Would A Nuclear Calamity In The U.S. Require A Billion Dollar Taxpayer Bailout? (Yes.)

03/15/2011 03:15 pm ET | Updated May 25, 2011

With all eyes and hopeful prayers focused on the unfolding calamity at Japan's Fukushima Daiichi nuclear plant, there's been a significant uptick in attention to our own domestic nuclear power industry, with its attendant benefits and concerns. One thing you might be wondering at this point is the extent to which a similar accident in the United States would affect taxpayers -- that is, how big a bill should you expect to receive?

Hm. Well, does the nuclear power industry control assets that could potentially wreak widespread environmental harm and put public health at risk? And is it, like many other energy concerns (see: the mining industry) chronically underregulated? And in America, is it the preference of elites that societal risk be entirely socialized? I think you see where I'm going with this: straight to the National Journal's Jim Tankersley:

Federal law puts most nuclear-accident liability on the shoulders of taxpayers, but regulators have not enforced safety standards vigorously enough to fully safeguard against those risks, economists Geoffrey Heal and Howard Kunreuther wrote in a 2009 paper that warned of excessive taxpayer exposure to the risks of nuclear catastrophe.

That is perhaps one of the most versatile paragraphs ever written. It's practically a mad lib: you can swap out "nuclear accident" with "deepwater drilling catastrophe" or "complete meltdown of the financial industry" and just make some modest plug-and-play tweaks to the rest of the body.

As Tankersley points out, the relevant law that you'll want to be familiar with is the Price-Anderson Nuclear Industries Indemnity Act, which "limits private liability for those costs to $375 million for an individual company, plus $12.6 billion from an industry liability pool." It was challenged in court in 1978 in the case of Duke Power Co. v. Carolina Environmental Study Group, on the grounds that it did not provide adequate compensation for damages and that it wrongly treated a nuclear accident as distinct from other environmental accidents.

The Supreme Court didn't see things that way, and ruled that "the congressional decision to fix a $560 million ceiling is within permissible limits and not violative of due process," and that "the general rationality of the Act's liability limitation, particularly with reference to the congressional purpose of encouraging private participation in the exploitation of nuclear energy, is ample justification for the difference in treatment between those injured in nuclear accidents and those whose injuries are derived from other causes."

In short, the lower legal barrier was intended as an incentive to get private industry deeply involved in running the industry. In 2004, Public Citizen said that the Price-Anderson Act amounted to a "Billion Dollar Bailout for Nuclear Power Mishaps." (This was four years before "billion dollar bailouts" became, you know, the normative response to everything.)

The Price-Anderson Act bestows a twofold subsidy on the nuclear industry. First, the Act artificially limits the amount of primary insurance that nuclear operators must carry - an uncalculated indirect subsidy in terms of insurance premiums that they don't have to pay. This distorts electricity markets by masking nuclear power's unique safety and security risks, granting nuclear power an unfair and undesirable competitive advantage over safer energy alternatives. Second, Price-Anderson caps the liability of nuclear operators in the event of a serious accident or attack, leaving taxpayers on the hook for most of the damages. This makes capital investment in the nuclear industry more attractive to investors because their risk is minimized and fixed.

Consequently, the Act is a dual-edge sword for the public that it purportedly protects. The legislation was intended first of all to bolster investor confidence, whereas victim compensation is secondary. Price-Anderson establishes only phantom insurance for the public, then provides a real bailout mechanism for the nuclear energy industry by reducing its need to pay for insurance, subsidizing the industry at the taxpayers' expense.

If proposed new reactors are as safe and economical as the nuclear industry claims, the industry should be able to privately insure these ventures without an extension of the Price-Anderson crutch. When Congress first enacted Price-Anderson in 1957, it was designed to be a temporary measure to prop up an infant industry. After nearly five decades and billions in hand-outs, it is impossible to justify extending subsidies like the Price-Anderson Act.

By the way, any fans of moral hazard out there? Per Tankersley: "That transfer of liability creates conditions for moral hazard - an incentive for a electric utility, in this case, to take on too much risk because the utility would not bear the full costs of a catastrophic event."

The good news, I guess, is that since the 1978 Supreme Court decision that upheld Price-Anderson, the compensatory pool has risen to the "$375 million for an individual company, plus $12.6 billion from an industry liability pool" that Tankersley describes. Now, here's the bad news:

A meltdown at the Indian Point nuclear-power station 25 miles north of New York City, they write, could eventually kill some 64,000 people - damage that they calculate at $384 billion - and inflict $50 billion to $100 billion in economic costs.

So, yeah, that leaves a gap of several hundred billion dollars for which taxpayers would be on the hook. Still, compared to the money spent bailing out the financial industry, this is a steal -- though the financial collapse of 2008 did have the added public benefit of not infecting thousands of innocent people with deadly radiation-based cancers.

Taxpayer Meltdown? [National Journal]

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