Tuesday, June 24, 2008

We Agree! On Nuclear Power!

There is a coalescing around nuclear power. In Japan, a Fast Breeder Reactor, closed down in 1995, is set to re-start soon. In India, a new Fast Breeder Reactor is under construction. France just signed a nuclear deal with Algeria. Russia just signed a deal to supply China with a billion dollars worth of nuclear fuel and equipment. Seventy-one nations have signed a treaty endorsed by Russia and the USA that will assist in the safe development of safe nuclear power. Most importantly, the attitude of Americans has changed. A number of ethanol plants are being shut down and 13 companies have applied to build 31 nuclear plants in America.

John McCain has proposed the construction of 45 nuclear plants. Once this process is underway, many more than 45 will be built. McCain has also proposed a 300 million dollar prize to the developer of a "super battery". No prize is needed because the race to develop a "super battery" is well underway. Billions are being spent and the prize for success will certainly be many times the 300 million dollar "tax payer" prize. McCain also has proposed a $5,000 tax credit for those who buy a zero emissions car. McCain is trying to be the best democrat on the ballot. Maybe republicans should just stay home. Instead of Robin Hood, candidates for President are becoming Hood Robins. Just like what happened with ethanol, it will be the poor who will subsidize expensive electric vehicles.

Obama has endorsed nuclear power, provided the waste can be properly stored. The massive 123 Agreement submitted to congress on May 13, it becomes law 90 days from that date if not voted down by congress, includes reprocessing and storage of spent fuel.

Oops, there is still need for more coalescing. Democrats in congress have cobbled together a bill that would prohibit the 123 Agreement with Russia. Whose side are these guys on?

The congress is also on a witch or devil hunt. The congress is trying to blame futures traders for high oil prices. The congress uses the word speculator as if a speculator is the devil incarnate. For every devil who trades a futures contract, an angel must take the other side! Both the buyer and the seller are making a guess as to which way the price will go. To the extent that speculators are right, they reduce the volatility of the market and help us all. If the price of fuel must go up, it is better for it to go up some this year and a little more next year than to jump in price next year. Right now, the speculators are betting on lower prices next year. As a result, they are actually keeping prices down. The problem has been that even the smartest of speculators did not foresee how huge the growth in China and other developed nations would be or the extent to which the "global warming crowd" would be able to distort markets. It is absolutely silly not to drill for oil because of the air temperature. Coal produces much more C02 than does oil and much more than natural gas. The USA could easily have more than 500 Trillion Cubic Feet of Gas off our coasts. We need to find out.

The worldwide move to avoid global warming took on a life of its own. Europe is using less coal in its energy mix. Less coal and no growth in nuclear required an increase in drilling for natural gas (not nearly enough in the USA) and thus fewer rigs available for oil drilling.

Coal is a dirty fuel. It can be cleaned but the cost is high. One of the beauties of abundant nuclear power is that it will make clean coal affordable. It is one of those political-news-media ignored facts that the richer a nation becomes, the cleaner it becomes. The US has relatively clean water and air. China is forcing half its cars off the road over the next 7 weeks in order to try to have clean air for the Olympics. China has over produced goods in recent months so that coal fired electricity plants can be closed down prior to the games. Whenever possible, more expensive natural gas has recently been used in China to avoid burning dirty coal. The push to be ready for the Olympics will be over soon.

The energy markets have been in a "perfect storm". Storms are temporary. If we assume that the 123 Agreements are going to go though (the one between Turkey and the USA went into effect on June 2), then the odds become high that many nuclear power plants will be built. Nuclear plants will effect the price of motor fuels. Speculators who believe the price of oil is going to $200 will make different bets if they believe the price is going to $70. The good thing about financial speculation is that premiums change in an instance. Still, it will take time for markets to adjust. Nuclear power plants take 5 years from breaking ground to finish. The good news is that a number of plants are already under construction, with China leading the way. The other good news is that several big oil projects are being finished (including the one in Saudi Arabia that is allowing the increase of 1.2 million barrels per day by next year) and that several more will be in the coming months and years.

It is a shame that both major candidates for President of the USA believe in raising taxes in order to pay for pet projects. To paraphrase Milton Friedman, the good intentions of the powerful does not grant them the right to do wrong. Nuclear power can be built in abundance. The abundance of resources does not excuse us to waste resources. We need to change from an income tax system to a consumption tax system. Those who save their income should not be taxed for doing so. We will not reach a consensus on a consumption tax for a long while but for now, it is great to know that the world is coalescing around the construction of clean, safe, nuclear power.