Crony Capitalism: Japan’s Nuclear Industry

Japan’s nuclear industry has been a product of crony capitalism.

Writes Shikha Dalmia, (hat tip: Matt Ridley) [all bold highlights mine]

But nuclear appeals to Japan’s mercantilist rulers, who, since the mid-’60s, have regarded the country’s lack of indigenous energy resources as a major strategic vulnerability that must be corrected at all cost. They have committed themselves to increasing Japan’s energy independence ratio from the current 35 percent to 70 percent by 2030. “We can no longer rely on the market to secure energy,” declared Koji Omi, chairman of the Liberal Democratic Party’s Energy Security Committee, a few years ago. “We should put much more emphasis on energy as our nation’s strategy.”

Such thinking has prompted Japanese lawmakers to push nuclear more aggressively than street vendors hawking broken Mao watches in Tiananmen Square. From 1990 to 2000, nuclear’s share of Japan’s energy mix has gone from 9 percent to 32 percent.

To get there, Japan has poured lavish subsidies into nuclear, starting with research. Around 65 percent of Japan’s energy research budget goes toward nuclear — the highest of any country — with the industry spending $250 million, well below 10 percent of what the government spends. Even France, which gets 80 percent of its energy from nuclear, spends three-and-half times less than Japan.

Beyond research, the government offers the nuclear energy industry loans that are a full percentage point below commercial levels. And for four decades, Japan has taxed the utility bills of electricity consumers, distributing the proceeds to communities willing to house nuclear plants. In essence, nuclear’s competitors are being forced to act against their own interest to bribe local communities to accept a risk against the communities' interest.

But the mother of all subsidies is the liability cap that nuclear enjoys. In the event of an accident, the industry is on the hook for only $1.2 billion in damages, with the government covering everything beyond that. Japan’s cap is generous even by American standards, which require the industry to cover $12.6 billion before Uncle Sam kicks in. (Nuclear proponents in the U.S. argue that this liability cap is necessary given our insane tort awards. However, the fact that even countries without such awards have to offer a liability cap suggests that nuclear technology is not yet considered safe enough to be viable.)

The liability cap effectively privatizes the profits of nuclear and socializes the risk. It uses taxpayer money to diminish the industry’s concern with safety — which government regulations can’t restore. In 2008, Tokyo actually started offering bigger subsidies to communities that agreed to fewer inspections. The problem of regulatory capture is particularly endemic in Japan given that regulators seek industry jobs upon retirement, and hence often cozy up to companies they are supposed to oversee.

When politics become the masters instead of the consumers, it is of no doubt why safety has been compromised.