The UK's new Prime Minister, Theresa May, made significant changes to her ministry structure. She abolished the Department of Energy and Climate Change (DECC) and transferred its responsibilities to a new Business, Energy and Industrial Strategy Department and to the Department for Business, Innovation and Skills. These changes might suggest how a Trump administration in the U.S. might approach energy policy.
The international kumbaya chorus, led by Kofi Annan, Desmond Tutu and Mary Robinson, immediately denounced the government's actions. But we believe the new Prime Minister's actions make perfect sense. The DECC succeeded in its mission. There is no longer any real European debate about the need to reduce carbon and its adverse impact on climate change. Now the politicians are merely haggling about implementation. This is rather different in tone and substance from what's going on in the U.S.
We previously addressed some these issues in a June 14 post titled, "Can Trump Change the Direction of U.S. Energy?" This article counts as part two.
The DECC in the UK incorporated activities handled in the U.S. by the Environmental Protection Agency (EPA) and both have come under political pressure from conservatives. Would a Trump administration abolish the EPA and move its policy and enforcement duties to the Commerce Department? Or as we saw during the Reagan administration, would a reversal in policy direction be achieved by placing politically loyal appointees in key administrative positions?
The newly appointed Business, Energy and Industrial Strategy head, Greg Clark, is experienced, serving for a time as Shadow Secretary for Energy and Climate Change in opposition to Gordon Brown's Labor government. He may be characterized as a "green" conservative: he recognizes climate change as real threat, opposes more coal fired power stations, and advocates for Britain to become a world leader in carbon capture and storage technologies (CCS), especially using depleted North Sea oil fields. We also expect the low carbon aspects of Hinkley Point C will soon make him a fan of nuclear power. Related: Why Lithium Will See Another Price Spike This Fall
What would a "green" conservative sound like in the U.S.? Perhaps they would acknowledge the perils of climate change while advocating exclusively for market-based solutions, such as ending all subsidies for renewables as well as fossil fuels. But the reliance on market-based power prices here in the U.S. has led to a marked decline in coal usage and the premature closure of a number of nuclear power stations. This poses a number of dilemmas for supposed free-marketeers.
Starting with the obvious, Mr. Trump's recently announced running mate, Mike Pence, is from a Midwestern, coal producing state. Given the abundance of coal in the U.S., we might even see government subsidies for new coal-fired power plants. The same holds true for new nuclear construction.
As we've written before, new nuclear construction in both the U.S. and the UK is uneconomic relative to gas-fired base load alternatives. But nevertheless, nuclear power has its staunch advocates on both sides of the Atlantic. For European utilities, importing natural gas from Russia or the Mideast as a strategy comes with the potential for wild price swings often reflecting geopolitical risks. As electricity agnostics, we propose a simple idea.
If the government and, presumably its citizenry, feel strongly that nuclear power should continue to play a meaningful role in the national energy mix, let governments finance it. We think keeping up the pretense that this is really a genuine market-based solution does more harm than good. Governments finance so-called "public goods" like bridges, airports, highways and tunnels all the time. We suggest treating nuclear plant construction the same way. Acknowledge its high-cost relative to alternatives but admit that it's necessary as a matter of national security. We need it to be "safer" economically. That is really the argument in a nutshell. Related: Algeria Plans To Boost Oil Output By 30%
The low carbon "wrapper" now draped around nuclear power is, to us, while true, a distraction. Nuclear power, since the end of the second world war, has been like Woody Allen's shape-shifting character, Zelig. It has continually "adapted" to fit changing policy needs. At the height of the Cold War President Eisenhower advocated "Atoms for Peace". When we were worried about rising oil costs and Arab oil embargoes (1970s), nuclear was supposed to provide the U.S. with energy independence. Not to mention earlier claims about it being "too cheap to meter". Now that it's very expensive, and we're concerned about large stockpiles of nuclear waste, small (and supposedly cheaper) modular reactors are the answer.
There is a precedent here. President Trump, desiring to expand the nation's nuclear power generating capacity, could, like a modern day Franklin Roosevelt, expand the role of, for example, the Tennessee Valley Authority. This government entity already has considerable nuclear expertise derived from building, owning and operating these facilities. And socializing the relatively high costs of new nuclear power plants across the entire electorate should make the incremental cost burden fairly manageable.
Nuclear energy occupies an odd role at the intersection of national security and economic and energy policy. We think it would be much easier and straightforward for a President Trump to say, "Yes it's expensive but we need it to keep us safe". At least then the terms of debate would be clear.
By Leonard Hyman and Bill Tilles
More Top Reads From Oilprice.com:
Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and… More
Comments
As to nuclear, it is remarkable the Obama administration has not figured out how to keep these plans from closing as they are being replaced by less expensive to run NATURAL GAS plants.
So where is his supposed commitment to lowering fossil fuel consumption, lowering the carbon footprint.
Oh, I get it, that was last month's speech - Now the ADD president is off to his next venture.
The guy has the attention spa of a gnat.
Nuclear power is different, as different as fusion of an atom is from a molecular chemical reaction. The proper term is nuclear energy, not power. Nuclear power is best illustrated by an atomic bomb, a rapid release of energy. Our conundrum was framed by a warrior responsible for the conquest of Western Europe. President Eisenhower said man will either learn to use this energy for peace or it will annihilate us. He invented Atoms for Peace. The cost of a nuclear power (energy) plant is totally controlled by the government. It can be cheap or expensive, there is little market competition. President Eisenhower decided a basic design - cost decision. Put the reactor inside a containment building, a very expensive approach. Others did not; their designs are cheaper and less safe.
Nuclear energy is expensive due to litigation and licensing conflicts which bedevil those who attempt to hold a cost or schedule firm. Eliminate the lawyers and regulators and nukes would be cheap.
The back end of the fuel cycle, after the fuel is used in the reactor, has gutted the economics of nuclear energy. What do we do with the spent fuel? We can bury it in a grave, Yucca Mountain, or we can "grind it up and reuse it", reprocessing. (The spent fuel has 95% of its latent energy remaining after it is pulled from the reactor. Only its container metals are spent, lost ductility, etc.) The nuclear grave and reprocessing is common in other nations but the US government has fouled this up economically.
The organizational division among the nuclear technologies was made generations ago. Some do not like it and continually raise the cost via litigation while crying "Too expensive! Unsafe!" The future of civilian nuclear energy will be defined off shore. America killed it; others did not.
The fossil industries are mature. Their cost structures are well known; fracking (robotics) redefined the US costs for crude and natural gas.
The green energies can not compete for base loaded supply; they will find niche markets, e.g. off grid. Their argument is ill defined costs over ill defined time, e.g. cancer, climate change. Without a huge penalty against fire, green energy is too costly for common use.
CFD would be "revenue-neutral" since the proceeds of the carbon fee would be rebated monthly to the citizenry in equal proportions. And the fee would apply to carbon extracted or imported, not directly to emissions.
And this is MUCH better than any "carbon credit" trading scheme, since the financial markets won't be involved. Why aren't the Democrats all over this?
However, a fair implementation of this carbon abatement scheme would require that the CPP be abandoned and that all wind/solar ITC and PTC's be phased out. Indeed all energy subsidies would need to cease. The point is that once all energy sources are on a level playing field with all externalities accounted for, a true optimal mix of sources should emerge. It's fairly simple economics.
The fact is that each nuclear power plant emits huge amounts of Radioactive Carbon 14 which is converted to CO2 in the atmosphere.
Repeat: Nuclear Energy = Radioactive Carbon14 = CO2 = huge carbon emissions
Each nuclear power plant also emits massive amounts of dangerous radiation during normal operations.
This radiation flows downwind, landing in the water and on land, and is linked to cancers, leukemia, heart disease, etc.
This radiation lasts from decades to hundreds of thousands of years, all that time polluting the environment and causing health damage if you are exposed to it.
Nuclear energy is a lose/lose proposition.
Eliminate the nuclear power and that leaves opportunity to profit from generating power from generating power with gas at times the price hits several times the best price for nuclear, and do so with 1% the capital tied up.
Nuclear power plant emits far less radioactivity than coal fired one, because it is closed, all radioactivity stay inside, whereas coal contains small amount of uranium which gets out with smoke and ash.
The only nuclear power plant ever which emitted carbon was in Tschernobyl, and that only because it was moderated by carbon blocks and blew up :-)