John McCain is wrong. As I've argued before, if an investment has economic merit, government does not need to subsidize it or order the market to consume the fruit of that investment. But if an investment lacks economic merit, no amount of government favoritism will turn that ugly economic duckling into a beautiful, wealth-creating swan.
Without subsidies, nuclear power plants would never have been built in the first place, and certainly wouldn't be built today. Let's briefly look at all of the handouts going to that industry:
- A federal law called the Price-Anderson Act protects nuclear power plant owners from liability above a certain point in case of an accident.
- Federal regulations relieve the industry of the need to pay third parties to accept the risks imposed by waste disposal.
- The federal government provides both uranium supply and enrichment services but fails to charge nuclear power plants anything for the capital or inventory costs.
- The federal government recently budgeted $18.5 billion to guarantee the loans necessary to build the next several nuclear power plants.
- The federal tax code provides a 1.8-cent-per-kilowatt-hour subsidy to nuclear energy producers.
Research by Tufts University economist Gilbert Metcalf shows that, absent the subsidies presently on the books, nuclear power is almost twice as expensive as coal-fired power — and that's probably optimistic. Recent power plant construction costs overseas demonstrate that cost overruns and construction delays still remain the rule rather than the exception.
How then do France, India, China and Russia build cost-effective nuclear power plants? They don't. Government officials in those countries, not private investors, decide what is built. Nuclear power appeals to state planners, not market actors.
How then do we explain all those permit applications in front of the U.S. Nuclear Regulatory Commission to build new nuclear facilities? Simple: Permits are a low-cost means of reserving the right to go forward with new construction. They obligate the utilities to nothing, and even pro-nuclear proponents argue that unless the feds do even more to promote nuclear power, the much ballyhooed "nuclear renaissance" will die in its crib.
Enter John McCain.
You might be tempted to argue the case for nuclear power to address greenhouse gas emissions. But you should resist that temptation. If we slapped a carbon tax on the economy to "internalize" the costs associated with greenhouse gas emissions — the ideal means to address emissions if such an issue will ever be addressed by policymakers — then the "right" carbon tax would likely be too low to jump-start nuclear power plant construction, if the economists are right.
If new plant designs or other technological innovations brought nuclear costs down enough to attract private investors, then fine, I would have no complaint. But until that day comes, it will be guys in pinstripes from Wall Street, not guys in tie-die from Berkeley, who will keep those plants from coming on line.