[Heritage Foundation rejects loan guarantees! et]

Nuclear Energy Renaissance: Global Supply Chain Critical

June 19, 2009 The Heritage Foundation
by <http://www.heritage.org/about/staff/JackSpencer.cfm>Jack Spencer
and <http://www.heritage.org/about/staff/DaniellaMarkheim.cfm>Daniella Markheim
WebMemo #2495

After years of policy wrangling and bureaucratic delays, the
Department of Energy (DOE) has identified the four companies approved
to receive federally backed loan guarantees to help finance the
construction of new nuclear reactors in the U.S. All of the
recipients have one thing in common: strong international
connections. With protectionist sentiment on the rise, the DOE should
be commended for recognizing the critical role that the global
nuclear industrial base must play in reestablishing the U.S. nuclear industry.

Access to Global Supply Chains Critical to U.S. Nuclear Renaissance

America's first orders for nuclear power plants will depend on global
supply chains and free trade. Any tariff or regulatory barriers to
trade in nuclear components drive up the costs associated with
building new reactors. Given the already high capital costs inherent
to nuclear power, protectionism could inflate the cost of new
projects enough to stop the nuclear renaissance before it begins.

Thus, ensuring access to global goods and services is critical to
reinvigorating nuclear energy in the U.S. and the domestic nuclear
industrial base. The U.S. currently lacks the industrial capacity to
support a substantial expansion of domestic nuclear power; however,
as new orders for reactors increase, incentives for investors to
rebuild production facilities in the U.S. will rise. New U.S. and
world demand for nuclear components will give a healthy boost to the
financial outlook for the industry, attracting the significant
investments necessary to expand international capacity and provide
the impetus to start rebuilding America's commercial nuclear
industrial capacity.

Rebuilding America's Nuclear Industrial Base

While the U.S. commercial reactor business faded decades ago, the
U.S. did not abandon the nuclear sector altogether. Instead of
building new plants, the U.S. commercial nuclear industry turned to
making its existing plants run more efficiently and safer. So while
other countries may lead in new plant construction, America excels in
operating them.

Moreover, the United States remains a leader in researching and
developing nuclear technologies. America's vast national laboratory
system and private sector expertise provides the resources and a
scientific foundation for the U.S. to again compete as a global
leader in the commercial nuclear world.

Moreover, while building commercial reactors in the U.S. stopped,
building reactors altogether did not. As commercial construction
waned, the nuclear components industry consolidated to meet
government demand for nuclear aircraft carriers and submarines, as
well as other federal requirements. These companies are now
reengaging in the commercial nuclear business and will likely be at
the forefront of a resurgent U.S. nuclear components industry.

Securing U.S. Access to International Markets

The U.S. should keep the momentum moving behind the growth of a
strong and efficient U.S. nuclear industry. America's policymakers
should keep U.S. markets open and encourage lower trade barriers
around the world. The DOE should be commended for recognizing the
important contribution that foreign companies will make in expanding
nuclear power in the U.S. Going forward, the Obama Administration should:
* Reject protectionist measures that restrict access to the
global supply chain. Trade measures including tariffs, quotas,
domestic preferences in procurement, and excessive regulation
increase costs, limit access to critical expertise, and undermine the
broad expansion of nuclear power in the U.S.
* Work to dismantle trade and investment barriers protecting
commercial nuclear industries in foreign markets. Much of the world's
industry is dominated by state-run--and state-subsidized--firms, and
trade restrictions are used to protect those firms as a general rule.
Yet the cost, safety, and competitive benefits of opening commercial
nuclear industries to the rigor of international trade are not for
the U.S. alone. Open markets would allow consumers everywhere to
benefit from lower power costs and safer technologies--and could
result in boosting demand for new capacity. Freer trade could fuel a
virtuous cycle of growth in the industry, allowing U.S. and other
firms a chance to contribute to a global expansion of nuclear power.
* Help move the Convention on Supplementary Compensation for
Nuclear Damage (CSC) forward. Many countries use the lack of
liability protection for U.S. companies as a means to protect their
domestic nuclear industry from U.S. competition. The CSC creates a
liability framework to manage international liability issues. Parties
to the convention operate under common liability rules for nuclear
activities. While the U.S. has ratified the convention, it has not
yet come into force because enough other countries have not ratified
it. Bringing the convention into force should be a top priority for
the Obama Administration.[1]
* Reject further loan guarantees (or their functional
equivalent). The original intent of the loan guarantee program was to
help mitigate the political and regulatory uncertainty associated
with being among the first companies to build new nuclear plants in
the U.S.[2] With these first projects now receiving the green light
to move forward, those uncertainties should be addressed as the
plants are constructed. Expanding the program at this point will be
counterproductive. It distorts capital markets, stifles competition,
encourages government dependence, and suppresses private-sector
financing solutions.[3]

Resist Protectionism

These reactors will be among the first new nuclear power plants
ordered and built in America in three decades. The DOE wisely
selected companies using different technologies and will operate in
both regulated and unregulated markets--a move that better enables
market forces, rather than government dictate, to determine the best
and most competitive way forward for the industry.

Having access to foreign reactor designers, utilities, component
manufactures, and financing ensures that America's nuclear
renaissance is safe and competitive and brings the best value to
consumers. U.S. policymakers should resist protectionist forces to
help bring about America's nuclear renaissance.

Jack Spencer is Research Fellow in Nuclear Energy in the Thomas A.
Roe Institute for Economic Policy Studies and Daniella Markheim is
Jay Van Andel Senior Trade Policy Analyst in the Center for
International Trade and Economics at The Heritage Foundation.


[1]Jack Spencer, "Congress Must Implement CSC Treaty to Reinvigorate
U.S. Nuclear Industry," Heritage Foundation WebMemo No. 1658, October
9, 2007, at
<http://www.heritage.org/Research/EnergyandEnvironment/wm1658.cfm>http://www.her\
itage.org/Research/EnergyandEnvironment/wm1658.cfm.

[2]Jack Spencer, "Competitive Nuclear Energy Investment: Avoiding
Past Policy Mistakes," Heritage Foundation Backgrounder No. 2086,
November 15, 2007, at
<http://www.heritage.org/Research/EnergyandEnvironment/bg2086.cfm>http://www.her\
itage.org/Research/EnergyandEnvironment/bg2086.cfm.

[3]Jack Spencer, "The Problem with Increasing Energy Loan
Guarantees," Heritage Foundation WebMemo No. 2277, February 6, 2009,
at
<http://www.heritage.org/Research/EnergyandEnvironment/wm2277.cfm>http://www.her\
itage.org/Research/EnergyandEnvironment/wm2277.cfm.






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