Government, the Abolisher of the Ultimate Energy Source (Part 1)



Today we are told solar and wind power are the ultimate energy sources for the future. This trend is accompanied by relentless expansion of government subsidies, and flexible regulations around the solar and wind industry. However, this “ultimate clean energy source” is neither ultimate, nor is it so clean. In reality, it is also quite expensive. While Republicans champion the use of fossil fuels and try to subsidize power plants and production of fossil fuels, and alternatively while Democrats champion solar, natural gas, and wind, we libertarians argue that subsidizing and regulating the energy sector is an extremely bad idea and does not allow markets to set energy prices.

Government has destroyed the ultimate, cleanest, and what should be an inexpensive industry compared to its partners in terms of initial costs: the nuclear industry. From the very beginning, governments had altered the course of the nuclear industry and its actual potential to power the US for an extremely low cost, while releasing an extremely small amount of carbon dioxide or any other types of harmful pollutants into the air (which in turn fuels the extremely controversial climate change/global warming debate).

Origins of Nuclear Energy

First, we must understand how governments had from the very inception of nuclear energy, altered its course for government benefits. In the late 1930s, the power to harvest nuclear energy was discovered. However, its use would not initially be used for the greater good nuclear energy has the potential for. Scientists all over the Soviet Union, Nazi Germany, and the Western Allies petitioned their governments to take up nuclear energy only so that they could produce nuclear weapons.

When large governments have the ability to wage wars, and start what could be considered an unproductive time period, many new technologies and innovations would be used for war, rather than for peaceful purposes. What if the Federal Reserve did not fuel the stock market crash of 1929, nor the Great Depression be prolonged, and what if the Weimar Republic, from its conception, did not suffer harsh economic burdens? Such large wars which had risen from government interventions would most likely only result in much smaller wars between smaller nations rather than a full-on World War. The US would most likely not be the super power today, although it would be a strong nation regardless (especially with its economy).

From this, what would the scientists who understood how nuclear energy works most likely do? If in peace time, the most obvious answer was to try and find ways to fund their research in order to produce electricity. This would most probably go through large electric companies, universities, and other private entities which would have the ability to get the right type of funding, equipment, and other essentials in order to harvest electricity via nuclear energy.

But what guarantees such projects would be carried out, especially that they would most probably cost a fortune to get up and running? Nikola Tesla did not receive a single government grant when discovering how to use AC to power homes; instead he found investors to fund his projects because the project promised that it would increase efficiency, lower operating costs (or operating costs as per unit), allow for longer life cycle of equipment, and lower maintenance costs/cycles as well. In its day, the incorporation of AC into the electricity industry was an expensive process.

Now, let’s compare this with nuclear energy. Nuclear energy is by far, even in its initial concepts, more efficient than any other type of way to produce electricity; its operating costs are arguably lower/more stable in the long term; it allows for equipment to last longer due to lower maintenance costs over the long run. Nuclear energy displays results similar to that of AC. Thus, we can assume the likely scenario that nuclear energy would have ended up in privatized hands when it was initially discovered, which arguably, might have been used in a more efficient and innovative way compared to how the US government had employed it.

Once World War II ended with the US dropping two nuclear bombs, the private sector ultimately had no form of actually producing electricity via the means of nuclear energy until 1954 when the US government teamed up with private enterprises in order to build the Shippingport Atomic Power Station (SAPS). The US government had subsidized around 82.92% of initial costs, while private companies paid out the other 17.08%. The US military also helped in the designing of SAPS, which became operational in 1958.

The Price Anderson Act

After SAPS was built, the development of Nuclear Power plants via the private industry was slower than what Congress anticipated for. The reason development was so slow was because insurance companies did not want to pay more than 50 million dollars towards private industries wanting to build nuclear power plants. As a result, the Price-Anderson Act was passed (along with the Atomic Energy Act of 1959) that would bailout a nuclear power plant up to 500 million dollars. Hence, the US government provided financial protection towards a sector of private industries. With the already premature innovation due to weaponizing Nuclear Energy in the late 1930s/early 40s, the US government had killed chances of innovation towards increasing safety in order to reduce the chances of accidents happening, thus removing essential price signals on what the market would cover up if an accident had happened. However, not only did the US government twice jeopardize innovation, it subsidized the costs of fuel, and research costs, which further distorted innovation within the nuclear sector.

If the Anderson Act and the Atomic Energy Act was not passed, a likely scenario would be that we would’ve seen smaller and more dispersed nuclear power plants around the nation. This is because insurance companies would limit coverage to 50 million dollars, which would likely create an incentive towards electricity/utility companies to build smaller nuclear power plants in order to reflect the maximum risk the market would cover, or better yet, the market could potentially build even safer nuclear reactors rather than making them smaller. Essentially, the government enabled the creation of larger nuclear power plants, which allows for higher risks.

An argument against this is that if the US government did not subsidize nuclear energy it would ultimately fail. However, the most likely scenario is that markets would take up nuclear energy because it resembles the same characteristics of the discovery/harnessing of AC power shows (and many other inventions), and it would be logical for a business to take up such innovations in order to increase its competitive edge. For example, the first ever nuclear reactor, Chicago-Pile-1 cost about 36 million dollars (2016 PP figure), although Chicago-Pile 1 was predominately used to justify the creation of nuclear weapons, it of course also had the potential to be used for nuclear energy. Despite only forming ½ a watt of energy over 4 minutes, simply just spending 36 million US dollars on initial research and development to prove the existence of nuclear energy is an extremely small cost, especially if such costs could be recouped once the development of nuclear power plants went through.

Energy Act of 2005 (Extension of Anderson Act)

The Energy Act of 2005 effectively extended the Anderson Act, however more provisions were added which ultimately increased the complications and costs towards the building of nuclear power plants. The Energy Act makes it mandatory for companies building nuclear power plants to insure their plants for 300 million dollars per plant. Not only this, but if a claim arises in any other nuclear power plant within the United States, each and every other nuclear power plant within the country must pay 95.8 million dollars towards that nuclear power plant in damage coverage. Essentially, because it takes 6 years to build a nuclear power plant, and the most likely source for funding are loans and other debts in order to complete such projects, this therefore means that such companies would capitalize borrowing costs incurred. Ultimately, if you calculate simple risk of the “95.8 million dollars bail out to others plan” plus the 300 million dollars of mandatory insurance, this would end up with a rough estimate that 1.806 billion dollars of initial costs towards the building of Nuclear Power Plants are solely due to mandatory insurance costs. A nuclear power plant costs 9 billion dollars to build; 20.07% of initial costs are due to mandatory insurance costs.

Not only does this increase the costs of building nuclear power plants, but it shows that the risk is fundamentally lower than what government officials believe it is. If the government requires such entities to forcefully take out insurance up to 300 million dollars, this shows that the risk is lower than the price tag of 300 million dollars, and not higher. If the price tag was higher, the government would mandate a provision higher than 300 million dollars.

Essentially, because government also forces others to bail-out/cover for another, and that it would also come into assistance to cover up the liability damages (despite forcing such entities to take up insurance costs higher than its actual price), the government ultimately increases moral hazard risks within the nuclear energy sector. Rather than removing the subsidizes, and the mandatory insurance schemes which constrains the natural price point of nuclear energy, the government intervenes to solve problems already created by too many interventions, and hence why the government had turned towards regulations via the Nuclear Regulation committee.

NRC Regulations

From the 1970s to 1989, the NRC regulations updates have changed in variety but have not changed in methodological approaches towards reactor designs and other fundamentals towards the nuclear energy sector. This already causes problems towards alternate forms and methods of harvesting nuclear energy. To put this into perspective, the license for a nuclear power plant is a 200-page document which handles the operations of nuclear power plants down to every last minute. Such regulations cannot, and do not have the ability to look into the future of nuclear technology, which further adds towards the prevention of utilizing new  innovative technology.

This also increases uncertainty and reduces investments in nuclear energy. We can compare this with rent controls and other areas which share similar characteristics of regulations. The best example of how such regulations increase such uncertainties is that operating licenses towards nuclear plants are short and that obtaining further operating licenses are also uncertain. The current license time line is 40 years, while the extension which may, or may not be granted is a further 20 years. Due to the large initial costs of building a nuclear power plant, large capitalized investments with the combination of limited running time does not allow for a large enough return to form, thus making nuclear energy an unsuitable form of producing electricity. An example of this is the Shoreham Power Plant (SPP). SPP had to deal with continuous changes of regulations during the construction phase, but once construction had finished, it was shut down due to public opinion, without even producing 1KW of energy. Without considering risk calculations, innovation, and other forms which must be considered, an uneducated public opinion is the ultimate decision maker towards the commissioning or decommissioning of a nuclear power plant.

Furthermore, there are inherent flaws with the NRC regulations and how they take risk into account when updating or creating new regulations. One example of this is that accident probability calculations are seriously flawed. Currently outside regulations, the nuclear energy field uses statistic methods like U-shaped, while NRC still uses a flawed Poisson analysis in order to calculate risks. This further adds costs towards the building of nuclear power plants.

However, the most controversial bit of regulations is that government power plants and other government facilities are exempt from the regulations imposed by the NRC. Government does not have to follow the precise protocols and implications of how to manufacture and produce nuclear power plants, nor do they have to follow protocols regarding research and development, testing, and transportation of nuclear waste, fuel, and other related factors. This shows that such regulations imposed by the NRC are either outdated, or not needed at all as they are essentially cost drivers, rather than proper regulations which would prevent any risks from arising. the government exempts itself from regulations because it accounts for 99% of all high level radioactive waste in the United States.

The only solution towards such regulatory issues should be that regulations must be made more flexible, or eliminated. This would allow for actual liabilities to be calculated accordingly to the actual risk. If risks were actually too high, this would allow market forces to bring down such risk factors in order to satisfy voluntary market demands. With combinations of private property rights, and other fundamental market laws, this would allow for a safe, and inexpensive nuclear industry to arise.

Conclusion of Part 1

In conclusion, we’ve discovered how government intervention in the past has altered the course of nuclear energy from its very inception, and how such regulations still till today ruin the chances of nuclear power. In Part 2, I will discuss how these regulations have driven up costs, the future of nuclear power, and how much costs could be potentially saved if such regulations are removed or made flexible.

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Baland Rabayah

Baland Rabayah is a student of accounting and finance at Bangor University and is also pursuing a Graduate Diploma in Economics at the University of London. Baland holds a Diploma in Accounting and Finance from the Bahrain Institute of Banking and Finance. He plans to pursue to continue his studies by doing a master's in economic history and a PhD in Economics. Baland follows a mixture of Chicagoan and Austrian principles in economics, with his influences being Murray Rothbard, Ludwig von Mises, Friedrich Hayek, George Selgin, Lawrence H. White, Peter G. Klein, Ronald Coase, and Milton Friedman. He is currently part of the Being Libertarian Merchandise Project’s management, and runs his own investments. Baland is also the former CEO of MoreTech Bahrain, a start-up company which attempted to launch Bahrain's and the Middle East's first flagship smartphone. He is a racing enthusiast, and regularly races professionally in Bahrain's SWS races.