The Exclusion of Nuclear Power From the Kyoto Protocol

What the Bonn Decision Means For Nuclear Power

The exclusion of nuclear power from the Clean Development Mechanism (CDM) and Joint Implementation (JI) mechanism of the Kyoto Protocol is both a financial and political blow to the nuclear industry. It prevents it from using "carbon credits" to help fund new reactors in developing countries and Central and Eastern Europe, and denies them the PR benefit of being a Kyoto-endorsed "clean development" technology.

While new construction in developing countries could continue and the debate about nuclear power as a climate response will carry on in Europe and North America, this outcome is undeniably a major defeat for the nuclear industry. "Unfortunately, exclusion from CDM and JI will reinforce the public acceptance issue of nuclear power and it will also probably have some commercial impact on the industry", said Foratom in a statement at Bonn.

Political implications

The political signal of being excluded from the Kyoto Protocol is that nuclear power is not the solution to climate change in developing countries and cannot be described as "clean development".

At the very least, the Bonn decision showed that concerns about climate change are not enough to override concerns about nuclear power, and that a climate strategy using nuclear power would be divisive and contentious.

Despite the complex negotiations and trade-offs that helped get the anti-nuclear language adopted in Bonn, it was clear that a majority of countries were sincere in their opposition, and believed that nuclear power has too many other adverse impacts to allow it to be eligible for the Kyoto mechanisms.

For a number of European countries it was one of their only "bottom lines", and they made it clear that they would not accept a pro-nuclear Protocol. This was also driven by recognition that in many anti-nuclear countries it would have been impossible to "sell" the already weakened Protocol to the public and Green parliamentarians if it included nuclear.

The political impact of the CDM language should not be underestimated. Imagine the PR benefit for the nuclear industry if it had been able to claim that construction of a new reactor in China was a "clean development" project, certified under the United Nation's Kyoto Protocol. Fortunately, that has been avoided!

What is not clear yet is what to extent the Bonn decision will affect domestic debates in developed countries about nuclear power as a solution to climate change. In the UK, the Kyoto Protocol and climate change as a whole continue to be cited as a positive factor for the nuclear industry in media stories about new nuclear construction, although this may be a function of the scarce media coverage of the anti-nuclear outcome at Bonn. Yet it is clear that the decision can be used against the nuclear industry in domestic debates. For example, the European Commission's attempts to extend the Euratom loan facility to China opens many EU member states to the charge of gross hypocrisy given their central role in preventing the CDM becoming a subsidy for the Chinese nuclear industry. And certainly, if the nuclear industry had been successful in getting nuclear power into the Kyoto Protocol it would have strengthened its climate-related arguments even further. As a Swedish delegate said at COP5: "If Sweden were to allow nuclear in the CDM, that would make political trouble for the nuclear phase-out at home".

Financial Implications

The loss of potential carbon credits will directly affect the economics of new reactor construction in developing countries by denying the industry a new source of funding. In its story about the postponement of a decision on Brazil's Angra III reactor, Nuclear Engineering International notes: "The exclusion of nuclear energy from the Kyoto Protocol as a clean energy alternative makes the financing of the plant more difficult". The high capital costs of nuclear make it an unattractive technology for developing countries already struggling to finance massive capacity additions. Carbon credits could have helped to address this problem. At a CDM workshop at last year's General Conference, the IAEA outlined it's hopes:

"Because many developing countries may not be able to afford the higher investments associated with a nuclear power project, or because nuclear may simply not be the least-cost generation option for a given country, CDM offers an opportunity for (incremental) capital and technology transfer sponsored by an Annex I country in exchange for GHG emission credits"

The message was reinforced by presentations at the workshop from China, India, Pakistan and Vietnam. Chinese industry representatives stated:

"To meet such targets [for future construction], however, China will need financial support through the CDM or some other mechanism to cover the difference between nuclear power plants costs and coal-fired power".

Atomic Energy of Canada Ltd (AECL) has also said it wanted to use JI to help fund nuclear reactors in Romania and Hungary (however unlikely this may have been).

While funding through the Kyoto Protocol has now been ruled out, other sources remain, and construction in developing countries will continue. Notably, in the month after the Bonn decision Vietnam again expressed interest in nuclear. In particular, the continued availability of Export Credit Agency (ECA) loans and guarantees remains as perhaps the single most important financial prop for western reactor exports to developing countries and while these remain available the industry will struggle on.

There have also been moves to open new funding channels, such as extending the Euratom loan facility to nuclear projects in China. And there is still the involvement of the EBRD in Eastern European nuclear projects.

Some developing countries will continue to build nuclear plants for strategic and national interest reasons, regardless of the economics. The loss of carbon credits will not affect this. But it will prevent the industry's attempt to shift some of the burden away from ECAs and state budgets, and thus make nuclear an even less attractive proposition. In short, nuclear construction in the developing world will continue, but it will not be accelerated, subsidised or justified by the Kyoto Protocol.

Ben Pearson

September 2001