beyond $75 million, or the resources of the fund, would be paid by the taxpayer. (Of course the eight cent tax is passed on to oil consumers.)

Because of the very large capital costs of nuclear power generating plants, the industry lobbies for and receives substantial loan guarantees, reduced rate loans, tax breaks and other subsidies. But similar subsidies are available to several other sectors of the energy industry, and to other industries. Likewise the favorable monopoly rates of many electric utilities enable them to pass on many costs and expenses to their ratepayers. This is not unique to the nuclear power generation industry.

The nuclear power industry claims it can only expand if it receives various government subsidies and guarantees.

"They cannot be built without government guarantees ... shifting risk from investors and lenders to taxpayers."--Peter Bradford, adjunct professor at Vermont Law School [Source Reuters article]

"We believe many new nuclear construction projects will have difficulty accessing the capital markets during construction and initial operation without the support of a federal government loan guarantee."--2007 letter from investment baking firms to Department of Energy [Source Christian Science Monitor article]

Distorted Investment Decisions

These subsidies, guarantees and liability limitations distort investment decisions. If someone else (the taxpayer) is going to cover some or all of the cost of default, accident, liability, cleanup, waste management or other potential expenses, that makes even a potentially risky investment look like an acceptable deal to private enterprise.

Of course the problem is even worse where nuclear power generation capacity is being built and operated by the government itself. There the taxpayers bear all the risk, and the detailed analysis of risk and reward that private enterprise uses to decide whether to allocate resources to a particular enterprise is skipped altogether.

Nuclear power generation will never be as safe as it can be unless the private firms that stand to profit from it accept all of the costs and liability associated with problems at their facilities.

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Further reading:

List of accidents and disasters in this Wikipedia article.

Prominent energy accidents of the past 100 years listed in this article.