Nuclear generation is presently an indispensable component of an economically and environmentally sustainable grid. However, observers across the political spectrum agree the patchwork of federal and state statutes and rules undermines the operating nuclear fleet. Therefore, states have considered, and two have adopted, measures to preserve carbon emission reductions achieved to date, protect communities and defend the reliability, resiliency and fuel diversity attributes of the grid when nuclear generation is preserved.
The courts have sustained the legal authority of the states to take action to preserve existing nuclear stations. In July 2017, district courts in Illinois and New York rejected constitutional challenges to programs adopted by those states to protect their nuclear plants (hereinafter "the Illinois Order" and "the New York Order"), holding resoundingly that the programs are a valid exercise of the states’ authority to preserve the attributes of zero-emissions nuclear-powered electric generating facilities for the benefit of the electric system, its customers and the environment. Such policies are not only constitutional but, as discussed herein, wise for reasons of economics, environmental protection and the electric grid.
What is the future of our electricity supply? The sources of electric power will continue to be coal, nuclear, natural gas and renewable energy. However, with increased environmental concerns and greater supplies of natural gas and renewable energy, the nation has begun to shift to a lower carbon generation mix. Innovations in directional drilling and hydraulic fracturing of shale gas deposits enhanced natural gas supply and slashed its price. The percentage of electricity generated by natural gas jumped from 24% in 2010 to 34% in 2016, while the percentage from coal has dropped from 45% in 2010 to 30% in 2016. Whether it is switching from coal to natural gas, expansion of wind and solar, or retirement of the least efficient fossil-fired plants, the national trend toward lower carbon energy will continue to grow.  This direction is not likely to be materially altered by federal government policy, as it is driven by factors such as costs, innovations in technology, consumer preferences, policies adopted by US states and private business initiatives.
Nuclear plant retirements, however, will lead to staggering increases in CO2 emissions despite these shifts from coal to natural gas and renewable energy. Bloomberg recently reported that about half of the nuclear fleet is seriously economically stressed or losing money. That is nearly ten percent of all current power production. Were those nuclear plants to close, emissions of carbon dioxide and other pollutants would surge, putting stabilization of carbon concentrations at 450 ppm further from reach. Even at the current strong rates of wind and solar deployment, it would take at least a decade just to replace the lost zero-carbon megawatt-hours. A lost decade! We do not have it to spare.
There is broad support for a low carbon future by many US states as well as in the private sector. US Department of Energy Secretary Rick Perry, Secretary of Interior Ryan Zinke and Environmental Protection Agency Administrator Scott Pruitt say clean energy portfolios should include nuclear power in a recent op-ed: “We believe no clean energy portfolio is truly complete without nuclear power. If you want to see the environment and the climate that we live in affected in a positive way, you must include nuclear energy with its zero emissions in your portfolio.” Twenty states have goals or mandates to reduce carbon intensity by a future date. Much of the private sector has also chosen a low carbon future. Hundreds of companies – including Amazon, Apple, Google and Microsoft – established ambitious goals to power their companies with clean energy. CDP (formerly the Carbon Disclosure Project) found that in 2016, more than 1,200 companies around the world – including 210 in the US – adopted or are planning to adopt a price on carbon to lower their risk exposure in a low-carbon economy.
Major companies anticipate and support a shift to lower-carbon generation. Regulatory agencies are contemplating the best paths forward, both environmentally and economically. Leaders in the US economy have set internal carbon goals. Brad Smith, president and chief legal officer of Microsoft, states “We remain steadfastly committed to the sustainability, carbon and energy goals that we have set as a company and to the Paris Agreement’s ultimate success. Our experience shows us that these investments and innovations are good for our planet, our company, our customers and the economy.” Shareholder and consumer interests in sustainability are influencing companies to move toward a low carbon future.
In further illustration of industry expectations and support for a low carbon future, the country’s biggest auto maker, several of the largest oil companies, diversified consumer goods companies and many others joined a new Climate Leadership Council: members include such household names as General Motors Co., Exxon Mobil Corp, BP PLC, Shell, Johnson & Johnson, PepsiCo, and P&G. The Climate Leadership Council takes the position that several environmental regulations could and should be replaced by a simplified tax on carbon emissions, whose proceeds would be returned as dividends to citizens to defray the likely costs from rising energy prices.
Academics also expect the electricity system to move toward a low carbon emission future. More than 20 scientists from various universities and think tanks recently evaluated a proposed strategy toward reliable low-cost powering of the grid:
"A number of analyses, meta-analyses, and assessments, including those performed by the Intergovernmental Panel on Climate Change, the National Oceanic and Atmospheric Administration, the National Renewable Energy Laboratory, and the International Energy Agency, have concluded that deployment of a diverse portfolio of clean energy technologies makes a transition to a low-carbon-emission energy system both more feasible and less costly than other pathways."
At the May 2017 FERC technical conference on state policies and electricity markets, a broad cross section of witnesses acknowledged the trend toward a low carbon future and agreed that the best way to accomplish it was to use a carbon price signal to incentivize innovation and allocation of resources to a lower carbon outcome. In pre-conference comments Joseph Bowring, the independent market monitor for PJM, stated: “If society determines that carbon is a pollutant with a negative value, a market approach to carbon is preferred. Implementation of a carbon price is a market approach which would let market participants respond in efficient and innovative ways to the price signal rather than relying on planners to identify specific technologies or resources to be subsidized.” Others weighed in regarding a market approach to a low carbon future:
- "And it is important for this discussion I think to recognize and respect that states like Illinois that have legitimate environmental concerns have the legal authority to require and encourage those markets to reflect those priorities."- Brien Sheahan, chairman, Illinois Commerce Commission
- "We are in a partnership with the state of New York and with our market participants to try to find a solution for how we can integrate the price of carbon into our markets. We believe it can be done but we have to test our assumptions, we have to run the sensitivity analysis, we have to know that this is the right pathway for the state of New York."- Bradley C. Jones, president and chief executive officer, NYISO
- "So [Andrew Ott of PJM] spoke about some things that PJM is looking at to try to improve pricing in the energy market which we are absolutely in favor of you know starting with looking at ways to add carbon value into the energy market." - Lathrop Craig, vice president of ISO Operations, PSEG Energy Resources &Trade LLC
Similarly, Gavin J. Donohue, president and CEO of the Independent Power Producers of NY (IPPNY), has advocated “internalizing a consistent value for carbon into wholesale energy prices or by incorporating the state’s clean energy goals into the wholesale market as an additional constraint generators must satisfy. Taking these steps would allow for the integration of policy goals in the markets in a consistent, cost-effective, and non-discriminatory way.” We note, however, a federal carbon policy is not likely to be enacted in the short term.
In the meantime, however, two states have acted to replicate the result for nuclear plants that would occur if a carbon price signal were present. These states, New York and Illinois, understand the important role that nuclear plants will play in achieving these low-carbon emission goals in a timely and least cost manner. Their zero emission credit (ZEC) programs replicate the energy price uplift a nuclear plant would see from a regional carbon market.
The New York and Illinois programs adopt a federally-derived value for carbon to set the price for the zero emission credits that nuclear plants may earn when they produce power without carbon emissions. The states determined that the environmental attribute from energy produced from zero-emission generation was valuable to their citizens at that federally-determined amount. We believe this is a rational state policy choice that the federal government should not criticize or deter.
With regard to the state actions, these statements by climate scientists Hansen & Shellenberger are on point:
"Over the long-term, Congress should implement a tax on carbon emissions, and return the money to ratepayers. Such an approach would create a strong incentive and level playing field for all forms of clean energy. And it would give all Americans, even ones skeptical of climate change, reason to support aggressive action. In the meantime, governors who are outspoken advocates for climate action must act to protect nuclear plants which, once closed, cannot be started back up." - Dr. James Hansen & Michael Shellenberger, Scientific American June 6, 2017
The two programs in New York and Illinois treat nuclear energy as a zero-emission generation resource, similar to wind or solar. Symmetrical consideration of nuclear generation, the largest source of zero-emission electricity, should not be considered novel. As noted above, numerous states have enacted by legislation or adopted by rule renewable portfolio standards that exclude nuclear energy. In August 2016 New York regulators determined that exclusion of nuclear power’s emission-free electricity was counter-productive and adopted regulations to add a nuclear tier to the Clean Energy Standard. In December 2016, Illinois enacted legislation (the Future Energy Jobs Act) which includes nuclear energy in a Zero Emission Standard.
As noted above, federal courts rejected and dismissed constitutional challenges that Illinois and New York programs violated federal preemption and the dormant Commerce Clause. As former federal and state regulators, the authors concur with the courts’ findings and recognize that states are the “laboratories of democracy.” The Illinois and New York programs are consistent with this principle as well as being legal. For example, the New York Order stated, “Accepting as true that one of FERC’s goals is to promote market efficiency through energy auctions, there is no conflict. The ZEC program does not run afoul of the goal of having an efficient energy market. Instead, by incentivizing clean energy production, it seeks to minimize the environmental damage that is done by generating electricity through the use of gas and fossil fuels (New York Order at 19). Far from objecting to state programs that encourage energy production with certain desirable environmental attributes, FERC has approved state programs with “renewable portfolio mandates and greenhouse reduction goals.” The ZEC program does not thwart the goal of an efficient energy market; rather, it encourages through financial incentives the production of clean energy.” In addition, the New York Order recites the finding by the New York Commission that the German government’s premature closure of nuclear plants in the wake of Fukushima was disastrous. Despite muscular and costly efforts to incorporate renewables, German GHG emissions increased upon the grid’s loss of nuclear generation (New York Order at 6). Finally, the New York court found that “Like RECs, ZECs are credits for the environmental attributes of energy production” and “FERC concluded that RECs fall outside FERC jurisdiction because they are state-created certifications of an energy attribute that are unbundled from wholesale energy sales.”
Whereas the New York Order affirmed a Commission Rule, the Illinois Order rejected challenges to a statute enacted by the Legislature and signed by the Governor (Illinois Order at 1-2, 6-7). As to preemption, the court held “… the ZEC program falls within Illinois’ reserved authority over generation facilities; Illinois has sufficiently separated ZECs from wholesale transactions such that the Federal Power Act does not preempt the state program under principles of field preemption (Illinois Order at 33). In rejecting the Equal Protection challenge, the court examined the law enacted by Illinois elected representatives: “The General Assembly therefore finds that it is necessary to establish and implement a zero emission standard, which will increase the state’s reliance on zero emission energy through the procurement of zero emission credits from zero emission facilities, in order to achieve the state’s environmental objectives and reduce the adverse impact of emitted air pollutants on the health and welfare of the state’s citizens.” (Illinois Order at 42-43)
Cost to Achieve State Policy Goals
Surely it makes sense to choose a decarbonization strategy that picks the cheapest options first. That is what New York and Illinois did. In New York, the New York Public Service Commission found that establishing Zero Emission Credit payments to maintain upstate nuclear was the most cost-effective way to meet the state’s low-carbon future goal, stating: “As in the case of energy efficiency, it is not realistic to assume that sufficient additional renewable resources at a reasonable price, or perhaps any price, could be identified and implemented in sufficient time to offset the 27.6 million MWh of zero-emissions nuclear power per year.”
Risk of Additional Closures
A number of nuclear plants – which provide the least cost and greatest amount of zero carbon power – will permanently close early in the absence of market signals that price the environmental attributes of power generation. In preparation for a low-carbon future, it is imperative that we recognize the importance of nuclear energy for both economic reasons and in anticipation of future policy pathways. In regard to environmental goals, no resource is more important to providing electricity without carbon emissions than nuclear energy. Nuclear energy provides one fifth of the nation’s electricity and most of its carbon-free electricity. Yet existing nuclear power plants have been uniquely disadvantaged by the current mix of state and federal energy policies. If nothing changes, more than a quarter of the remaining fleet is likely to retire prematurely. The loss of these plants eliminates the cheapest and most effective option for keeping carbon emissions from electricity generation in check, leaving only technologies that are more expensive, less effective and not available to produce enough energy to substitute for nuclear power. In addition, the loss of these plants will leave behind a new wave of towns hit hard by the loss of their main economic base. The plants provide critical environmental, reliability, energy diversity and economic benefits.
Despite the compelling reasons to maintain the largest and most reliable source of zero emissions energy in the country, nuclear retirements are already under way. Nuclear units are already closing prior to license expirations. While none were closed from 1998 to 2013, six reactors at five plants have shuttered since then: Crystal River, Kewaunee, San Onofre, Vermont Yankee and Fort Calhoun. Eight more reactors at six plants are slated to retire by 2025: Palisades (2018), Pilgrim (2019), Oyster Creek (2019), Three Mile Island (2019), Indian Point 2 and 3 (2020 – 2021), and Diablo Canyon 1 and 2 (2024 – 2025). Currently there are 99 nuclear reactors at 60 nuclear power plants in operation across the United States, so the additional retirements represent a substantial portion of the fleet. The combined capacity for the announced and actual retirements is 12,000 MW. In operation, these nuclear stations have generated about 97 million MWh per year: more than all the wind in Texas, California, Illinois, New York and Pennsylvania combined. Even without incorporating all the retirements that are likely to materialize, the 2017 EIA Annual Energy Outlook shows that despite additions of 4,400 MW of nuclear capacity, nuclear generation is projected to decline ten percent by 2035.
Resiliency of Electric Supply
In addition to its environmental benefits, nuclear generation is important to grid resilience, a characteristic that distinguishes it from intermittent zero-carbon generation sources like wind and solar. Nuclear energy is reliable in all weather, 24 hours a day and 7 days a week. A reactor can operate up to two years on a single refueling. Energy Secretary Rick Perry recently stated with regard to nuclear generation: “If you really care about this environment that we live in – and I think the vast majority of the people in the country and the world do – then you need to be a supporter of this amazingly clean, resilient, safe, reliable source of energy.” Similarly, US Sen. Lamar Alexander has long supported America’s nuclear reactors, for example stating last September: “It is cheap, reliable and safe. At a time when the science academies of 20 developed countries and many Americans say climate change is a threat - and that humans are a significant cause of that threat - nuclear power provides about 60 percent of our country's carbon-free electricity. It is our nation's best source of low-cost, reliable, safe and pollution-free electricity, and it must be part of our energy future." Leading Democrats are on the same page. US Sen. Cory Booker stated in May 2016 “Nuclear energy right now provides critical baseload power [and] providing more than 60 percent of our nation’s carbon-free electric generation. Most Americans don’t realize that and I was one of them. I thought oh look at all this solar coming on, but when it comes to that carbon-free, baseload power, nuclear is it . . . The real problem is that our economy and our federal policies do not fully recognize the true value of nuclear power as we have it now . . . we’re not valuing carbon the way that we should. And so this is going to take a lot of years of work, but . . . we start by having constructive conversation about doing [things] that allow nuclear to compete on a level playing field.”
The North American Electric Reliability Corporation (NERC) recently concluded:
- "…nuclear generation ha[s] the added benefits of high availability rates, low forced outages, and secured on- site fuel. Many months of on-site fuel allow these units to operate in a manner independent of supply chain disruptions."
- "Premature retirements of fuel secure baseload generating stations reduce resilience to fuel supply disruptions."
- "States and FERC should immediately review the economic and policy issues impacting fuel secure baseload generation in an effort to limit early closure of existing assets."
Efforts to overturn state ZEC initiatives ignore the ways existing policies distort markets and disadvantage existing nuclear plants. If electricity markets were functioning without distortion, we would regard nuclear plant closures as an unfortunate but necessary reflection of what Joseph Schumpeter described as “creative destruction.” The premature closure of efficient nuclear plants is destructive but hardly creative. A patchwork of state and federal tax policies detour billions of dollars into wind and solar generation and as noted above state renewable portfolio standards exclude nuclear generation. In addition, coal and natural gas plants pay nothing for the carbon pollution that they emit into the atmosphere. The bias against currently operating nuclear generation turns economic theory on its head. Existing nuclear plants are uniquely disadvantaged in electricity markets.
Currently operating nuclear plants are sometimes falsely characterized as operationally obsolete. This is not the case. While all plants must eventually retire and be replaced, most of the existing nuclear fleet is licensed to operate another 15 years or more (2032+). Almost all of them are eligible for 20-year license extensions bringing operations into the 2050’s or later. The plants have received NRC uprates and operators have invested billions of dollars to modernize control systems and other components. Most existing nuclear plants can operate for another 15, 20 or 40 years. The issue of early retirements arises from market failure of the status quo rather than technical or operational issues.
Greenhouse Gas Emissions
Experience has shown that when a nuclear plant closes, fossil rather than renewable generation mostly takes its place, causing an increase in emissions of carbon and traditional pollutants. The increase in carbon emissions arising from nuclear plant closings more than reverses all the reductions achieved by shifts from coal to gas, renewable energy build-out and increased energy efficiency. Even states with aggressive commitments to renewable energy and energy efficiency find that the majority of the power lost, when a nuclear plant closes, is replaced with increases in fossil-fired generation. Carbon emissions in California rose by about a quarter – or 9 million tons – immediately after the San Onofre Nuclear station closed in 2013 and was replaced with mostly natural gas generation. After falling 24 percent over 15 years, CO2 emissions in New England rose 2.5 percent from 2014 to 2015 after Vermont Yankee, a small, single-unit nuclear plant, retired prematurely. Greenhouse gas emissions are cumulative in the atmosphere and persist for up to one thousand years. Premature retirement of nuclear generation would require even prospectively greater carbon reductions from all other sources.
By how much could emissions increase, if the financially distressed plants retire? The nuclear plants Bloomberg New Energy Finance expects will have operating margins in the red over the next four years together generate 396 million megawatt-hours. They avoid between 155 million metric tons and 198 million metric tons of carbon dioxide emissions annually. Consider replacing such amounts of generation with alternative zero-carbon sources. While wind and solar energy costs have declined with technological advances, they are still subject to upward sloping supply curves, where costs for the next cheapest sources rise as one exhausts lower cost options. The New York State Department of Public Service (DPS) and New York State Energy Research and Development Authority (NYSERDA) studied options for increasing wind, hydro or solar generation to replace lost nuclear generation and estimated the cost curves. Using these cost curves and in particular, the most economical options such as land-based wind, REC prices of $61/MWh or more would be needed to obtain zero-carbon generation sufficient to replace generation of the magnitude provided by New York’s upstate nuclear plants. Using that estimate, $61/MWh for zero-carbon RECs, as a back-of-the envelope estimate for plants at risk nationally, it would cost at least $24 billion per year to add enough renewable generation to merely tread water on zero-carbon generation. By comparison, the amount needed to preserve nation’s zero-emission nuclear plants and their existing skilled workforce is far less, as demonstrated within the New York and Illinois programs where prices start at $17.48/MWh and $16.50/MWh respectively.
Cost of Electricity and Need for Immediate Action
The retirement of nuclear plants will increase both the cost and difficulty of timely achievement of emissions reductions. Replacing existing nuclear plants with alternative sources of zero carbon energy will raise energy costs to consumers by billions of dollars. The New York ZEC program was designed to protect New York from increased emissions as well as the costs of replacing the foregone zero emission nuclear generation. But New York also recognized both the peril of further delay and the need for immediate action. New York considers the ZEC a “bridge” until obvious defects in the energy markets are addressed. A Brattle Group study determined that each dollar spent on the ZEC program to save New York’s three upstate nuclear plants would save $2.80 in electricity costs to consumers – a total of $1 billion annually.
Avoiding Air Pollutants
Nuclear generation is free of other air pollutants, besides CO2, that are emitted during production of electricity from oil or gas. When nuclear power plants produce electricity, they emit no criteria air pollutants such as nitrogen oxides (NOx), sulfur dioxide (SO2) and fine particulates (PM2.5). PM2.5, which is emitted from the burning of coal, increases the incidence of lung cancer, cardiovascular disease and asthma. SO2, emitted from burning coal unless control technology is operating, causes acid rain. NOx, emitted by burning fossil fuels, is a precursor to smog. Coal plants also emit mercury, which can cause birth defects.
The actions that states are taking now to value zero-emission power are a cost-effective hedge against future regulation that would impose far higher costs on customers. Nuclear unit retirements compel jurisdictions to invest in more expensive renewables just to remain in place on the emissions treadmill. State policies adopted to save baseload nuclear generation both affirm existing state energy policies and spare their ratepayers high future costs. States have every right to adopt intermediate ZEC policies to avoid a prospective train wreck and the federal government should not gratuitously reverse these well-considered actions.
America’s fleet of highly efficient and emission free nuclear generators operate in untenable circumstances. More nuclear closures are imminent - closures that will erase progress to a low carbon future and set back the transition by a decade or more. Under the status quo nuclear power benefits from neither a price on carbon nor mandates of state imposed RPS rules, yet is criticized for failing to “compete” with emitting plants (that don’t bear costs of pollution) and renewables (that benefit from RPS and tax credits). One way or another the future of the power grid will be low carbon. States must be permitted to institute programs to compensate nuclear plants for their zero-carbon generation. If market failure causes their nuclear plants to close prematurely, the states will be compelled to replace them at a higher cost in order to accomplish their policy goals. American nuclear power is a hedge against anticipated (and arguably inevitable) carbon regulation. Some things in life, like an outfielder dropping a fly ball, are at once unfortunate, regrettable and irrevocable. The stakes are too high to drop the fly ball now in the air and allow premature closure of these emission free generators. Let us honor principles of cooperative federalism and respect efforts of state elected and appointed officials to protect the health, welfare and safety of their citizens.