Nuclear Technology Development and Economics 2021 Ensuring the Adequacy of Funding Arrangements for Decommissioning and Radioactive Waste Management NEA Nuclear Technology Development and Economics Ensuring the Adequacy of Funding Arrangements for Decommissioning and Radioactive Waste Management © OECD 2021 NEA No. 7549 NUCLEAR ENERGY AGENCY ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT The OECD is a unique forum where the governments of 38 democracies work together to address the economic, social and environmental challenges of globalisation. The OECD is also at the forefront of efforts to understand and to help governments respond to new developments and concerns, such as corporate governance, the information economy and the challenges of an ageing population. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies. The OECD member countries are: Australia, Austria, Belgium, Canada, Chile, Colombia, Costa Rica, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The European Commission takes part in the work of the OECD. OECD Publishing disseminates widely the results of the Organisation’s statistics gathering and research on economic, social and environmental issues, as well as the conventions, guidelines and standards agreed by its members. This work is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the member countries of the OECD or its Nuclear Energy Agency. NUCLEAR ENERGY AGENCY The OECD Nuclear Energy Agency (NEA) was established on 1 February 1958. Current NEA membership consists of 34 countries: Argentina, Australia, Austria, Belgium, Bulgaria, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Norway, Poland, Portugal, Romania, Russia, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The European Commission and the International Atomic Energy Agency also take part in the work of the Agency. The mission of the NEA is: – to assist its member countries in maintaining and further developing, through international co-operation, the scientific, technological and legal bases required for a safe, environmentally sound and economical use of nuclear energy for peaceful purposes; – to provide authoritative assessments and to forge common understandings on key issues as input to government decisions on nuclear energy policy and to broader OECD analyses in areas such as energy and the sustainable development of low-carbon economies. Specific areas of competence of the NEA include the safety and regulation of nuclear activities, radioactive waste management and decommissioning, radiological protection, nuclear science, economic and technical analyses of the nuclear fuel cycle, nuclear law and liability, and public information. The NEA Data Bank provides nuclear data and computer program services for participating countries. 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Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at [email protected] or the Centre français d’exploitation du droit de copie (CFC) [email protected]. Cover photo: Business accounting (Zadorozhnyi Vikto/Shutterstock); Massive containers hold spent nuclear fuel at safe and secure dry storage facilities (Creative Commons, NRCgov); Handshake (Dragon Images/Shutterstock). Foreword This study by the OECD Nuclear Energy Agency (NEA) consists of three parts: a conceptual framework, twelve country case studies on funding arrangements prepared in collaboration with NEA countries, and some best policy guidelines. The study focuses on the interdependency of costs and funding requirements on the one hand and changes in nuclear policy, such as long-term operation (LTO) or premature shutdowns, as well as technological progress on the other hand. The basic approach 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. The project proposes, in particular, to complement current approaches to assessing financial adequacy, which are based on the linear discounting of estimated future costs for decommissioning and waste disposal, with a circular approach. In the latter, the elements of funding arrangements continuously adapt as new information on costs, social preferences, policy objectives, lifetimes or rates of return on existing assets becomes available. The question of the adequacy of funding for decommissioning and waste disposal thus evolves as it allows changes in parameters. This approach also includes a somewhat broader interpretation of the Polluter Pays Principle (PPP), which is based on a partial equilibrium framework in which causalities are obvious, parameters are fixed and “damages” can be quantified and monetised. Drawing on an established body of work in the field of Law and Economics on risk management and liability distribution, there will be some reflection on the optimal allocation of ultimate responsibilities with regard to the back-end of the nuclear fuel cycle. Said literature holds, for instance, that responsibilities should always be allocated to the party best placed to reduce risks. Depending on the circumstances of each country, such considerations might lead to funding solutions that are different for decommissioning than for radioactive waste management or its subsets, such as spent nuclear fuel (SNF) management. Nuclear operators can usually manage decommissioning risks as part of their industrial activities. This might not always be the case for nuclear waste management, especially where deep geological repositories (DGR) are the preferred solution as timeframes are likely to exceed the lifetime of any individual operator. Of course, allocating ultimate responsibilities for radioactive waste management to a party other than nuclear operators, e.g. governments or special-purpose vehicles, does not imply absolving electricity producers and their customers from footing the essential part of final costs. Liability transfers necessarily imply a transfer of the funds to cover those liabilities. It might, however, also imply allocating residual risks that result from policy decisions or evolving social preferences to those parties best equipped to handle them. The study finally explores the theme of incentive compatibility in the sense that funding arrangements should be cost-effective in the long term to make them more politically and socially sustainable in different OECD countries. Clearly, there is a wide range of solutions as national circumstances differ greatly both in economic and technical terms with respect to the historical allocation of responsibilities and social preferences. The work to produce this report was undertaken under the oversight of the Working Party on Nuclear Energy Economics (WPNE) and the NEA Committee for Technical and Economic Studies on Nuclear Energy Development and the Fuel Cycle (NDC). Throughout the preparation of this report the authors regularly briefed the NEA Radioactive Waste Management Committee and its bureau and consulted widely with other international organisations such as the European Commission and the International Atomic Energy Agency (IAEA). ENSURING THE ADEQUACY OF FUNDING ARRANGEMENTS FOR DECOMMISSIONING AND RADIOACTIVE WASTE MANAGEMENT, NEA No. 7549, © OECD 2021 3 Acknowledgements The lead author of this report is Professor Jan Horst Keppler, NEA Chief Energy Economist. Effective managerial oversight was provided by Dr Sama Bilbao y León (Head of the NEA Division on Nuclear Technology Development and Economics [NTE] from June 2018 to September 2020), Dr Gloria Kwong (Acting Head of the NTE Division from September 2020 to March 2021) and Diane Cameron (Head of the NTE Division since March 2021). Ms Rebecca Tadesse, Head of the NEA Division on Radioactive Waste Management and Decommissioning (RWMD) provided helpful support throughout the