End Energy Subsidies

By Chris Edwards – Re-Blogged From http://www.downsizinggovernment.org

The energy industry has been heavily regulated and subsidized by the federal government for decades. The Department of Energy’s array of subsidy programs grew out of atomic research efforts of the 1950s, responses to the energy crisis of the 1970s, and concerns about conservation and global warming in recent decades.

The department spends about $9 billion annually on civilian energy research and subsidies. The following are some of the major program areas with the 2008 spending levels listed:

  • Science. This $3.9 billion program area funds research on such activities as high-energy physics, nuclear physics, and fusion energy.
  • Energy Efficiency and Renewables. This $1.5 billion program area funds research into hydrogen power, solar power, wind power, weatherization, vehicle technologies, and other activities.
  • Fossil Energy Research. This $646 million program area funds research into coal, oil, and natural gas technologies.
  • Nuclear Energy. This $695 million program area funds civilian nuclear energy research.
  • Electricity Delivery. This $157 million program area funds research into electricity transmission.

Federal energy research should be phased-out as an unneeded cost in an era of massive government budget deficits. The private sector is entirely capable of performing research into coal, nuclear, solar, and alternative energy sources for itself. Businesses will fund new technologies when there is a reasonable chance of commercial success, as they do in every other private industry. Federal subsidies may even be actively damaging to our energy future by steering markets in the wrong direction, away from the best long-term energy solutions.

Federal energy research has a poor track record. With regard to fossil fuels research, for example, the Congressional Budget Office has concluded: “Federal programs have had a long history of funding fossil-fuel technologies that, although interesting technically, had little chance of commercial implementation. As a result, much of the federal spending has not been productive.”1 That is a polite way of saying that these programs have been a waste of taxpayer money.

This essay discusses the record of waste and mismanagement in Department of Energy projects during recent decades. The number of major spending boondoggles in this department is remarkable. The problem is that departmental leaders and members of Congress have shown an unfortunate urge to try and centrally plan the energy sector. But they have been responsible for throwing tens of billions of dollars of taxpayer money down the drain on projects of little value.

Policymakers often make grandiose promises, such as proposing to make America “energy independent” or to convert the nation to a “green economy.” Those visions don’t make any sense, but even if they did history shows that the Department of Energy would be incapable of putting them into place with any degree of competence. Federal energy schemes are often poorly managed and generate huge cost overruns, or they aim at objectives that make little economic sense, as the following case studies illustrate.

Yucca Mountain

For decades, the federal government has struggled with the issue of storing waste from commercial nuclear reactors and defense-related nuclear activities. The government has been spending hundreds of millions of dollars every year in planning for nuclear waste disposal, but the creation of a permanent storage site is years behind schedule, and many issues are still unresolved.

The Nuclear Waste Policy Act of 1982 aimed to create a permanent disposal site for radioactive waste by 1998. After many studies, Yucca Mountain in Nevada was chosen as the single national disposal site in 1987, and engineers and construction crews went to work.2 Today, the ongoing project has cost $10 billion, and the Yucca Mountain site will not be operational for at least another decade or so, if it ever is because of continued political opposition.3

To fund the project, the 1982 Act created a fee on all nuclear electric utilities charged on the basis of kilowatt hours generated. The fee currently generates about $760 million annually for the Nuclear Waste Fund, which by 2008 had accumulated a balance of $22 billion. But this fund is just an accounting entry—the utility charges have actually gone to the U.S. Treasury and been spent on other federal activities, not on the storage of nuclear waste.4

Thus, we have a bizarre situation whereby electricity utilities and their customers are paying a $760 million tax annually to store nuclear waste at Yucca, but that storage will not happen for the foreseeable future. Obviously, utilities are not happy with the situation and they have sued the government over the fees. The department calculates that federal taxpayers are currently liable for $7 billion to the nation’s electric utilities, but that number will likely balloon to tens of billions of dollars.5

The project schedule at Yucca Mountain keeps slipping back and the project’s full cost estimate keeps rising. Just between 2001 and 2007 the project’s total life-cycle cost estimate increased from $70 billion to $96 billion, measured in constant 2007 dollars.6

It is true that the issue of nuclear waste is complex, but federal mismanagement and the indecisiveness by Congress have created many problems. Amazingly, despite $10 billion already being spent on Yucca Mountain, Nevada Senate Majority Leader Harry Reid and other policymakers are promising to completely kill the project. Indeed, the Obama administration announced in 2009 that it would close the Yucca facility.

Clinch River Breeder Reactor

The Clinch River Breeder Reactor was an experimental nuclear fission power plant project in Oak Ridge, Tennessee that cost taxpayers $1.7 billion and produced nothing. Upon its launch in the early 1970s, Clinch River was hailed as a way to create energy independence, as it would create an inexhaustible energy supply, like a perpetual motion machine.7 The project lasted 12 years until it was finally killed from a combination of technical problems, a huge escalation in costs, and opposition by environmentalists.

The project was authorized in 1970 and Congress first appropriated funds in 1972. In 1971, the Atomic Energy Commission, which pushed the project, estimated that it would cost $400 million. The next year the cost estimate jumped to $699 million. The costs kept rising over the years, and by 1983 estimates of the project’s full cost had ballooned to more than $4 billion.8

Management of Clinch River was hampered by disagreements between Congress and the Department of Energy over the project’s objectives.9 Another problem was that the economic viability of the project was based on assumptions about future uranium price increases, and project supporters failed to rethink the project for years after the uneconomic nature of it became obvious.10

In the end, the combination of bad economics, environmental problems, and cost overruns gave the upper hand to project opponents in Congress, and funding was cut off by a fairly narrow vote in the Senate. The total cost to taxpayers was $1.7 billion, which is roughly equivalent to $3.4 billion today.11

The politics of Clinch River were interesting, given that many people think that the Democrats are the party of big government and Republicans the party of spending restraint. Clinch River was supported by the Reagan administration and by Republican Senator Howard Baker of Tennessee, who was majority leader in the 1980s. The project was strongly opposed by the Carter Administration, but it did not have the political strength to kill it in the 1970s.

National Ignition Facility

In 1993, Congress approved the construction of the National Ignition Facility, which is designed to research nuclear fusion. When completed, the NIF will focus about 200 high-power lasers at a small point in an effort to generate a huge release of energy. The stadium-sized project is housed at the federal Lawrence Livermore National Laboratory in California.

The NIF has been horribly managed. It is at least seven years behind schedule, and the estimated total cost has ballooned from about $2.1 billion to at least $4.2 billion.12 The project started running tests in 2009, but the facility may not be fully operational until 2020.13

In 2000, the GAO concluded that “NIF’s cost increases and schedule delays were caused by poor Lawrence Livermore management and inadequate DOE oversight.”14 Some senior NIF budget and technical officials had little adequate experience, and some top managers deceived DOE and Congress about the progress they claimed they were making.15

Environmental Mismanagement

In the 1980s, a series of critical reports rocked the Department of Energy regarding its extremely lax safety and environmental standards, particularly at its nuclear-related sites. For decades, dozens of the department’s facilities across the country had been despoiling the natural environment with little notice taken by the department or Congress. But that changed in the 1980s and taxpayers have since spent tens of billion of dollars cleaning up the mess from the department’s toxic legacy.

In 1985, a government report by a former environmental official at Energy called the department’s environmental, health, and safety shortcomings a “disgrace.”16 In 1987, a department undersecretary testified to Congress that there was an “enormous legacy of misuse of the environment” with respect to the department’s nuclear weapons activities.17 In 1988, a study by the National Research Council estimated that it would cost up to $100 billion or more to clean up the department’s contaminated nuclear weapons sites.18 In 1989, continuing revelations caused then Energy Secretary James Watkins to declare that the “chickens had come home to roast” with regard to the department’s decades of environmental mismanagement.

An enormous cleanup effort was launched in the 1980s that is still going on today and will continue for years to come. By the mid-1990s, environmental cleanup became the department’s largest spending activity, comprising one-third of the agency’s budget.19 More than $60 billion has been spent on the department’s cleanup efforts over the last two decades, and taxpayers are still paying more than $5 billion annually through the Office of Environmental Management (OEM).20

Not surprisingly, the department has proved to be incapable of spending so much money efficiently. In 1994, Senator Bennett Johnson called the department’s efforts “a grand and glorious mess … no function of government has been as mismanaged as our waste cleanup.”21 While cleanup at 74 of the 114 sites had been completed by 2003, DoE estimated that the costs of remaining sites will exceed $220 billion over 70 years.22

Huge cost overruns have been common at OEM cleanup projects. A 2008 GAO report concluded that nine out of 10 major cleanup projects “have experienced cost increases and schedule delays in their life cycle baseline, ranging from $139 million for one project to more than $9 billion for another, and schedule delays ranging from 2 years to 15 years.”23 Here are some of the notable mismanaged projects:

  • Idaho National Laboratory.  Established in 1949, this laboratory has been involved in key developments in atomic energy and reactor designs. Clean-up at this site is currently costing taxpayers about $500 million annually.24
  • Hanford Site. The largest of the defense production sites founded as part of the Manhattan Project, the decommissioned Hanford Site in Hanford, Washington, is the largest environmental cleanup project in the country. A waste treatment plant at the site has ballooned in cost from $4.3 billion in 2000 to $12.2 billion in 2008.25 There is continuing concern that the site is contaminating the nearby Columbia River. While the DoE has taken steps to improve its efforts, management of the site still falls short.26 Cleanup at this site is currently costing taxpayers about $1.9 billion annually.27
  • Brookhaven National Laboratory. A major laboratory primarily funded by the DoE, Brookhaven conducts nuclear, energy, and national security research. It has experienced leaks of radioactive material that went undetected for years, yet DoE held no one accountable.28
  • Rocky Flats Plant. A major site of nuclear weapons production in Colorado, Rocky Flats was at the center of a major investigation by the FBI in the late 1980’s. Senior executives at DoE were accused of covering up and lying about the dangerous and illegal toxic-waste practices at the plant.29 Despite multiple health and safety concerns, DoE awarded millions in bonuses to poorly performing contractors during the 1980s and early 1990s.30 The Rocky Flats cleanup was completed in 2005, costing taxpayers $7 billion.31
  • Savannah River Site. Located in South Carolina, Savannah River was built as a refinement site for use in nuclear weapons. Environmental issues have plagued the site over the years, including possible contamination of the water source for the site and surrounding areas as well as a negligent culture of safety.32 Cleanup at this site is currently costing taxpayers about $1.1 billion annually.33

Superconducting Super Collider

A 1983 Department of Energy panel recommended the building of the world’s largest particle accelerator, and with Ronald Reagan’s approval in 1987, the Superconducting Super Collider project was launched.


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