President Obama announced $8.3 billion in federal loan guarantees today to commence projection construction on two nuclear reactors in Burke County, Georgia. This is good news. Congress has authorized $18.5 billion in loan guarantees for nuclear energy projects under the Energy Policy Act of 2005, which also provided other subsidies for nuclear power to help mitigate the effect of decades of regulatory risk for approximately the first six nuclear reactors built in the U.S. While the administration should be applauded for finally getting this program off the ground and getting the remaining $10.2 billion issued should be a priority, loan guarantees are not enough to recreate a robust nuclear industry in the United States. Indeed, an expansion of the program could do much more to stifle the industry’s growth than to help it.

Reuters reports that “A spokesman for Southern [Company] said the loan guarantee would cover up to 70 percent of the company’s portion of the project’s costs.” The money would be paid back if Southern Co. earns back its costs. Loan guarantees can help overcome some near-term financing obstacles, but they are subsidies and should not be expanded. Heritage nuclear expert Jack Spencer writes:

Expansive loan guarantee programs are wrought with problems. At a minimum, they create taxpayer liabilities, give recipients preferential treatment, and distort capital markets. Further, depending on how they are structured, they can remove incentives to decrease costs, stifle innovation, suppress private-sector financing solutions, perpetuate regulatory inefficiency, and encourage government dependence.”

Spencer lays out the problems with energy loan guarantees here.

Instead of expanding the loan guarantee program, the government should focus its attention on implementing policies that create a sustainable nuclear industry and reduce the taxpayer liability of the existing loan guarantees. New nuclear policy should address the problem and create a solution for waste management. The government should not take the geologic repository for nuclear waste, Yucca Mountain, off the table but instead allow the Nuclear Regulatory Commission (NRC) to come to an objective, scientific conclusion on Yucca’s usability.

It is equally important for Congress to make the regulatory process for permitting new nuclear reactors more efficient, and to equip the NRC for regulating different reactor technologies. Establishing a predictable and effective regulatory structure for the nuclear industry, without compromising safety and security, will do much more to drive a nuclear renaissance than perpetuating the status quo with nuclear subsidies.