Want to Kill Nuclear Power in the US? Repeal the IRA

Inflation Reduction Act tax credits are providing a huge incentive for companies to keep aging reactors running and a lifeline for new reactor development.

Affordable, abundant and environmentally healthy energy is absolutely vital to a functioning society. And every year, the job of providing it becomes all the more complex, with effective execution requiring everything from data science, engineering and finance to chemistry and physics.

Unfortunately, energy issues have become highly politicized in the US, as they are in Europe. And as a result, politicians and judges are now routinely making decisions traditionally left to the technically trained.

The signature issue is climate change. The need to control emissions of CO2, methane and other “greenhouse gases” is now fully accepted by industry, including the CEO of leading super major ExxonMobil (NYSE: XOM). Rather, the relevant debate is how to best achieve reductions, without tanking the economy and avoiding human suffering as much as possible.

Finding the best answers requires informed debate. And to be sure, that is what’s happening in many circles, at least where real money is involved.

But it’s hardly the stuff to excite the average voter. So what we have on the political side has more or less degenerated into a quasi-religious series of rants—pitting “good” versus “bad” sources of energy.

For some, by not going 100 percent wind and solar yesterday, we’ve already practically condemned the human race to extinction. And no action can be considered too extreme, including pricing electricity out of affordability by immediately eliminating use of fossil fuels. Meanwhile on the other side are those who refuse to believe there’s any economic or environmental merit to solar and wind energy, and who demand the government order oil and gas companies to drill.

Believe it or not, I actually do believe there’s at least some merit on both “sides.” Wind and solar, for example, have become more efficient and cheaper by orders of magnitude over the past decade. But even with the most advanced battery storage technology and the advantage of artificial intelligence, you can’t run the grid on them alone.

It’s also clear the main accomplishment of “keep it in the grounders” using the courts to cancel natural gas pipelines is extremely high electricity and heating bills every summer and winter. And in one of energy’s great ironies, they’ve actually fueled the inflation that’s all but killed what once appeared to be a US offshore wind boom.

Where both sides really do have it wrong, however, is with the Inflation Reduction Act. To the “drill baby drillers,” the IRA is an undeserved handout to inherently inefficient wind and solar developers. And to the “keep it in the grounders,” it’s a weak sauce alternative to their preferred route of draconian new regulations as are the rule in Europe.

Reality is it’s neither. IRA is compromise produced by intense negotiations that at times appeared to be dead in the water. And as a result, it’s actually wholly agnostic when it comes to energy generation sources, as well as solutions to the challenge of keeping energy affordable, abundant and environmentally health.  

Yes the tax credits for wind and solar are extremely popular. But that’s mainly because they’ve leaned into investment industry was already going to make, and would have continued to even without the IRA.

Arguably, First Solar (NSDQ: FSLR) would not have been so aggressive locating more of its panel manufacturing in the US without the tax credits. But on the other hand, it is now building scale here that’s set to be extremely profitable, given demand and with tariffs likely to endure on imports. And that’s been a clear incentive to take advantage of the funding available.

The IRA as written includes massive incentives for developing hydrogen, potentially a major plus for big oil and gas companies as well as nuclear plant operators. Subsequent rules written by the Biden Administration have muddied the waters a bit on what qualifies for tax credits. But development efforts continue. And ExxonMobil is among the companies that have received a portion of $7 billion in US funding.

Carbon capture funding could provide an even bigger boost for ultimately. And here too Exxon is taking advantage, now operating the largest CO2 pipeline network after acquiring the former Denbury. The company in fact expects to achieve “net zero” greenhouse gas emissions from its operations by 2030, after taking steps such as electrifying its drilling fleet.

You won’t find many keep it in the grounders who will acknowledge that fact. ExxonMobil’s primary products do emit CO2 when used. But it’s hard to argue the company isn’t using the IRA to make environmentally friendly investments it might otherwise not, while benefitting shareholders and consumers in the process by improving efficiency.

Not even IRA tax credits have been enough to keep offshore wind booming in the US. Nuclear power, however, may enjoy a better fate.

First, there are the tax credits available to owners of existing facilities. Duke Energy (NYSE: DUK), for example, expects to realize $100 million in IRA credits annually from operating its 11 reactors. That will benefit its Carolinas and Florida customers with lower rates. And by selling the credits as the IRA allows, the company will be able to fund needed upgrades to its grid, improving service at a much lower price than if it had to tap the capital markets for the money.

Nuclear tax credits for new development have not yet been enough to entice any US utility to announce a new construction project. And the demise last year of NuScale Power Corp’s (NYSE: SMR) small modular reactor project in Utah has arguably discouraged more small scale development.

But tax credits may be all it takes for the currently shut down Palisades reactor in Michigan to restart. And we may see at least one currently shuttered facility in New England come back to life as well in the next couple years.

Of course, one way to stop such efforts in their tracks would be to repeal the tax credits provided by the IRA.