At first glance, America’s civil nuclear industry looks healthy. America is by far the world’s largest producer of nuclear power with 104 commercial reactors, accounting for 25 percent of global installed nuclear capacity.
In 2011, our civil nuclear fleet generated almost twice the nuclear power of second-place France and 439 times more than the Chinese nuclear sector. Unfortunately, these numbers reflect a mirage of global dominance and competitiveness – and nothing more.
In reality, America’s nuclear energy industry is in rapid decline relative to its foreign competitors. With the aging of our civil nuclear fleet and the lack of new builds, America’s nuclear program has sharply contracted over the last few decades. In the 1980s, for example, 100 percent of equipment for U.S. nuclear plants was manufactured in America, compared to less than 25 percent today. Moreover, the U.S. share of global nuclear exports decreased significantly between 1994 and 2008, according to a U.S. government report. Specifically, the U.S. share of sensitive nuclear material exports declined from roughly 30 to 10 percent, and the country’s share of exports of nuclear reactors, major components, and equipment dropped from 11 to 7 percent.
There are a number of reasons for the demise of the sector, but chief among them are financing hurdles and cheaper forms of electricity generation, as well as the failure to find a permanent repository for high-level nuclear waste. More recently, cheap shale gas has become a threat to the continued operation of existing reactors – not just a deterrent to new construction. Duke Energy’s recent decision to shut down its nuclear plant in Florida, instead of repairing it was largely due to the economic benefits of fuel switching to natural gas. And late last year, Dominion announced its intention to shut down its nuclear plant in Wisconsin – a move that was also blamed on the abundance of shale gas.
Although energy market observers understand why our civil nuclear program is suffering, most of them do not appreciate its impact on U.S. national security, specifically on our ability to shape the global non-proliferation regime. And likewise, many nuclear proliferation experts do not appreciate the fact that U.S. influence in managing proliferation issues is largely dependent on the health of our civil nuclear sector. Certainly, most fail to recognize the primary reason why America possessed the power to define the nuclear proliferation agenda in the first place – the dominant role held by U.S. companies in providing civil nuclear energy technology and services throughout the world.
Some free market leaders would argue that the American consumer would be better off buying foreign made nuclear technologies if those goods were developed reliably at a lower cost. However, nuclear technology is not the average widget or gadget on sale at Target or Best Buy. The production of fissile material, which can be used to make weapons, is inherently linked to civil nuclear energy programs because it is a by-product that cannot be avoided with light water reactors.
Unfortunately, many of our elected and senior officials mistakenly assume that America will always have a significant diplomatic ability to shape global non-proliferation issues. However, Washington’s power to ensure that other governments follow non-proliferation guidelines will fall rapidly if we become an insignificant player in providing related technology and services.
Even now, countries that are looking to build their own nuclear programs are turning less and less to Washington for guidance. Instead, they are engaging our foreign competitors, who benefit from extensive state subsidies and can offer turn-key services and fuel take-back programs. And if nuclear-armed countries wish to help others build bombs, they can take advantage of loopholes in the Non-Proliferation Treaty (NPT) by exporting nuclear technologies and services that allow a country to develop the capacity to do so.
A decline in the civil nuclear sector is also likely to negatively impact American military capabilities. Maintaining U.S. nuclear naval fleet preparedness with top recruits could become more difficult with fewer domestic commercial opportunities. The U.S. nuclear Navy is able to attract the best recruits with the prospect of significant civilian employment opportunities after they leave military service. And in turn, the success of the U.S. commercial nuclear power industry – in terms of operating efficiency, safety, and effectiveness – comes in part from the well-trained and disciplined personnel that are supplied by the U.S. nuclear Navy.
In contrast to America, Chinese nuclear energy capabilities have rapidly developed in recent years. From being widely viewed as a civil nuclear “backwater” only a decade ago, China is quickly becoming self-sufficient in reactor design and construction and other aspects of the fuel cycle. China has sixteen nuclear power reactors in operation and almost 30 under construction with additional reactors planned, according to the World Nuclear Association. With its ambitious program to develop its own civil nuclear capacity, China is poised to develop a world-class manufacturing production line for key nuclear components, as well as train a generation of skilled designers and engineers.
China lacks the regulatory environment found in America and other Western countries, which drastically lowers the cost of building reactors. According to Areva, for instance, the construction of a Western-designed reactor in China costs about $4 billion or 40 percent less than one in France and can be completed in 46 months, versus 71 months. This speed of deployment will help Beijing meet its goals of increasing the country’s nuclear capacity to 58 GWe by 2020, 200 GWe by 2030, and 400 GWe by 2050 (1 GWe is roughly equal to one nuclear reactor). In comparison, U.S. capacity is now roughly 100 GWe. Given current trends, China could account for at least one third of the world’s civil nuclear capacity by 2050 – possibly closer to half – while the U.S. share could shrink to no more than 10 percent.
This build out of China’s civil nuclear capabilities is likely to create a monopoly for China in exporting nuclear technologies and services. How Beijing would exploit this new found power remains to be seen. Pakistan, perhaps, provides the best recent example of how we should expect Beijing to play its cards on civil nuclear trade and geopolitics. Despite arguments that China’s plan to export nuclear reactors to Pakistan would be a violation of the spirit of its commitments under the Nuclear Suppliers Group (NSG), China has refused to shelve the deal or seek permission from the multinational body, asserting that the commerce was grandfathered by the bilateral pact with Islamabad. More likely, China feels compelled to use civil nuclear technology transfer as a means to help establish a regional balance in South Asia because of the NSG’s lifting of sanctions against its rival India.
If China were to decide in the future to use the same logic to check Israel’s nuclear weapons – say, by transferring related technology to Egypt – how could America stop Beijing if U.S. industry was no longer a player in the global marketplace? America would be forced to depend on bilateral diplomacy and coalition building with other non-providers – as well as working through existing multilateral institutions – to convince civil nuclear powers to support a “pro-American” or “status-quo” non-proliferation policy.
Unfortunately, Washington is unlikely to get a boost anytime soon from our private sector investing in a major build-out of the domestic nuclear fleet – the cost of constructing nuclear plants is far too prohibitive, particularly as long as the country benefits from cheap natural gas. In addition, fiscal constraints prevent the federal government from backing a large sovereign program that would fund such a deployment.
Lacking a domestic market for nuclear, America should turn to foreign markets that plan to build new nuclear. Taking advantage of the global marketplace would incent investment that would help maintain our technology and services capacity and could serve as a bridge until the U.S. market improves.
As part of that effort, our legislators and policymakers should aggressively promote U.S. exports of nuclear technology and services – including a more consistent, pragmatic approach to 123 Agreements, allowing our firms to compete successfully in the global marketplace. Furthermore, the federal government could play an important role in helping advance and deploy small modular reactors (SMR) in order to help U.S. firms develop a competitive advantage in that new technology.
Unquestionably, Washington should work to prevent Beijing from developing a monopoly over civil nuclear components and services. In the end, America should not risk placing the nuclear non-proliferation agenda in the hands of one country. As Friedrich Hayek wrote, “Our freedom of choice in a competitive society rests on the fact that, if one person refuses to satisfy our wishes, we can turn to another. But if we face a monopolist, we are at his mercy.”