The Costs and Benefits of Nuclear Power Subsidies
This is the first part to a series of posts on this topic. Scroll to the end to find the most recent posts.
There has been an extraordinary amount of support for Build Back Better’s (BBB) climate provisions coming from politicians, advocacy organizations and even academics. Despite these endorsements, there is remarkably little research as to whether BBB will actually do what it claims to do. Early analyses were primarily predicated on rosy assumptions of policy compliance attainment, with politicians assuming that merely having programs like the since-removed Clean Electricity Performance Program would achieve complete decarbonization of whole sectors of the economy. Since those early assumptions, the Congressional Budget Office (CBO) has released its estimate of the total cost of BBB at $1.68 trillion in new spending, including over $400 billion of spending on green energy.
In this series, we aim to compare the CBO’s estimated program cost with the subsidy value promised in BBB to give an estimate of how much clean energy or related technology BBB will support, and thus BBB’s total climate impact.
For the first of this series we will focus on nuclear power. This short analysis examines the primary policies supporting nuclear power, and compares that data with the Energy Information Administration’s (EIA) projected generation from those resources to produce an estimate of the subsidy’s impact.
The primary vehicle for supporting nuclear energy in BBB is a production tax credit (PTC) for electricity generated from conventional nuclear reactors. One important distinction is that BBB is creating new tax credits that will apply to nuclear reactors already in service today, whereas new reactors of advanced designs are covered under tax credits that were already implemented by other legislation. Nuclear reactors can take many years to build, so the implementation of a nuclear production tax credit is a lifeline to the existing fleet.
From a policy design standpoint, the tax credit can only provide an environmental benefit if the power plant receiving the subsidy would have closed if it had not received the subsidy. Because nuclear power has no greenhouse gas emissions and is considered “base load electricity,” meaning it is producing power 24/7, retiring nuclear power plants results in increased emissions as natural gas power replaces retired nuclear plants—since renewable resources are intermittent and imperfect substitutes. To evaluate the environmental benefits of BBB’s nuclear PTC, we can compare the CBO’s estimated expenditures and revenue loss from the nuclear PTC and the EIA’s projected nuclear electricity generation.
The CBO estimated that the cost of the nuclear PTC would be $23 billion through 2028—$11 billion in outlays and $12 billion in revenue loss. BBB sets the tax credit at either a low value of 0.3 cents per kilowatt hour (kWh), or, if meeting labor standard criteria, the facility receives the maximum value of 1.8 cents per kWh. The nuclear PTC remains in effect through 2027. At the peak year of 2027, the nuclear PTC could support either 213 billion kWh of nuclear electricity if all claimants receive the full credit, or 1.3 trillion kWh if none of the claimants are eligible for the bonus credit. The EIA projects nuclear electricity generation at 736 billion kWh in 2022 and falling to 645 billion kWh in 2027.
Since no new nuclear power plants could be licensed and constructed within that timeframe, realistically the current nuclear fleet production represents the ceiling of subsidized power generation.
Sources: EIA AEO 2021, and R Street Institute estimates based on EIA data and CBO estimated budgetary effects of HR 5376.
The upshot is that the CBO expects the tax credit to rise in costs to taxpayers through 2027, whereas EIA projects nuclear electricity generation to decline over the same period.
Essentially, this means the tax credit may delay the retirement of some nuclear electricity generation that would otherwise occur in 2026. For this analysis, we simply assume that the effect of the subsidy is to delay nuclear generation retirement until the subsidy expires. The marginal difference between no retirement and retirement as expected through the final year of the tax credit (2027) would be about 100 billion kWh in 2027, and 228 billion kWh cumulatively through 2031.
Compared to a scenario where the retired nuclear power is replaced with natural gas, the difference of 228 billion kWh would abate 94.1 million metric tons of carbon dioxide. This puts the relative abatement cost of the program at $245 per metric ton. The cost of the program is roughly five times the global benefit of $51 per ton, and higher still if only domestic benefits are considered.
What does all this mean? Since the tax credit expires in 2027, the effect on annual emissions in 2030—the year of President Joe Biden’s emission target—the nuclear PTC would have minimal or no contribution to 2030 emission objectives. Additionally, the cost of the program relative to the potential for emission abatement is mismatched with high costs and low emissions avoided, making it unlikely that the program could be called an environmental winner or have more benefit than cost.
Additionally, it should be noted that there are already significant subsidies in place at the state level designed to delay nuclear power plant retirements. Prominent examples include the zero emission credit programs in New York and Illinois. Furthermore, more than half of nuclear power plants are owned by regulated monopoly utilities, and as such their cost recovery is based on the book value of their assets, which creates an incentive to retain nuclear power plants even without new subsidies. This makes it unclear if retirements expected based on economic conditions are likely to materialize even in the absence of new subsidy programs.
BBB’s efforts on nuclear power are focused on the retention of existing nuclear power plants, while other policies outside of BBB are aimed at the deployment of new nuclear power plants—especially “advanced nuclear power” which are safer than those currently used. The subsidy to nuclear power plants in BBB may delay the retirement of some nuclear power plants by approximately two years, but because the tax credit expires before President Biden’s 2030 emission goals, we do not consider BBB’s nuclear provisions to have any significant impact on 2030 emissions.
The retirement of nuclear power plants has been a contentious environmental issue in recent years as more and more policymakers are recognizing that nuclear power—the United States’ largest source of clean energy—is essential to meeting promised climate objectives, and it makes sense that politicians would want to delay the retirement of these assets. However, since only a small number of these plants are expected to retire in the near term, we find the environmental benefits of the subsidy to be minimal. Furthermore, it should be noted that nuclear electricity is under substantially more—and costlier—regulations than other energy sources, despite having an extraordinary safety record. Reform of governmental policies that stymie new deployment of nuclear power as well as modification of existing regulations are likely better avenues for the retention and expansion of nuclear power in the United States.
INTRODUCTION – Build Back Better: How Much Bang for the Buck?
PART 1 – The Costs and Benefits of Nuclear Power Subsidies
PART 2 – The Inefficiency of Renewable Energy Subsidies
PART 3 – EV Subsidies Likely to Have Minimal Impact
PART 4 – Alternative fuels subsidies are small in size but with interesting potential
CONCLUSION – BBB Series Summary and Conclusion
Image credit: Vlastimil Šesták