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Nuclear Industry Subsidies Part II: The Mining Sector

Nuclear Industry Subsidies Part II: The Mining Sector

Doug Kaplow, in a Union of Concerned Scientists report titled, Nuclear Power: Still not viable without subsidies,” has offered us an attempt to assess subsidies offered by the Government to the Nuclear Industry. Koplow charges that one form of government subsidy has to do with Uranium mining,

The mining and milling stages have historically been environmentally damaging, and available data (Table 15, p. 61) indicate the taxpayer cost to address these issues has rivaled the market value of the minerals extracted.

Yet the sale price of Uranium made fuel an almost insignificant part of nuclear power costs. The World Nuclear Association notes,

Fuel costs are one area of steadily increasing efficiency and cost reduction. For instance, in Spain the nuclear electricity cost was reduced by 29% over 1995-2001. This involved boosting enrichment levels and burn-up to achieve 40% fuel cost reduction. Prospectively, a further 8% increase in burn-up will give another 5% reduction in fuel cost.

Uranium has the advantage of being a highly concentrated source of energy which is easily and cheaply transportable. The quantities needed are very much less than for coal or oil. One kilogram of natural uranium will yield about 20,000 times as much energy as the same amount of coal. It is therefore intrinsically a very portable and tradeable commodity.

The WNA argues that increases in nuclear guel costs has little effect on the cost of nuclear produced electricity.
The impact of fuel costs on electricity generation costs
The WNA reports:

Doubling the uranium price (say from $25 to $50 per lb U3O8) takes the fuel cost up from 0.50 to 0.62 US cents per kWh, an increase of one quarter, and the expected cost of generation of the best US plants from 1.3 US cents per kWh to 1.42 cents per kWh (an increase of almost 10%). So while there is some impact, it is comparatively minor, especially by comparison with the impact of gas prices on the economics of gas generating plants. In these, 90% of the marginal costs can be fuel. Only if uranium prices rise to above $100 per lb U3O8 ($260 /kgU) and stay there for a prolonged period (which seems very unlikely) will the impact on nuclear generating costs be considerable.

Nevertheless, for nuclear power plants operating in competitive power markets where it is impossible to pass on any fuel price increases (ie the utility is a price-taker), higher uranium prices will cut corporate profitability. Yet fuel costs have been relatively stable over time – the rise in the world uranium price between 2003 and 2007 added to generation costs, but conversion, enrichment and fuel fabrication costs did not followed the same trend.

For prospective new nuclear plants, the fuel element is even less significant (see below). The typical front end nuclear fuel cost is typically only 15-20% of the total, as opposed to 30-40% for operating nuclear plants.

Kaplow claims that the Civilian Nuclear power industry is subsidized by government tax policies that benefit all mines.

Subsidies to uranium mining and milling come through three main routes. First, special percentage-depletion allowances for uranium allow highly favorable tax treatment for this mineral. Second,“hardrock” mining on public lands, including uranium mining, is governed by the arcane and archaic Mining Law of 1872. This law, which has withstood numerous attempts at modernization, enables extraction of hardrock minerals with very low payments and no royalties, and it includes patenting provisions that allow public land to be privatized for only a few dollars per acre. Third, there are bonding requirements for post-mining restoration, but they are too modest, resulting in significant residual damage at uranium mines—a public health and safety obligation that falls to the taxpayer. The government has also historically sought to main- tain a strategic stockpile of uranium, though the impacts of this effort on the industry have varied over time—sometimes reducing costs to users, and other times restricting cheaper supply and driving up prices (PNL 1978: 118–126).

But note that these government policies are not intended to subsidize the Civilian nuclear power industry directly.

Terms like Uranium mine or uranium minor do not give us enough information to determine whether the mine operator should be classified as part of the Civilian Nuclear power industry. So who owns the Uranium mines. I noticed that two American uranium mines were owned by Cameco , which also owns uranium mines in Canada and Kazakhstan. A glance at the Wikipedia reveals that Cameco stands for Canadian Mining and Energy Corporation. The Cameco web page reveals that Cameco would definitely belong in the Canadian Nuclear industry,

Refining & Conversion

Cameco is a major supplier of uranium processing services required to produce fuel for the generation of clean electricity.

Cameco’s Port Hope conversion facility is one of only four commercial uranium hexafluoride (UF6) production plants in the western world. UF6 is exported to international customers, to be enriched for use in light water nuclear reactors. The Port Hope facility is also the world’s only commercial supplier of natural uranium dioxide (UO2) conversion services needed to produce fuel for Candu nuclear reactors. Both processes receive refined uranium (UO3) feed from Cameco’s uranium refinery located in Blind River, Ontario.

Cameco also has access to additional UF6 capacity through a toll processing agreement with the Springfields Fuels Limited plant located in Lancashire, UK.
Fuel Manufacturing

Cameco operates a fuel manufacturing facility in Port Hope, Ontario and a metal fabrication facility in Cobourg, Ontario. The company manufactures and sells the fuel bundles used in Candu reactors, serving nuclear utilities in Canada. The company also makes reactor components and provides nuclear fuel and consulting services to Candu operators around the world.
Power Generation

Cameco produces nuclear electricity through our 31.6% share of the four Bruce B reactors at the Bruce Power nuclear power generating site, North America’s largest nuclear generating station, located in Ontario, Canada.

Thus Cameco is a part of the Canadian Civilian Nuclear power Industry. Camieco owns about half of the Uranium currently mined in the United States of America. But the American uranium mining industry is small compared to the Uranium mining Industries of Canada, Australia, and several other countries. Thus the tax subsidy policies of the United States Government has little effect on the cost of uranium ore. However, in the past this might have been different.

During World War II most of the Uranium used by the Manhattan Project came from Canada or the Belgium colony of the Congo. After World Wat II, the United States Government sought to develop domestic uranium supplies, for national security reasons. There is no doubt that during the 1940’s and 1950’s the United States Government heavily subsidized exploration for uranium as well as domestic uranium mining. The February 1949 issue of Modern Mechanix reported,

the Atomic Energy Commission desires desperately to uncover any new sources of worthwhile ore and the commission has announced that a $10,000 prize or bonus will be paid for the delivery of 20 tons of ore or concentrates that assay 20 percent or more in uranium oxide, provided that the material comes from a new, previously unworked deposit. In addition the commission will pay for the ore at the ordinary price. The offer applies to any discoveries inside the United States, its territories, possessions and the Canal Zone. . . .

The guaranteed minimum AEC price for uranium ores is at the rate of $3.50 per pound of uranium oxide that is recoverable from the ore, less refining costs, plus allowances for other valuable minerals that may be contained in the ore. Carnotite ores are priced on a different schedule at rates that vary from 30 cents to $1.50 per pound of contained uranium oxide, plus certain bonuses, plus allowances for other valuable constituents. Carnotite purchases are made in minimum lots of 10 tons. Ores that assay less than 0.10 percent uranium oxide or that contain excessive quantities of lime are not purchased.

During the Middle 1950’s the United States Atomic Energy Comission (AEC) paid out over $2,000,000 for new uranium discoveries with some prospectors reportedly making $150,000 a month. For example uranium deposits were discovered near Moab, Utah

in 1952 by Texan prospector Charles Steen, who went on to make millions of dollars . . .

The AEC financed uranium rush was not intended to subsidize the domestic nuclear power industry however, rather

large uranium ore deposits were first tapped for the voracious Cold War nuclear weapons program in the early 1950s, . . .

The AEC purchased uranium to go into nuclear bombs, nuclear warheads, and reactors meant to power submarines, not domestic power reactors. Thus past domestic uranium subsidies were intended to produce uranium for military use, and not to subsidize the Civilian Nuclear power industry. The subsidies did not in fact produce a flourishing domestic uranium mining industry, and indeed once the military demand for uranium slowed, the domestic Uranium mining industry withered on the vine, because American produced uranium was more expensive than military surplus uranium, much of it coming from Russia, that was offered to civilian power reactors bythe United States Government. The intent of this program was to dispose of unwanted Russian weapons grade U-235 which the United States government feared would fall into evil hands and then used by terrorists and third rate failed states, to attack more peaceful countries.

Paradoxically if domestic uranium mining is to be counted as part of what is included in the American domestic nuclear industry. the sale of low cost Russian U-235 to the American Civilian Nuclear Industry has weakened the mining sector of that industry. But if the United States government had stockpiled Russian uranium which it purchased to keep it away from evil hands, the domestic uranium mining industry would not have profited nearly as much as foreign uranium mines, that do not receive receive U.S. Government subsidies. The price of uranium would have risen, but this would have little effect on the cost of producing nuclear power in the United States as we have seen.

Thus past large U.S. Government uranium mining subsidy policy was related to national security concerns, and failed on a long term bases to offer positive economic benefits to the domestic uranium mining, reactor manufacture and nuclear power production segments of the domestic nuclear power industry. Thus the so called “legacy” uranium mining subsidies would have been paid whether on not there was a domestic nuclear power industry, and much of it was paid before the inception of the civilian nuclear power industry.

The current subsidy to the domestic uranium mining industry large enough to effect its fate. Koplow acknowledges,

An estimate by the Texas comptroller (2008) pegged uranium’s share of this provi- sion at an insignificant $0.5 million for 2006, and that for coal at less than $30 million. In contrast, the Joint Committee on Taxation estimated total subsidies from percentage depletion flowing to fuels other than oil and gas to average $160 million per year between 2008 and 2012 (JCT 2008: 62). This figure, which applies to coal and uranium, is more than five times the Texas comptroller’s estimate.

Kaplow acknowledges the weakness of this data,

Three factors call both of these estimates into question.

And then plows ahead to claim on the basis of a guess that,

the subsidy value of percentage-depletion allowances for uranium is about $25 million per year.

Nor does Kaplow acknowledge the subsidies to the Oil, natural gas, coal, wind, solar thermal and photovoltaic industries.

Kaplow notes

between 1994 and 2007 the share of domestic uranium purchased by the civilian sector dropped from more than 20 per- cent to less than 8 percent . . .

Then he observes,

Surging uranium prices in the past few years have greatly increased interest in uranium mining throughout the West . . .

But the few U.S based active Uranium mines produce only a tiny amount of the Uranium produced by the United States nuclear power industry, and half of the uranium produced comes from Canadian owned mines.

Kaplow talks about legacy costs, for example claiming

Uranium-tailing remediation costs approach the value of ore. . . . The cost per pound of U3O8 produced, even using values only through 1999 (scaled to 2007 dollars), exceeded the average value of uranium during the period tracked by the EIA prior to the commodity price spikes that began in 2006. Even with surging prices included, socialized remediation costs were still more than 80 percent of the value of the ore produced during the period. Assuming full remediation costs, including all Title I sites, Title II sites, and unfunded liabilities associated with uranium mine and enrichment facilities, the degree of subsidy to upstream processes would grow even more substantially.

But most of those tailings were produced by the mining of uranium for military purposes. A small percentage of those tailings can be legitimately be assigned to to the nuclear power industry. Yet Kaplow appears to believe that every penny payed by the government for uranium mine site reclamation is a subsidy to the domestic nuclear power industry.

To cover the cost of proper mine reclamation, it is reasonable to assume that the price per pound of U3O8 would need to have roughly doubled. Based on data from the World Nuclear Association (WNA 2009b) on the contribution of raw uranium prices to the delivered price of nuclear power, the underpricing of uranium has generated a subsidy to nuclear power of 0.13 to 0.32 ¢/kWh of resultant nuclear electricity produced. It is striking that this range exceeds what the industry currently pays the federal government to take full responsibility for its nuclear waste from reactors.

Is government cleanup of domestic uranium mines that was on federal own lands, and were mined because the government was purchasing uranium for military purposes, really a subsidy? Or is the government taking care of a responsibility which was its all along. Kaplow argues that government policy should have included bonding of uranium mines for the environmental consequences of its mining, but the government through its various arms was the principal consumer of uranium during the uranium rush days, and it made the rules easy so that uranium would be easy to obtain. Thus the uranium tailings were the consequence of government desires to lower military costs, not to benefit a civilian nuclear power industry. Thus the tailings clean up responsibilities can be largely assigned to the United States government, and thus is not a legacy subsidy for the nuclear power industry.

In the nest part of this review, I will look more carefully at Kaplow’s claims about the complex relationship between United States national security interests and the civilian nuclear power industry.

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