Billions of New Nuke Giveaways in Kerry-Lieberman Bill Exposed

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Friends of the Earth

Billions of New Nuke Giveaways in Kerry-Lieberman Bill Exposed

Earth Track Analysis Finds That Just Two of the Subsidies Add Another $1.3 Billion to $3 Billion in Tax Breaks Per Reactor

by
Statement by Friends of the Earth (FOE)

The nuclear industry could end up facing no risk under massive tax break subsidies in the Kerry-Lieberman climate bill, according
to an important new analysis conducted for Friends of the Earth by the
research organization Earth Track. These tax breaks totaling $9.7
billion to $57.3 billion (depending on the type and number of reactors)
would come on top of the Kerry-Lieberman measure’s lucrative $35.5
billion addition to the more than $22.5 billion in loan guarantees
already slated for nuclear power.

Friends of the Earth President Erich Pica said:  “Doling
out an additional $1.3-$3 billion in tax breaks per new reactor means
the industry would be at the table playing almost entirely with
taxpayer money. Industry will have little to lose when a reactor goes
belly up. While taxpayers
are bankrolling the industry’s nuclear gamble they would share in none
of the reactor’s financial returns.  In fact, all taxpayers will
receive if the reactors are built is responsibility for disposing of
the waste.  By contrast, investors stand to make billions with no risk
should their reactor gambit goes belly up and enter bankruptcy.”

Earth Track Founder Doug Koplow said:   “These
substantial tax breaks for new reactors greatly impede market access
for competing energy sources and worsen the already substantial risks
to taxpayers from a nuclear build-out. As has clearly been shown in
U.S. mortgage markets, the likelihood of bad financial decisions rises
sharply if only other people’s capital is at risk. Kerry-Lieberman’s
nuclear tax breaks do just this by replacing investor equity with
taxpayer money, and allowing investment tax credits to be claimed even
before the reactor is operating. The provision to recover credits in
the event a reactor is cancelled or suspended is unlikely to be
effective in the most likely cause of termination – a bankruptcy due to
poor economics.”

The memo
evaluates three tax break subsidies, describing how they work and
estimating their subsidy value to recipients in the nuclear power
sector:

  • 5-year accelerated depreciation period for new nuclear power plants (Kerry-Lieberman section 1121).
  • Investment
    tax credit (ITC) for nuclear power facilities (K-L section 1122) and
    the related grants for qualified nuclear power facility expenditures in
    lieu of tax credits (K-L section 1126).
  • Modification of credit for production from advanced nuclear power facilities (K-L section 1124). 

According to the Earth Track analysis: 

  • The K-L tax breaks would be worth billions per reactor. The
    new subsidies will be worth between $1.3 billion and nearly $3.0
    billion on a net present value per new reactor. This is equivalent to
    between 15 and 20 percent of the total all-in cost of the reactors, as
    projected by industry.In fact, the new nuclear tax break subsidies
    would be worth 15 to more than 50 percent of the expected market value
    of power the plants will produce. This is over and above the many other subsidies the nuclear projects would already receive.
  • The new K-L tax breaks will undermine equity requirements of the nuclear loan guarantee program. In
    theory, the current rules require investors to hold a 20 percent equity
    stake in the new project. A key goal of this requirement is to ensure
    investors have a strong interest in the long-term success of the
    venture. However, the K-L bill would in effect allow investors to
    recover funds equal to this equity share within the first few years of
    plant operation. Financial risks from project failure would then rest
    almost entirely with taxpayers. 
  • Total tax subsidies to new reactors could reach tens of billions of dollars from K-L's two main tax breaks alone. The
    national cost of K-L's tax provisions can be benchmarked by evaluating
    two build-out scenarios: six reactors, matching the number likely to be
    supported under K-L's expanded nuclear loan guarantee pool; and 22
    reactors, matching the number going through NRC licensing as of May
    2010. As not all reactors will be the same type, the calculations
    assume half are AP1000s and half Areva EPRs. Under a six-reactor
    scenario, K-L will add $9.7 billion to $15.6 billion in tax subsidies
    to nuclear power. Under a 22-reactor scenario, the net present value of
    subsidies on offer just through 5-year depreciation and ITCs reaches
    $35.7 billion to $57.3 billion. Neither of these other subsidies have
    any national caps under Kerry-Lieberman.

The full Earth Track analysis is available online at http://www.foe.org/more-kerry-lieberman-nuclear-subsidies/.

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