The Independent View: Nuclear subsidies – no thanks!

On Tuesday night in the House of Commons, the nuclear industry moved a significant step closer to getting their hands on an extra £1.3 billion of public money, courtesy of a coalition Government that promised no subsidy for nuclear power.

A Labour attempt to claw the money back through a windfall tax failed. And although this was supported by environmentally-minded Conservative MP, Zac Goldsmith, not a single Liberal Democrat MP gave their backing.

Admittedly there were notable abstentions. Sixteen Liberal Democrat MPs did not troop through the Government lobby to block the Labour proposal – including, intriguingly, Danny Alexander.

The issue is the introduction of a UK Carbon Floor Price.

In order to tackle climate change, major polluters are required to buy permits for all the carbon they emit, through the EU Emissions Trading Scheme. The idea behind the scheme is that this will encourage polluters to invest in cleaner energy and technology.

However, the scheme has been undermined in recent years because the price of carbon has fallen so low that it’s far cheaper to pay for the carbon permits than to invest in cleaner factories and power stations. The Carbon Floor Price aims to tackle this by setting a minimum price for carbon permits.

But this will have other consequences too.

Most of the electricity we use is generated from gas, and it’s largely the cost of gas-fired power that sets the wholesale price of electricity. This means that if the cost of running gas-fired energy goes up, so does the wholesale price of electricity. If you own a nuclear power station this means you can match this higher price, but unlike the gas-fired station, you don’t have to pay any extra costs to generate it.

The result is a windfall of over £1 billion for the owners of Britain’s nuclear power stations, paid for by consumers already struggling with huge hikes in their fuel bills.

Clearly we need investment in new electricity generating capacity, and the public will have to fund this in one way or another. And, while Friends of the Earth doesn’t agree with it, we also appreciate that some people think new nuclear power is essential to meet UK climate change targets and keep the lights on.

But even the most ardent supporter of new nuclear stations must surely ask why such a big subsidy should be handed to operators of existing power stations – without any requirement to build new ones. The lucky winners can invest the extra profit in new fossil fuel power stations that do nothing to meet our environmental goals – or simply give the extra cash away as dividends to shareholders and bigger bonuses for senior staff.

Friends of the Earth’s view isn’t driven by our scepticism over nuclear power – we don’t think existing wind farms deserve the windfall payments either. If we have to extract more money from consumers, the very least we can do is spend it on bringing new energy capacity online or reducing demand – not waste it inflating the profits of old power plants.

For that reason we backed a windfall tax to allow the money to be used to develop new renewable generation – or a comprehensive programme to stop homes leaking heat and wasting fuel bills, with particular focus given to the most vulnerable members of society.

This is broadly what was proposed in Tuesday’s debate, and is completely in line with the Liberal Democrat policy to “ensure that any changes to the carbon price do not result in windfall benefits to the operators of existing nuclear power stations”. And this makes it doubly disappointing that the party didn’t show more courage on this issue.

This will not be the last Budget before the carbon floor price begins, so a windfall tax can still be introduced. But Liberal Democrat MPs will have to be more muscular if they’re not to break their “no nuclear subsidy” promise with a windfall payment that doesn’t even make sense to nuclear enthusiasts.

Martyn Williams is senior parliamentary campaigner at Friends of the Earth.

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23 Comments

  • JustAnotherVoter 7th Jul '11 - 2:13pm

    So the incidence of a higher tax on gas generation will fall entirely on the consumer in the form of prices?

    And the incidence of a higher tax on nuclear generation will fall entirely on shareholders in the form of lower profits?

    Really? Both of those things?

  • Martyn Williams 7th Jul '11 - 2:34pm

    @JustAnotherVoter

    The carbon floor price will impose costs on gas generators – and yes I am suggesting consumers will end up paying this through bills.

    The CFP will not impose costs on nuclear generators but will boost their profits (according to the Treasury). No one knows where these additional profits will go, but there are no conditions that require them to be invested in low carbon generation, or demand reduction.

    You call a windfall tax on nuclear a “higher tax” because you ignore the effect of the increased profits resulting from the CFP introduction. If the combination of both leave nuclear companies with no increase in costs or profits, there is nothing to fall on anyone.

  • LondonLiberal 7th Jul '11 - 3:56pm

    this is incredible. why on earth did chris huhne not support his own party’s policy? he should be dragged here to LDV to explain himself. or maybe he didn’t get the point of the policy, or even asked someone else to take the point for him…

  • Martyn Williams 7th Jul '11 - 6:02pm

    Chris

    I have tried to explain that above – but to recap, the additional tax on the fossil fuel will increase the price that nuclear power stations can sell their electricty for, but will not add to their costs.

    As an analogy, if I was an taxi-driver with an electric car, while 80-90% of taxi drivers owned petrol ones, something that put up petrol prices would lead to taxi fares going up. Because I could increased my fares, but did not need to buy petrol, this would give me a windfall profit.

    But let me stress – this is not based on some spurious Friends of the Earth dreamy thinking, it comes direct from HM Treasury who answered a question from Martin Horwood MP asking what the windfall to the nuclear industry would be. And even before that Liberal Democrats had already recognised the risk when they passed their policy which I linked to above.

    And as for whether any tax-payers money will go to the nuclear industry as a result of this – no, not from their tax bill. However if they also pay an electricity bill, they will contribute. If your argument is something is only a subsidy if it comes from the public via a tax, but not a subsidy if it comes from the public via a Government measure putting up their energy bills, then I disagree with you.

    We are not against carbon taxes or emissions markets per se – we are against ones that break Coalition agreements not to subsidise nuclear power.

  • Except – and I’m quite surprised that you haven’t mentioned this Martyn – there will be a direct subsidy for nuclear power. The Government plans to bring in a low-carbon feed-in-tariff for all low-carbon technologies, which includes nuclear. It’s all there in the plans to reform the electricity market:

    http://www.decc.gov.uk/assets/decc/Consultations/emr/1041-electricity-market-reform-condoc.pdf

  • @Chris Jenkinson – ” and therefore to my mind this is perfectly consistent with our policy.”

    If you went to the trouble to read the article you would see that this IS party policy, decided at Conference 2010: “ensure that any changes to the carbon price do not result in windfall benefits to the operators of existing nuclear power stations”

    Can’t get much more specific a policy than that, and made when IN Coalition. What happened this week was shameful. Whether or not you agree that it’s a subsidy, it’s blatantly a waste of scarce resources. This money should be recouped, recycled into the Green Investment Bank and driven into energy efficiency programmes to help the fuel poor…. or would you rather see it in the pockets of EDF shareholders and execs? I’m pretty sure what most LD voters would say to that!

  • Sorry Chris, meant @ Andy Hinton.

  • Martyn Williams 8th Jul '11 - 1:59am

    Quick late night round up after watching all NotW stuff with an open mouth all evening…

    @Andy – LibDem policy clearly says that exisitng nuclear power stations should not enjoy a windfall as a result of the carbon floor price. The Treasury says it will. Perhaps you could explain how those two things are in line with each other? And no one is suggesting nuclear should be treated worse – my piece says clearly existing windfarms should not get a windfall either.

    @anonymous – something for another blog perhaps…as are the attempts in the Energy Bill to transfer risks of dealing with waste/decomissioning away from nuclear companies and onto taxpayers, as covered here

    http://www.guardian.co.uk/environment/2011/apr/04/loophole-energy-bill-nuclear

    @jedi – this is not complex legislation or a sophisticated regulatory regime. A carbon floor price will tilt the playing field slightly further away from investment in fossil fuel generation and slightly towards both nuclear and renewables. But if it also hands the public’s money over to big companies with no benefits provided in return, then it is straightforward to claim it back and put it to better use.

    You know FOE’s view on nuclear, so I won’t rehearse them. But the crucial argument here is not that nuclear is wrong and renewables right, but that handing companies money for things that already exist is wrong, whereas handing money over to build the new capacity we need would be right.

  • And, of course, unless I am much mistaken, Lib Dem party policy (as distinct from the coalition agreement) is still in favour of phasing out existing nuclear power and not commissioning new, which I imagine brings it pretty close to FoE policy. Incidentally, there was a letter to the Grauniad from a long term LD, Steve Griffiths in Witney, yesterday, indicating he is resigning from the party over too many compromises over environmental issues. This is the sort of thing which has happened over recent years, and which we can well do without.

  • I agree with the overall thrust of Martyn’s article, and with his take on what constitutes a subsidy.

    I think that we should reward operators of low/zero carbon generation capacity, however what needs to be managed is both the size of any such reward and for how long the reward should be available/have meaningful value. In this context, OFGEM potentially has a role. Hence whilst I share his outrage over a backdoor subsidy to the nuclear industry, I do not think that a windfall tax is the best way to close it.

    I think energy production waste handling and plant decommissioning needs to be factored in to both the energy cost and reward calculations, for both nuclear and non-nuclear (eg. wind farm). For nuclear plants I suggest we implement a radioactive waste permit system, with a floor price set at a level that would cover disposal costs. but then I agree with Martyn, these are topics deserving their own blog discussion.

  • Nuclear energy is in a sorry sorry state right now, we are all stuck with very old and dangerous tech mainly the infamous LWB. There are infact many different types of promising reactor that have been proven to work and do they’re job better than current LWB or HWB, the most promising of these technologies is almost as old as LWB’s themselves and its known as the LFTR (liquid fluoride thorium reactor). Discovered by the creator of LWB he said so himself we should switch to this technology asap in case of an eventual meltdown from a LWB (look how that turned out) despite being far cheaper over 90 times more efficient powered by something 5000 times more abundant than gold and 3 times more abundant that uranium with only 1% waste material the reactor was shot down because of our quest for nuclear weapons which thorium simply cannot be used for. LFTR’s are not only far cheaper than our reactors today they have a 100% fail safe (you heard right) encase of an emergency which will not fail like the many backup systems most LWB reactors have today (although they have tiny chances of failing look what happened in fukushima!). Although these reactors sound like nuclear energy perfected into something perfect for the modern world we hear very very little about them despite LFTRs being built and maintained for several years during the 60’s and 70’s and why is this? Its because of massive public opposition against nuclear power governments around the world have been extremely cautious about subsidizing anything nuclear related! So whilst we have been complaining about the indeed terrible current state of nuclear we have also held back its progress to superior reactors that are not only cheaper, cleaner and far more efficient they are most doubtably something we certainly need to help solve the strain of our current energy crisis.

    Please watch the following videos about LFTRs where you can find many more advantages when compared to common reactors and in depth explanations as to how they function

    http://www.youtube.com/watch?v=6-uxvSVIGtU
    http://www.youtube.com/watch?v=D3rL08J7fDA
    http://www.youtube.com/watch?v=WWUeBSoEnRk
    http://www.youtube.com/watch?v=N2vzotsvvkw

    We really need to get rid of these horribly inefficient wasteful reactors that we have today and begin massive funding of clean safe nuclear in the form of LFTRs.

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