How much of a subsidy is the Price-Anderson Nuclear Industry Indemnity Act?

The answer is perhaps as high as a hundred billion dollars.

First some background. I testified in front of the Senate Environment and Public Works committee in July. In my testimony, “The High Cost of Nuclear Power,” I pointed out the obvious — that nuclear is a mature source of power that has benefited disproportionately from government support to date:

From 1948 to today, nuclear energy research and development exceeded $70 billion, whereas research and development for renewables was about $10 billion. From 2002 to 2007, fossil fuels received almost $14 billion in electricity-related tax subsides, whereas renewables received under $3 billion.

The Price-Anderson Nuclear Industries Indemnity Act caps the liability for claims arising from nuclear incidents. It reduces the insurance nuclear power plants need to buy and requires taxpayers to cover all claims in excess of the cap. The benefit of this indirect subsidy has been estimated at between $237 million and $3.5 billion a year, which suggests that it has been worth many billions of dollars to the industry. It could be argued that the value is considerably larger than that, since the industry might not have existed at all without it: “At the time of the Act’s passing, it was considered necessary as an incentive for the private production of nuclear power … because investors were unwilling to accept the then-unquantified risks of nuclear energy without some limitation on their liability.

One can make a case that such insurance was reasonable for a new, almost completely unknown technology in 1957. Extending it through 2025 is harder to justify. If investors aren’t willing to accept the risks of nuclear energy now, without taxpayers liable for any major catastrophe, perhaps the technology no longer deserves government support.

A certain senior member of the minority known for climate denial just submitted two (silly) written questions to me for the record on this:

[Questions in italics, answers in regular text.]1. You state in your testimony that nuclear power,is “the beneficiary of some $100 billion in direct and indirect subsidies since 1948.” According to a recent Congressional Research Service report (http://www.congress.gov/erp/rslhtmIIRS22858.html), the Department of Energy states that the cumulative funding total from 1948 to 2007 is $85.01 billion. How do you explain the discrepancy between the Department of Energy’s total and yours?

A1: There is no “discrepancy.” The study you refer to is “Renewable Energy R&D Funding History: A Comparison with Funding for Nuclear Energy, Fossil Energy, and Energy Efficiency R&D.” That study clearly states that “This report provides a cumulative history of Department of Energy (DOE) funding for renewable energy compared with funding for the other energy technologies.” It is a report on federal R&D. There have been many other direct and indirect subsidies direct toward nuclear power from 1948 through today, including tax credits, loan guarantees, and the Price Anderson Act, which, by itself, it a subsidy worth many tens of billions of dollars (see below).

2. Citing the questionable “Wikipedia” website as your source, you state:“The Price-Anderson Nuclear Industry Indemnity Act caps the liability for claims arising from nuclear incidents. It reduces the insurance nuclear power plants need to buy and requires taxpayers to cover all claims in excess ofthe cap. The benefit of this indirect subsidy has been estimated at between $231 million and,$3.5 billion a year, which suggests that it has been worth many billions of dollars to the industry.”However, a Congressional Research Service report states: “Under Price-Anderson, the owners of commercial reactors must assume all liability for nuclear damages awarded to the public by the court system, and they must waive most of their legal defenses following a severe radioactive release ‘extraordinary nuclear occurrence.’ (http://www.congress.gov/erp/rl/pdf/RL33558.pdf) Please explain this discrepancy by citing the language fom the Price-Anderson Nuclear Industry Indemnity Act that requires taxpayers to cover all claims in excess of the liability cap.A2. Wikipedia is not considered a questionable source. Indeed, it has been found to be as accurate as the Encyclopedia Britannica. However, since you (partially) cite the CRS report, “Nuclear Energy Policy,” let me cite the rest of it:

To pay any such damages, each licensed reactor must carry financial protection in the amount of the maximum liability insurance available, currently $300 million. Any damages exceeding that amount are to be assessed equally against all covered commercial reactors, up to $95.8 million per reactor. Those assessments — called “retrospective premiums” — would be paid at an annual rate of no more than $15 million per reactor, to limit the potential financial burden on reactor owners following a major accident. According to NRC, 104 commercial reactors are currently covered by the Price-Anderson retrospective premium requirement.

For each nuclear incident, the Price-Anderson liability system currently would provide up to $10.8 billion in public compensation. That total includes the $300 million in insurance coverage carried by the reactor that suffered the incident, plus the $95.8 million in retrospective premiums from each of the 104 currently covered reactors, totaling $10.3 billion. On top of those payments, a 5% surcharge may also be imposed, raising the total per-reactor retrospective premium to $100.6 million and the total available compensation to about $10.8 billion. Under Price-Anderson, the nuclear industry’s liability for an incident is capped at that amount, which varies depending on the number of covered reactors, the amount of available insurance, and an inflation adjustment that is made every five years. Payment of any damages above that liability limit would require congressional approval under special procedures in the act.

The Energy Policy Act of 2005 raised the limit on per-reactor annual payments to $15 million from the previous $10 million, and required the annual limit to be adjusted for inflation every five years. As under previous law, the total retrospective premium limit of $95.8 million is to be adjusted every five years as well. For the purposes of those payment limits, a nuclear plant consisting of multiple small reactors (100–300 megawatts, up to a total of 1,300 megawatts) would be considered a single reactor. Therefore, a power plant with six 120-megawatt pebble-bed modular reactors would be liable for retrospective premiums of up to $95.8 million, rather than $574.8 million (excluding the 5% surcharge).

Thus, each nuclear reactor has limited liability, and all of the reactors together have limited liability. That is why it is called the Price-Anderson Nuclear Industry Indemnity Act.

A 1992 U.S. Energy Information Administration (EIA) analysis, Federal Energy Subsidies: Direct and Indirect Interventions in Energy Markets, calls Price-Anderson, “A Federal regulation that continues to have a cost-reducing effect on the nuclear power industry.” According to the EIA analysis

These [liability] limits provide a subsidy to the nuclear industry to the degree private insurance premiums paid by operators of individual plants are reduced. In a 1983 study, the NRC concluded that the liability limits were sufficiently significant to constitute a subsidy. However, a quantification of the amount of the subsidy was not attempted. At issue are the probability distributions for various kinds of accidents and valuations of the consequences of accidents, all done on a plant-by-plant basis. The amount of the subsidy would then be found by calculating the differential effect on the insurance premium of imposing the liability limits.

EIA determined that the value of the subsidy to the nuclear industry as a whole was roughly $30 million per reactor per year, or $3 billion annually ($1991). The full subsidy value of the Price Anderson Act from its inception through today thus likely exceeds a hundred billion dollars.