The United States Inches toward Development Financing for Nuclear Projects

On June 10, the U.S. International Development Finance Corporation (DFC) opened a 30-day comment period on a proposed change to its Environmental and Social Policy and Procedures, a move that was among the recommendations by the Nuclear Fuel Working Group (NFWG). The NFWG, established by President Trump in July 2019, has viewed the DFC’s restriction on nuclear projects financing as a major hindrance for the United States’ ability to compete in the global nuclear market and recommended that “U.S. financing institutions support civil nuclear industry to compete against foreign state financing.” In its press release announcing the proposed change, the DFC underlined that nuclear power is a non-carbon-emitting power source that can facilitate economic development, as well as energy access, and emphasized the suitability of small modular reactors (SMRs) and microreactors for developing economies, as such reactors are cheaper than traditional nuclear power reactors.

The DFC came into existence in October 2019 after subsuming the Overseas Private Investment Corporation (OPIC) and the Development Credit Authority of the U.S. Agency for International Development per the BUILD Act. OPIC, established in 1971 to provide development finance, had a restriction on financing for nuclear power projects under its Environment and Social Policy Statement that has been grandfathered into the DFC. The restriction, which is guidance and not law, was adopted when OPIC was reauthorized per the Consolidated Appropriations Act of 2010, which required that OPIC institute regulations “no less rigorous than . . . the environmental and social policies of the World Bank Group,” concerning the production and trade in radioactive materials as well as nuclear reactors and components.

The United States has long been regarded as a leader in nuclear reactor technology, and that technological edge was the key differentiator and decisive determinant in the eyes of countries considering a nuclear power generation project. This edge, however, is now beginning to be outweighed by Russian and Chinese deals that combine “good enough” technologies with attractive financing. Viewing nuclear energy as a strategic sector, Russia and China provide financing that is large (in total amount provided), cheap (with low interest rates), and long-lived (with long repayment periods), and both have been willing to invest equity in projects. 

While U.S. nuclear energy exports stagnate, Russia and China are beginning to shape the future of the global nuclear industry. The United States, which had supplied about 90 percent of the reactors in the Western world until early 1970s, has no nuclear power project under construction overseas, while Russia accounts for two-thirds of the globally exported nuclear power projects under construction today. China, which is building reactor units in Pakistan using its latest reactor technology, is eyeing about a dozen countries for export opportunities.

The proposed DFC policy change is largely a culmination of years of calls by both major stakeholders in the U.S. nuclear industry and those in the national security community who view waning U.S. competitiveness in nuclear technology development and exports as a national security concern. Yet, the support for policy change is not unanimous. Some nuclear experts have expressed concern that the policy change could position the U.S. government to effectively be aiding the spread of nuclear technologies and radioactive materials in the developing world, thereby raising proliferation risks. Such concern may not be unwarranted in light of the recent shift in the global nuclear market, where the countries aspiring to acquire nuclear power generation capacity are typically smaller economies with weaker financial capacity and less political stability compared to the countries that introduced nuclear power generation in the decades immediately following World War II.

It is this shift in market profile that Russia and China have recognized ahead of the United States and thus have adapted their business models to seize market opportunities. But, here also lies the rationale for lifting the restriction on nuclear finance by a U.S. government agency. Since the end of World War II, a combination of technological prowess, military strength, and the competitiveness of nuclear energy exports has played a significant role in enabling the United States to become a global leader on nuclear safety and nonproliferation issues. For example, bilateral agreements that allow U.S. exports of nuclear reactors, components, and services contain provisions that require inspection of U.S. nuclear exports to verify they were not diverted for non-peaceful purposes. Proponents of the DFC policy change see the current finance ban as a significant handicap on the United States’ ability to remain a competitive nuclear technology developer and exporter as well as a leading voice on nuclear safety and nonproliferation issues—an area where the depth of Russian and Chinese commitments remain uncertain. 

Lifting the finance restriction may not lead to an immediate surge in the export of U.S. SMRs and microreactors as there is not yet such a reactor in commercial production. But the commercialization of SMRs and microreactors, as well as other advanced reactors, is speeding up. For example, California-based microreactor developer Oklo is aiming to build a commercial reactor later this year, and Oregon-based SMR developer NuScale is on schedule to begin commercial production in the mid-2020s. 

There is a strategic opportunity for the United States to take advantage of the emergence of these new reactor technologies to once again become a part of global nuclear commerce. But what makes us who we are—the country that many nuclear newcomers past and current look to for high regulatory standards and exchange of expertise—requires the United States to take steps beyond simply enhancing nuclear technology innovation or matching, or even outdoing, the large and cheap financing by Russia and China. Simply re-entering the commercial race would not guarantee against spurring a race to the bottom on safety and nonproliferation matters. A robust deployment of advanced reactors will likely necessitate changes and updates to the existing regulatory and institutional requirements in safety and nonproliferation. Only through an earnest and proactive effort to identify and address such needs along with a commensurate effort to update U.S. financing approaches will the United States be on a path to restoring true leadership in the global nuclear energy ecosystem.

Jane Nakano is a senior fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2020 by the Center for Strategic and International Studies. All rights reserved.

Jane Nakano
Senior Fellow, Energy Security and Climate Change Program