Unclear energy- (11.12.05)

The current debate about whether new nuclear power stations should be built has one particularly interest sub question, should public money and subsidies support their construction. In a liberalised energy market shouldn't high oil prices mean that market forces should dictate whether nuclear power stations should be built or not.

Clearly there is some public benefit for having some state involvement over future energy decisions. All energy sources, and in particular nuclear, take some significant amount of time to come on stream. If the wrong decision is made, or if spare capacity where there is a risk of no reward is not built, then economic growth and the country as a whole could suffer in the future. As nuclear has the longest lead time and the largest externalities (from decontamination and disposal) then state support can be justified. This would have been evident when the last power stations were built in a nationalised industry, and the economic rationale for such support has not significantly altered.

A further complication comes from what type of involvement and who should pay for it. The most obvious solution is a levy through existing energy prices, perhaps through an extension to the climate change levy to ensure that other energy sources than nuclear also have the potential to benefit. That way support can be available with the minimum of current market distortions.