Killing nuclear energy subsidies in the new tax bill only serves to undermine the fight to arrest climate change.
President Trump spent much of the day yesterday on Capitol Hill trying to round up the near unanimous Republican support he will need to pass the tax-and-spending package he had dubbed the “big beautiful bill.” Assembling the bill has, of necessity, involved rounding up a lot of savings by ending tax subsidies for some things to pay for other tax cuts. One of the areas which got hit hard was the clean energy subsidies held over from the Biden era under the Inflation Reduction Act – including rescinding the support intended to encourage the construction of new nuclear power generation capacity and the development of advanced reactor technologies.
Trump’s new Secretary of Energy Chris Wright made headlines at his confirmation hearings in January and again in his keynote speech at the CERAWeek conference in March by aligning himself with “climate realism.” While there are other definitions of the term which differ somewhat, the ideas that Wright has articulated acknowledge that climate change is a problem, but also emphasizes the tradeoffs inherent in non-fossil fuel energy sources, the global problem of energy poverty, and also prominently endorses the benefits of alternative zero-carbon energy sources like geothermal and nuclear, as opposed to intermittent renewables like solar and wind. Wright’s personal background includes graduate study related to nuclear fusion.
Some advocates of climate realism like Varun Sirvaram, a Senior Fellow at the Council on Foreign Relations, also highlight nuclear energy as a potential industry where the United States can acquire a competitive advantage and export cutting-edge technology once it’s developed. This is in sharp contrast to solar and wind, where China already has developed an overwhelming commercial dominance that is unlikely to be overcome.
While the tax law provisions that are due to be rolled back in the draft bill are highly complex, they relate both to encouraging the continued operation of existing facilities and restarts of recently-shuttered plants, as well as the development of advanced nuclear technologies in order to foster growth in the nuclear industry and the development of U.S. technological leadership. The tax credits could also incentivize the use of advanced nuclear reactors as part of the decarbonization of existing large industrial plants, such as Dow Chemical’s proposal to replace gas-fired steam and electricity production at a plant in Texas with an advanced nuclear reactors.
If the bill passes in its current form, it could reasonably be expected to severely undermine the prospects for any significant growth in the United States’ nuclear generating capacity, and stifle the development of advanced reactors in the country.
As anyone familiar with the economics of nuclear power knows, every country with a large and successful nuclear power industry has had a policy of government support that has been stable over time despite changes in political leadership. France and South Korea, for example, have both had solid policy support for nuclear energy even as different political parties have held the reins. In Germany, by contrast, when the Green Party was able to undermine the nuclear power industry and mandate a phaseout, that policy stuck even after the coalition government which had enacted it left office.
The need for public support stems from the unique economics of nuclear energy: massive upfront costs (though lower fuel costs during operation), construction lead-times of a decade or more, technology risks, and the political risk if the winds shift against nuclear development somehow. These risks mean that banks and other traditional lenders are not willing to fund the projects or, if they were, would charge interest rates that would be prohibitively high, given the long lead-times. Only governmental support can smooth out these obstacles, and the benefits of doing so are clear.
There is hope, though, that the provisions ending the tax credits may not end up being enacted. The current legislation was driven more by the need to round up every last dollar of “pay fors” rather than a careful cost-benefit analysis of every provision. It also needs to have near-unanimous support from Republicans in the House, given the thin majority they hold and the lack of substantial support from Democrats.
Also, a group of Republicans who support retaining at least some of the Inflation Reduction Act’s tax credit provisions has coalesced and garnered fourteen supporters, according to their most recent letter. The math implies that some of those votes will be needed for passage, though bucking Trump on this is clearly difficult for a lot of Republican members.
About the Author: Greg Priddy
Greg Priddy is a Senior Fellow at the Center for the National Interest and does consulting work related to political risk for the energy sector and financial clients. Previously, he was director of global oil at Eurasia Group and worked at the U.S. Department of Energy.
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