Explain the NPP decommissioning process
- NRC created a trust fund similar to the Nuclear Waste Fund for every NPP
- NPP pays 1 cent/kWh made towards the fund
Is the trust fund adequate in theory?
???
- Maybe. There are reviews of these funds (what)
- There is only 75% of money actually needed, but it is doing better than other NVPs
- The longer it sits, the longer the fund grows while the half-life of radioactive materials run their course (and there is less to clean up)
Is the trust fund adequate in practice?
- Yes, 3dP Party Purchase of the Trust Assests suggests that there may be enough value
- 3dPs purchase the trust fund AND the liabilities - think that they they can decommission the plant w/ the fund or less
- Holtech Int’l (MI) is one of those companies
What is Negative Value Property? How does it differ from Zero Value Property?
- NVP is property that canont be alienated without remediation or a side payment.
- Zero Value Property - no legal requirement to rehabilitiate the land, and owner may simply use it as a land dump or abandon it
- Negative Value Property - law obligates owner to affirmatively rehabilitate the land w/o being able to simply abandon it (e.g., Berkeley pit - nuisance law exists even if there is no express rehabilitation leg or reg)
Explain the NVP phenomenon in energy
- NVP is not unique to energy, but more likely to arise when a resource stock far exceeds the location value, because it creates the risk of temporal spillovers
- Temporal spillovers - when a conduct (resource extraction) is highly lucrative at time A but highly costly (social costs) at time B
- This kind of spillover is NOT easily regulated by simple govt prohibition of that conduct, where the negative externality contemporaneous with a conduct, but requires
- Rules re: abandonment & cleanup
Where in energy law do we see examples of NVP?
- Depleted resource extraction sites - coal mines, O&G wells, hardrock mines (Butte)
- Obsolete & derelict facilities - NPPs, hydropower dams, petrol stations & underground storage tanks
How does property law address NVP?
???
It doesn’t! Property rights reduce spillover only when they incentivize landowners to bear the costs of their land use.
1. Demsetz theory - property law guides incentives to achieve a greater internalization of externalities
2. Ellickson theory - infinite land land interest is a low transaction cost device for conserving natural resources for future generations
- Here, the incentive mechanism incentivizes abandonment & externalizing reclamation costs because internalizing the externalities is very costly.
- Property/market alone will not internalize externality!
What, besides property rights, perpetuates NVP phenomenon in energy?
- Political incentives - State juris w/ self-bonding under SMCRA (coal) want firms to stay alive to collect any funds & willing to reduce bond, rather than let them go bankrupt
- Legal incentives - Firms choose to not declare assets to be abandoned to avoid reclamation obligations.
* We see this by firms & states declaring their assets abandoned en masse only once Infrastructure Bill offered reclamation support - Functional abandonment - Bankruptcy law used to get around clean-up requirements because federally-mandated liabilities are placed in underfunded subsidiaries that are later liquidated
Future of NVP?
- Decommissioning era is only just starting; we don’t know the full cost of cleanup
- The process is largely untested; history is not on our side
Are the existing policies enough to address NVP phenomenon?
No. As seen in political, legal, and functional incentives,
1. Standards are too weak (SMCRA)
2. Insufficient financial assurance (need things like infrastructure bill)
3. Insufficient enforcement (bankruptcy)
First-best solutions to solve NVP phenomenon?
- Optimize standards to disincentivize abandonment
- Optimize financial assurances (environmental liabilities)
- Optimize enforcement (e.g., SMCRA)
Why are the first-best solutions not feasible?
??? what does the relativity of externality have to do w/ NVP?
- Politics - energy producers are well-connected
- Uncertainty re: cost & operations of cleanup at the outset of resource extraction or plant operation
- Internalizing externalities is difficult and not always worth doing – might be more reasonable for a polity to absorb the costs. AND, externality by definition is relative
maybe - property already suffers from fact that externalities=relative
What are the second-best solutions?
- Reform the laws of insolvency
- Employ trusts similar to NPPs
- Bundle assets - bundle NVP with enough positive value property
