Friends of the Earth: Billions of Dollars in Tax Breaks for Each New Reactor Under Kerry-Lieberman Wipe Out Risk for Utilities Already Benefiting From Massive Loan Guarantees
Earth Track Analysis Finds That Just Two of the Subsidies Add Another $1.3 Billion to $3 Billion in Tax Breaks Per Reactor; May Make It More Likely Taxpayers Will Face Downside Risk.
Washington, June 17 /PRNewswire-USNewswire/ — 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/.
ABOUT THE GROUPS
Friends of the Earth and its network of grassroots groups in 77 countries defends the environment and champions a more healthy and just world. The organization’s progressive environmental advocates pull no punches and speak sometimes uncomfortable truths to power. It’s an approach that for four decades has yielded victories protecting the planet and its people. Current campaigns focus on clean energy and solutions to global warming, protecting people from toxic and new, potentially harmful technologies, and promoting smarter, low-pollution transportation alternatives. For more information, go to http://www.foe.org.
Doug Koplow founded Earth Track (http://www.earthtrack.net) in 1999 to more effectively integrate information on energy subsidies. For the past two decades, Koplow has written extensively on natural resource subsidies for organizations such as the Global Subsidies Initiative, the National Commission on Energy Policy, the Organization for Economic Cooperation and Development, the United Nations Environment Programme (UNEP), Greenpeace, the Alliance to Save Energy, and the US Environmental Protection Agency. He has analyzed scores of government programs and made important developments in subsidy valuation techniques. Koplow holds an MBA from the Harvard Graduate School of Business Administration and a BA in economics from Wesleyan University. He served on the United Nations Environment Programme’s Working Group on Economic Instruments from 2001-2004; and the National Recycling Coalition’s Policy Workgroup from 1998-2003. He is currently serving as an advisor to the Pew Center’s Subsidyscope initiative. Prior to founding Earth Track, Koplow worked with Industrial Economics (Cambridge, MA); Temple, Barker and Sloane (Washington, DC); and Sobotka and Company (Washington, DC).
SOURCE Friends of the Earth, Washington, D.C.