economics

March 14, 2010

Politics and Policy- Energy Secretary Steven Chu on the administration’s game plan

Filed under: Uncategorized — ktetaichinh @ 4:13 pm
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It’s fair to say these have been some frustrating months for Steven Chu, secretary of the U.S. Department of Energy. Among other things: The global climate summit in Copenhagen failed to produce much of an agreement. The prospects of passing a comprehensive energy bill are murkier than ever. There have been a string of revelations about questionable practices and outright mistakes by scientists who contributed to a big 2007 U.N. climate-science report. And the Obama administration has been criticized for the way it has doled out economic-stimulus funds.

Mr. Chu talked with Robert Thomson, managing editor of The Wall Street Journal. What follows are edited excerpts of that conversation.

ROBERT THOMSON: You’re in the news today in part because of the administration’s announcement that it would drop plans for a federal nuclear-waste vault beneath Yucca Mountain in Nevada. As someone who has been an advocate, and many would say a brave advocate, of the advancement of nuclear power, is it a little frustrating for you that this decision was clearly made more for political than scientific reasons?

STEVEN CHU: Well, it’s fair to say that the whole history of Yucca Mountain was more political than scientific. But also very truthfully I can say that given what we know today, the repository looks less and less good. So now we’re in a situation where it can’t go forward.

When Yucca Mountain was being established in the early ’80s, the idea then was the nuclear industry was going to tail off. Now, because of climate change, we do want to restart the nuclear industry. Because of that, the statutory limit of Yucca Mountain would have been used up in the next couple of decades. So we need to take a fresh look at everything.

The Nuclear Equation
Energy Secretary Steven Chu explains to WSJ’s Robert Thomson why it takes so long to approve loans and take other steps needed to move policy toward next-generation energy.

MR. THOMSON: If you are a utility that had invested in the Yucca development on the understanding that it was going to be a government priority, how can you reassure them that nuclear itself will be something worth investing in, because it is a very expensive proposition?

DR. CHU: It’s expensive, but it could still be a very good investment. [In the 1980s, before nuclear construction came to a stop], it took longer and longer to build the plants. The time from your application to the time you actually turned the switch on was in excess of 15 years. If the nuclear industry is going to be viable you just can’t do that. At the beginning, it was taking six years, seven years to build a plant. So we want to get back to this time scale.

The Nuclear Regulatory Commission is changing. They will try to generically approve a reactor like the AP1000 from Westinghouse, and say, OK, all AP1000s are now approved. If you start approving a few generic reactors and then make a very short approval period for reviewing the specific site modifications, that’s a very, very different process.

In addition, the reactors themselves are designed with less elaborate, more passively safe mechanisms, so the designs are becoming more economical.

We think with these new designs plus the faster process for getting them approved, investing in the industry can be back on track.

MR. THOMSON: Is it right to have a comprehensive energy bill when what’s needed in the short and long term is a price on carbon?

DR. CHU: I think the price on carbon is the most important part of any comprehensive energy bill. But it’s not only the price because to be realistic, the price to build a new coal plant with carbon capture and sequestration is actually quite high.

What we are doing here in the Department of Energy is a very active research program to demonstrate much more cost-effective technologies to bring that cost down. You also have to give time for certain regions of the country that have been used to inexpensive energy to make adjustments. You have to give them a little stimulus to make them go in that direction, we have to do the research and development to help those industries. It’s not just, give them the price signal and then they will make that adjustment. That would be a little bit too painful.

The Allure of Carrots

MR. THOMSON: Is it possible to strip out a carbon bit so that you at least have a paradigm within which companies can begin to plan and leave the very complicated political stuff until later?

DR. CHU: Well, it turns out in Washington it’s easier to get all those carrots, to get funds for research in carbon capture and sequestration, funds to help people make the transition to more fuel-efficient homes and factories. It’s much harder to get a universe-wide cap on carbon that ratchets down.

MR. THOMSON: When would you forecast that bill will be passed?

DR. CHU: I’m really optimistic. I want it to pass this year. Whether it will be over the entire energy usage or whether it will be divvied up into sectors I don’t know. China is moving. They’re diversifying their supply. They want to be a leader in this new technology. They think it’s going to be good for exports. So it’s ours to lose, but we could blow it.

MR. THOMSON: You mentioned the bumps and warts. That little bit of sloppiness at the IPCC [the United Nations’ Intergovernmental Panel on Climate Change], was that frustrating because it did turn the debate a little bit?

DR. CHU: Well, it’s frustrating, but scientists are human beings, and it doesn’t negate the huge amount of data that was going on, and over a two- to three-decade period where it’s very, very visible and it gets scrutinized up, down, sideways.

The wonderful thing about science is scientists themselves love to scrutinize each other, because the scientist who actually figures out that the mainstream is wrong becomes incredibly famous. That’s how science progresses.

Stimulus Snags

MR. THOMSON: You mentioned the stimulus funds. There are two complaints. One is that there is just way too much bureaucracy in the approval process. And secondly, that there’s been a lack of ambition in investing or supporting next-generation research.

DR. CHU: First, there is always government bureaucracy. We are trying our best to cut that down to the bone, but there are statutes. For example, the loans. Why does it take so long to get a loan out? Well, we are required by statute to do certain things. We have to protect the taxpayer interests. We have to make sure when we give a loan that there’s a reasonable probability of getting it back. And then there’s, effectively, the credit subsidy loan insurance, and then how you score the loan insurance. So we have to do due diligence, and then we have to go and convince the [Office of Management and Budget] that our analysis is correct, and then they have to buy onto it. So that takes a while.

Now, because of those constraints on our loans, we can’t make a lot of loans we’d like to make of more daring stuff. Because in the more daring technologies the probability of failure is higher. So what we argued in the next budget is, increase the credit subsidy for renewables and efficiency and for other more daring things that may or may not work.

In an ideal world when the capital markets are there, you’d like the commercial people to take this over. But right now, capital is very tight. Look how long it took to make the transition from wood to coal, coal to oil and gas: 50-60 years. We cannot make this transition in another 50 or 60 years. It will be too late for the climate.

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