Nuclear Power in the Context of Climate Change: Comparing the Cost of Nuclear and Fossil Fuel Power Plants with a Carbon Tax

98 Pages Posted: 17 Oct 2022

Date Written: July 26, 2022

Abstract

Concerns about climate change have led many to advocate for future reliance on nuclear power, a constant low‐​carbon energy source. But nuclear’s high capital costs have historically precluded its ability to be cost‐​competitive with fossil fuel generators. Would nuclear power be cost‐​competitive if the climate‐​change damages of carbon emitters are included in the cost of electricity? A new nuclear power plant built at construction costs recently experienced in the United States and Western Europe could be cost‐​competitive with coal if there is a reasonably sized carbon tax, but to have costs equal to a new natural gas combined‐​cycle plant would require a minimum carbon tax of $265 per metric ton of CO2 averaged over the lifetime of the natural gas plant (approximately $196 per metric ton in 2020). At construction costs 55 percent lower than the average costs of recent Western nuclear projects, nuclear could be a viable option for private investors compared to a natural gas combined‐​cycle plant, but only if there is a moderately sized carbon tax (a minimum of $70 per metric ton averaged over the next 30 years; roughly $51 per metric ton in 2020) and the projected natural gas price is high.

Keywords: Nuclear Power; Electricity Generation; Overnight Cost, Climate Change, Fossil Fuels, Carbon Tax, Levelized Cost of Electricity

JEL Classification: D61, D62, L51, L94, Q48, Q54, Q58

Suggested Citation

Kemp, David and VanDoren, Peter M., Nuclear Power in the Context of Climate Change: Comparing the Cost of Nuclear and Fossil Fuel Power Plants with a Carbon Tax (July 26, 2022). Available at SSRN: https://ssrn.com/abstract=4239916 or http://dx.doi.org/10.2139/ssrn.4239916

David Kemp (Contact Author)

Cato Institute ( email )

1000 Massachusetts Avenue, N.W.
Washington, DC 20001-5403
United States

Peter M. VanDoren

Cato Institute ( email )

1000 Massachusetts Avenue, N.W.
Washington, DC 20001-5403
United States

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