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(originally published by Booz & Company)


Overcoming Nuclear Power’s Biggest Hurdle

A cap and trade system for storing radioactive waste may be the best means to wake up a critical but moribund industry.

The Obama administration is counting on nuclear power to be “an important factor in getting us to a low-carbon future,” says Energy Secretary Steven Chu. But that statement, so direct and clear in the abstract, does little to address the biggest problem plaguing the nuclear industry: What’s to be done with the radioactive spent fuel rods that these plants produce as waste? In other words, by opting for nuclear energy, which represents a carbon-free alternative to coal-firing and oil-burning utilities, are we trading one potential environmental disaster for another?

Nuclear power supporters had long hoped that the solution to the nuclear waste problem could be found in a storage facility hollowed out of Yucca Mountain, deep in the Nevada desert roughly 80 miles north of Las Vegas. But questions about Yucca’s long-term ability to keep radioactivity from leeching into groundwater energized nuclear opponents, as well as nearby residents and Nevada political leaders. Soon after taking office, President Obama defunded the project.

Pending another solution, the roughly 60,000 tons of nuclear fuel waste currently in the U.S. is stored on-site at nuclear plants, either in subsurface canisters or in secure “ponds” filled with boric acid. If this approach continues much longer, it could cost Washington a lot of money: Utilities have successfully sued the federal government for failing to provide a permanent storage solution after they ponied up roughly US$30 billion in fees paid over several years to fund the Yucca project.

Indeed, untangling the nuclear waste problem may be more a matter of economics than of location. As of now, states have no real financial incentive to collect and store spent nuclear fuel, and doing so has serious downsides, including expensive environmental litigation and other unwelcome possibilities. But states’ resistance could ease if the U.S. adopted an intriguing option: a price-to-store system — nuclear waste’s version of cap and trade. That would not only address the storage problem, but also provide a new business opportunity by creating a market for long-term storage sites and nuclear waste reprocessing.

Under the price-to-store approach, utilities operating nuclear plants — currently, there are 104 reactors in 31 states, and 26 more reactors under consideration — would be compelled to buy spent-fuel vouchers with the annual environmental impact fees they pay each year to federal regulators; these fees now total close to $800 million a year. The vouchers would then be given to states operating federally regulated, long-term waste disposal sites; in turn, the states could redeem the vouchers for federal dollars.

Although most states might initially reject the idea of having nuclear waste within their borders, the participation of only a handful of states would be required to develop a market. And in reasonably short order, the price to store nuclear waste could become even attractive enough to make Nevada think twice about its not-in-my-backyard response to Yucca.

This idea is akin to the cap and trade systems that govern carbon emissions and pollutants in some parts of the world and are at the heart of the Obama administration’s strategy for reducing greenhouse gases in the United States. In typical cap and trade schemes, governing bodies issue allowances to industry to generate a certain amount of a pollutant, with significant penalties if companies go above the ceiling. Companies can choose whether to use the full amount of the allowances or come in below the cap and sell the remaining allotments to another polluter.

In the U.S., emissions of sulfur dioxide, a major cause of acid rain, were cut in half after a cap and trade system was introduced in 1990. The European Union has imposed a similar program for greenhouse gases but it has not yet worked quite as hoped, in part because the E.U. has devalued its pollution vouchers by issuing too many. Also, the value of vouchers has tended to swing wildly with fluctuations in the overall economy.

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  1. A. Denny Ellerman and Paul L. Joskow, “The European Union’s Emissions Trading System in Perspective” (PDF), Pew Center on Global Climate Change, May 2008: A critical analysis of the European Union’s cap and trade program to reduce carbon emissions.
  2. Peter Fairley, “Nuclear Wasteland,” IEEE Spectrum, February 2007: An examination of nuclear waste recycling programs through the lens of reprocessing activities in France.
  3. Energy Information Administration Web site: Department of Energy statistics and forecasts related to the global nuclear power industry and energy production from nuclear reactors.
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