Late last week, the Trump Administration’s newly created foreign investment agency, the Development Finance Corporation, opened its doors to financing U.S. nuclear reactor export projects. Previously, their rules forbade this and with good cause: Even small modular reactors are projected to cost one half to several billion dollars and large ones can cost more than 10 billion dollars per unit. Those numbers could empty the bank. The reactors also pose safety and nuclear weapons proliferation risks. That’s why no private bank will finance such exports. You would think that would recommend due diligence and caution.
Yet, as Victor Gilinsky and I note in “Trump’s new foreign investment agency: Itching to build on nuclear quicksand,” in The Bulletin of the Atomic Scientists, the Development Finance Corporation has been quite content with its decision. Its press release on lifting the nuclear ban extolled the virtues of advanced reactors for the developing world. Nor was there any hint of what sorts of conditions might apply to the corporation funding nuclear reactors.
Would recipient countries have to have sound safety regulations? Would they have to meet security requirements? Would they have to allow international inspections? Would U.S. financing be limited to exports subject to the requirements of the Atomic Energy Act’s Section 123? Could corporation financing also cover equipment purchases from other suppliers? Could corporation financing be used to buy shares of foreign nuclear companies? Nobody yet knows. The agency has not yet offered any guidelines.
It should. After all, the corporation’s original purpose was to focus on the developing world and to compete with China’s One Belt One Road initiative. Instead, the development corporation has opened itself up to nuclear industry pleading (which has already begun) to support large reactor projects in Western and Eastern Europe.
What should be done? Congress, which created the Development Finance Corporation, needs to exercise oversight. In specific, it should urge the corporation to produce guidelines for nuclear projects and make them subject to public comment for 60 days as if they mattered as much as any “high-risk” project the corporation might finance. Congress could also hold a hearing. Just one would do.
Jul 17, 2020
AUTHOR: Victor Gilinsky and Henry Sokolski
Trump’s new foreign investment agency: Itching to build on nuclear quicksand
Victor Gilinsky and Henry Sokolski
In 2018 a Republican Congress, with strong Democratic support, created the US International Development Finance Corporation to “provide the developing world with financially sound alternatives to unsustainable and irresponsible state-directed initiatives.” That’s government-speak for competing with China’s Belt and Road initiative. It didn’t take very long, however, for the new agency to fall in line with an irresponsible state-directed initiative of its own—the Trump administration’s all-out effort to encourage nuclear exports.
In June, the agency, whose own rules prohibit financing nuclear exports, proposed to fling the doors open to such financing, without limiting its scope to the agency’s mission to help the economies of the lower income countries with modest, environmentally sensible projects. There is no hint on what sorts of conditions would apply on funding nuclear reactors. Would the country have to have a system of safety regulation? Would it have to meet security requirements? Would it have to allow international inspections? It isn’t even clear whether the agency’s support would be limited to US reactor exports, and therefore subject to the requirements of the Atomic Energy Act’s Section 123 or whether they could also cover equipment purchases from other suppliers. Such details determine whether a federal bureaucracy is constrained to act responsibly, or whether it is free to cater to the latest whims of the White House.
To justify its proposed action, the agency relies on the administration’s ritual talking points—that nuclear exports will “offer an alternative to the financing of authoritarian regimes while advancing US nonproliferation safeguards and supporting US nuclear competitiveness.” These pearls are straight out of the administration’s April 2020 interagency report “Restoring America’s Competitive Nuclear Energy Advantage.”
So are the agency’s assurances that advanced “small modular reactors” and “microreactors” will have significantly lower costs than existing nuclear power plants and “could help deliver a zero-emission, reliable, and secure power source to developing countries, promoting economic growth and affordable energy access in underserved communities.” This is all pie in the sky: None of these plants have been built, and their characteristics and economics are speculative.
But if the proposed change is restricted to small reactors or microreactors, the nuclear industry’s influential registered lobby, the Nuclear Energy Institute, hasn’t heard about it. The Institute’s president crowed her unqualified approval: “The US International Development Finance Corporation’s proposed policy change to lift its legacy prohibition on nuclear energy projects supports the development of clean, reliable energy worldwide, helps countries reach their energy development goals, buttresses US national security, and can help level the playing field for US firms.”
Nor does her response suggest any awareness that the agency’s financing of nuclear projects will be limited to countries in the lower portion of the economic scale. “An increasing number of countries around the world that meet [the agency’s] project criteria are looking to build new reactors or expand existing nuclear energy programs. Without robust financing to encourage partnership with the United States, well-funded, state-owned enterprises from China and Russia are filling this void.”
The agency also announced the change with unusual haste. July 10th marked the end of a 30-day public comment period. The agency’s own rules state that risky projects, say, a large industrial plant, “are disclosed to the public for a comment period of 60 days.” Under its current rules, nuclear reactors and parts fall in the riskiest category, under “Categorical Prohibitions.” The proposed change involves not one risky project but an entire class of such projects, which would bounce from the forbidden category into the fully acceptable category. But for some reason the agency only saw fit to give half the normal time for public comment.
This whole affair is the latest expression of the administration’s organizing principle for nuclear energy policy—finding ways to loosen rules and to create subsidies to propel nuclear exports. This is supposed to energize the much-diminished domestic nuclear manufacturing sector. Since the whole policy doesn’t make any economic sense, the ultimate argument is based on the dogma: Come what may, we have to head off sales by our adversaries China and Russia.
The administration’s interest in the possible consequences of nuclear exports on the spread of nuclear weapons is pretty much limited to simply asserting, in opposition to all common sense, that nuclear exports, however loosely controlled, support our nonproliferation policies, because other suppliers—China and Russia—would offer even looser conditions. In other words, the administration proposes a race to the bottom.
Here again, the agency parrots the party line: “This change could also offer an alternative to the financing of authoritarian regimes while advancing US nonproliferation safeguards and supporting US nuclear competitiveness.”
The sad part is that the agency really does have a useful function in helping developing societies in healthy ways. And helping to avoid entanglement with China and Russia, fundamentally dictatorial and malevolent regimes, is an important part of that. But the agency’s role will not be fulfilled by imitating those regimes in their sales practices. The only ones who will profit will be the US companies that receive government subsidies.
The agency does have on its books good environmental, social, and economic criteria for evaluating projects. But will they be applied as intended? Its effort to quick march the comment process on changing its rules in a dramatic way, and relying on propagandistic arguments, undermines confidence that they will be adhered to. The agency needs to return to the drawing board to reconsider the terms on which nuclear projects would fit in its portfolio, and whether they do at all.
Congress should closely supervise the project. The BUILD Act that created the agency assigns oversight responsibilities to the Senate Foreign Relations and Appropriations committees as well as the House Foreign Affairs and Appropriations committees (Sec. 1402(1)). They have their work cut out for them.