The OECD Nuclear Energy Agency (NEA) on 18 July released a new study, “Ensuring the Adequacy of Funding Arrangements for Decommissioning and Radioactive Waste Management”. The 239-page document comprises a conceptual framework, 12 detailed country case studies on funding arrangements prepared in collaboration with NEA countries, and some best policy guidelines. It focuses on the interdependence of costs and funding requirements and changes in nuclear policy, such as long-term operation or premature shutdowns, as well as technological progress.

"We are at the threshold of a new consideration across the world to use nuclear energy to deal with the threat of climate change, along with other energy forms," NEA Director General William Magwood said at the launch of the study. "This is a time of great uncertainty because we have new technologies that are being introduced. We have the idea of building new nuclear plants. But in order to proceed along those lines, we have to show that we know how to deal with the back-end of our fuel cycle, with decommissioning and radioactive waste. The fact that there is some uncertainty in the minds of the public and some policymakers about this is the reason this report was created."

The world’s nuclear power reactors are ageing, with the majority approaching the end of their planned operational lifetimes in the coming years, says NEA. While current funding systems in NEA countries are overall adequate, the challenges ahead are formidable. Decommissioning and radioactive waste management (RWM) are moving from design to implementation, returns on assets are low and societal preferences can evolve. “The very long-term nature of the solutions, in particular for radioactive waste disposal, is also not easily compatible with the economic lifetimes of the original liability holders.” For the purposes of the report, radioactive waste refers only to used fuel and high-level waste.

The basic approach of the study is “to frame the question of the adequacy of funding arrangements in terms of the transparency, flexibility and political sustainability of the overall institutional set-up rather than in pure accounting terms, where assumptions about discount rates, which are often ad hoc, are usually the only decisive parameter”. This approach also includes a somewhat broader interpretation of the Polluter Pays Principle (PPP).

The report is part of the Programme of Work of NEA’s Division of Nuclear Technology Development and Economics. It was prepared under the oversight of the Working Party on Nuclear Energy Economics and the Committee for Technical and Economic Studies on Nuclear Energy Development and the Fuel Cycle with input from experts in NEA member countries and the International Atomic Energy Agency. It is organised in three parts: a conceptual framework for financially and politically sustainable financing arrangements for the back-end of the nuclear fuel cycle; 12 country case studies on funding arrangements prepared in collaboration with NEA member countries; and a synthesis of elements of good policy practice.

The report draws inspiration from a branch of economics known as Law and Economics, which “links general economic notions of efficiency and cost minimisation in a flexible and non-dogmatic manner to the working of institutions and the allocation of legal responsibilities”. This suggests that financially, socially and politically sustainable funding arrangements will need to be built on two fundamental guiding thoughts:

First, the parties that are best capable of managing the costs and risks related to decommissioning and RWM should also ultimately be the ones responsible for funding, including the ability to choose between different options and to determine technological choices.Second, decommissioning and even more so RWM concern commitments that stretch out far into the future for decades, possibly centuries. Economic, political and technical framework conditions on both the asset and cost side will change over these periods. As long as commitments for disbursement are distant, a narrative of stable parameters can be a useful intermediate step to set up funding systems. However, when real disbursements loom, the accuracy of estimates can no longer be taken for granted. Funding frameworks will increasingly need to integrate the conscious and explicit management of change in a sustainable rhythm.

The report lists four reasons to discuss the adequacy of funding for decommissioning and RWM.

As the nuclear power fleet ages, many units will approach the end of their original operating licences in the coming years with prospects for long-term operation varying widely across NEA countries.Changes in the macroeconomic environment are questioning many of the assumptions on which, until recently, discussions about funding were predicated.Changes in funding arrangements are already under way in a number of NEA countries.Decommissioning and, in particular, RWM remain highly sensitive issues in policy debates.

The study looks at differences between decommissioning and RWM.

There are common elements to ensuring the adequacy of funding for decommissioning or RWM, including high levels of public scrutiny and low returns on risk-free and low-risk investments. However,

A closer look, however, reveals that the timeframes, the level of uncertainty on costs as well as the level of industrial maturity are different, which warrants different approaches. Ensuring adequate funding for decommissioning and RWM therefore requires “a broad set of technical, legal, economic and financial competences combined with a keen sense for political sensitivities”.

The 12 case studies provide the concrete experience and the empirical evidence to complement the considerations developed in the conceptual framework. The countries studied include Belgium, Canada, Finland, France, Germany, Japan, South Korea, Spain, Sweden, Switzerland, the UK and the USA.

Together, they convey a double message. First, national particularities are important. History, institutional arrangements, the size and role of the nuclear industry all matter in determining current and future forms of funding arrangements. Second, in almost all countries change is under way in different forms. The extent and speed of the adaptations vary widely, ranging from minor adaptations in the investable asset classes to comprehensive transfers of liabilities and assets. Moreover, these changes are introduced for different reasons.

Looking at elements of good policy practice, the study sets out the theory and practice of future-oriented policies to ensure the adequacy of financing for decommissioning and RWM. Such policies move away from comparing estimations of current assets with highly uncertain future liabilities discounted by social discount rates that have little grounding in economic conditions or a coherent conceptual framework. Also, the liabilities of such orders of magnitude will ultimately need to be borne by the parties “best placed to manage the specific risks associated with funding decommissioning and RWM”. Instead of linearly discounting hypothetical costs with hypothetical discount rates, sustainable funding frameworks “should explicitly be conceived in a manner that enables them to react flexibly as key elements of the system change”. Such an adaptive approach will also include a broader interpretation of the PPP.

The report says the situation in the area of decommissioning is slightly different as the timeframes are shorter, the technologies better established, and objectives well-defined, meaning incalculable residual risks can be expected to be of lesser importance. This makes a literal interpretation of the PPP far more pertinent. Nuclear operators are indeed much better placed to assume the responsibility for both the funding and the operational implementation of decommissioning than for RWM solutions.

While there remains a need to manage the interface of decommissioning and RWM carefully, this report “suggest somewhat different approaches to ensuring the adequacy of funding for decommissioning and RWM”. It says decommissioning is likely to move on in the coming years, and due to the codifying work on methodologies being done at the NEA and elsewhere, it could become “a mature industrial activity, which does not require any public involvement beyond standard regulatory oversight”. However, “it is currently difficult to conceive that RWM will reach that stage in the foreseeable future”. In both areas, “the appropriate institutional arrangements need to be complemented by the careful building of human capacity, especially when designing funding schemes for the financing of decommissioning and RWM in newcomer countries”.

In conclusion, the report “proposes a circular decision-making framework, in which all elements of the system can vary, while continuing to feed into each other”. Adequacy of funding will no longer defined by comparing estimated future costs, discounted by an assumed social discount rate, and accrued funds. Instead, it will be assessed “by considering whether decision-making processes are capable of taking into account changes in key parameters in a manner that is sufficiently robust and sophisticated to align and realign them in different constellations”.

Date: Tuesday, 22 June 2021
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