There Is A Respectable Economic Argument For Nationalised Nuclear

Written by:
1 July 2024
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In this article, Sinclair Davidson contextualises and disseminates the findings of the IPA’s research into nuclear energy.

The bottom line is that there are sound public choice arguments for the government to build and own nuclear power plants.

“Well I wouldn’t be starting from here” is the punchline for every major project proposed in Australia.

Whatever the merits of the Liberal policy to build and operate nuclear power plants, it appears that many people have settled on a definitive argument as to why it is bad policy.

Government ownership is bad and if nuclear power was a good idea, the market would supply it.

That argument was made in these pages by Steven Hamilton and Luke Heeney – that article has been made famous by Alex Tabarrok at the highly regarded economics blog Marginal Revolution. This argument is very popular on social media – almost as a gotcha statement. The Liberals are being portrayed as hypocrites.

It is very amusing watching people who often claim that market failure is ubiquitous now also arguing that markets could easily provide nuclear energy if it were financially viable to do so. Yet, that very same market isn’t capable of supplying renewable energy without government mandate and financial subsidy.

It is true that nuclear power is not what economists would traditionally describe as being a public good. It is both excludable and rival. It is also true that government ownership tends to be inefficient. Most economists would argue that government should not own power stations – mind you, the government shouldn’t own media companies either.

Having military nuclear energy but not civilian nuclear energy seems incoherent and short-sighted.

What then is the basis for Liberal party policy for public ownership of nuclear power plants? It turns out the arguments are far more respectable than many people think.

James M. Buchanan, the 1986 economics laureate, has argued that public goods can be thought of as those goods and services that are supplied publicly via a political process and not a market process. He also argued that some extensions of government are more legitimate than others. The Liberals are asking the electorate whether, in Australia, nuclear power plants should be owned by the government.

The debate has already shifted from “should Australia have nuclear energy at all?”. Frankly, that debate was over when the AUKUS deal was signed. Having military nuclear energy but not civilian nuclear energy seems incoherent and short-sighted. There are obvious and important synergies between civilian and military usage of nuclear energy. Realising those synergies under common ownership would reduce the costs of nuclear power and increase the benefits. That is an argument that would appeal to Ronald Coase, the 1991 economics laureate.

Federal government ownership has very definite long-term planning and co-ordination benefits. For example, the federal government can bribe or bully recalcitrant states into accepting nuclear power stations in their territory. In any event federal legislation can override state legislation. The Liberal policy is to site these nuclear stations on existing power station sites. The compulsory acquisition power will be very handy. The existing facilities are likely to constitute stranded assets and existing owners won’t be in a position to fleece the federal government as they could and would fleece private operators on the sale price.

Then there is dealing with the lawfare and protestors. Federal legislation could streamline many of the time-wasting red tape and green tape hurdles that bedevil all current projects. Building nuclear plants would provide the federal government with clear incentives to engage in genuine deregulation rather than the half-hearted efforts the Liberals usually dish up. This would have beneficial flow-on effects for all other projects and the economy in general.

The bottom line is this – there are sound public choice arguments for the government to build and own nuclear power plants. Ironically, it would also create an asset that a future government could privatise. Unlike, say, the NBN.

The challenge facing the government is that the transition to renewable energy has not been smooth. Despite being continually told that renewable energy is the cheapest form of power and what-not, the fact is that household electricity bills are rising and not falling. A cost-of-living crisis invites the electorate to judge the government as consumers and not as voters.

While voters may be loyal to a party, consumers can be fickle. Consumers know that electricity prices have gone up by nearly 18 per cent since the government came to office. That is nearly double the increase in CPI. Consumers are not happy and are very likely to be attracted a new idea.

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