Sustainability-oriented EU Taxes: A European Nuclear Power Tax Outline: Nuclear Power in the EU Existing taxes on NP in the EU The social costs of NP Windfall profits A rationale for taxing NP Why at the European level? Tax design & approximate revenues

Nuclear Power in the EU The most important low carbon electricity source in the EU 27% of EU electricity mix is NP 27% is renewable energy 129 reactors in 14 countries in operation 400,000 - 500,000 jobs in NP industry 4 reactors currently under construction Severe cost escalation for new reactors Source: EC 2016, COM(2016) 177 final Nuclear Illustrative Programme EPR: Olkiluoto, Finland; Flamanville, France New design, maybe safer but so far a financial disaster. Costs have tripled to quadrupled, and connection to the grid is still not in sight. Mochovce 3&4, Slovakia, (Construction was started in the 1990ies, but halted due to lack of money. Since 2009 construction was restarted. Originally, the reactors should have been connected to the grid by 2012/2013. But there were several delays and design changes, including due to law suits and the EU stress test. Costs have doubled by now, as can be expected as a result of the delays. It shows the many reasons why investing in reactor construction is risky, even in actually favourable conditions. Connection to grid is expected for 2017 (reactor 3) and 2018 (reactor 4))

Existing Taxes on NP in the EU Germany Tax on nuclear fuel: 145 €/gram => 1 – 1.5 cents/kwh From 2011 to 2016 Spain Charges on nuclear waste: 0.66 - 0.78 cents/kwh Belgium Charge of approx. 0.5 cents/kwh Sweden Tax of 0.75 cent/kwh Will be phased out between 2017 and 2019 Minor charges in Finland, Slovakia, Romania, France

The Social Costs of NP Private costs: it does not pay to build new nuclear plants Very large initial investment of several billion € risky return Other social cost components: the risk of accidents, nuclear waste and state subsidies Are social costs internalised sufficiently? Is there a scope for Pigouvian taxation? Compare Davis 2012, von Hirschhausen und Reitz 2014, Rogner 2012, Grubler 2012 Risky return because of long amortization periods and uncertainty about future energy markets. In a regulated market, the providers costs would be covered. In a liberalized energy market, there can be no such guarantee. The investment is risky because of cost overruns and regulatory risk, (e.g. Zwentendorf, but sth similar happened in the US as well, see Davis 2012). There is evidence for cost escalation and negative learning by doing in the past. At the moment, very few new NPPs are being built in the EU and none in the US.

Social Cost Components Nuclear accidents Risk of an accident: 1:10,000 – 1:1,000,000 (D’haeseleer 2013) Costs of an accident: € 69 billion – € 343 billion (FÖS 2012) € 120 billion – € 430 billion (IRSN 2007, 2012) => Resulting EXTERNAL COSTS: Cents/kwh 0.03 – 0.1 – 0.3 - no risk aversion (D’haeseleer 2013) Cents/kwh 10.7 – 34.3 - risk aversion factor 100 (FÖS 2012) Subsidies € 8 billion per year (Ecofys 2014) Radioactive Waste and Decommissioning Costs until 2050: € 253 billion (EC 2016) Council Directive 2011/70/Euratom: Application of the polluter pays-principle Subsidies are primarily due to research funding and guarantees during construction Institut de Radioprotection et Sureté Nucléaire – include image loss for France after a nuclear accident

Windfall Profits Windfall profits from carbon pricing Electricity prices are expected to increase due to carbon pricing 25 €/t CO2 => windfall profits of approx. € 10 billion per year in the EU Windfall profits from lifetime extensions Private costs after lifetime extension: Cents/kwh 2.3 -2.6 (D’haeseleer 2013) Much lower than private costs of conventional energy sources (gas: 4.8 cents/kwh - 6.6 cents/kwh) A carbon price of 25 €/t CO2 generates windfall profits of approximately 10 Billion € a year in the EU (own calculations based on DIW/Diekmann 2007) Replace numbers for Germany with numbers for the EU – Kurt and Mark

A Rationale for Taxing NP Why tax NP? Internalisation of external costs Reaping of windfall profits Little effect on consumers in liberalized energy markets (D‘haeseleer 2013, FÖS 2009) Proposed tax rates: 1 Cent/kwh => internalisation of external costs 1.25 Cent/kwh => windfall profits for carbon price of 25€/t CO2 Special charges for NPPs under LTO licence LTO = long term operation

Why a European tax? NPP accidents constitute a cross-border risk Require cross border safety measures and prevention Suboptimal national tax rate EU subsidies for NP Common energy market => Do not distort competition! ETS as EU policy should be combined with an EU windfall tax on NP Generation of revenues to lower Member States‘ contributions to the EU budget

Tax design Possible tax bases: Electricity produced Installed capacity Nuclear fuel @ tax bases: What is best in line with EU energy taxation directive? Long term supply elasticity: Probably irrelevant, because new NPPs in Europe seem to be not profitable anyway Supply Elasticity – possible exception: licence will expire soon + additional investments required = plant shut down Electricity produced – 830,842 GWH Installed capacity – 120,624 Mwe (2016) Nuclear fuel

Approximate revenues EU NP electricity production in 2014: 830,842 GWH Potential revenues: € 8.3 billion – for a tax rate of 1 cent/kwh Internalization of external costs € 18.7 Billion – for a tax rate of 2.25 cent/kwh Charge for windfall profits of carbon pricing for a price of 25 €/t CO2