The Overstretched Superpower
Does America Have More Rivals Than It Can Handle?
For signs of Russia’s geopolitical resurgence, look no further than Hungary. Russian President Vladimir Putin’s 2015 visit there was a quiet affair. At the time, Putin was coming under intense international pressure for his annexation of Crimea. Hungarian Prime Minister Viktor Orbán was the first European leader to host Putin after the invasion. In an effort to deepen energy cooperation, Moscow extended a ten billion euro ($10.7 billion) loan to Budapest to finance the Russian state firm Rosatom’s expansion of the Paks Nuclear Power Plant in central Hungary, which supplies 40 percent of Hungary’s electricity.
When Putin travelled to Hungary again this February, it was under more triumphal circumstances. Standing next to the Russian president, Orbán spoke about a world “in the process of substantial realignment.” Before he left, Putin had agreed to finance the entire Paks project.
Moscow’s offer to Budapest was not a one-off deal; it was a material display of Russia’s emerging nuclear diplomacy. The Kremlin appears to be pressing its formidable nuclear market power to influence and bind countries around the world to its irredentist and revanchist aims. Unless the United States restores its leadership in the global nuclear economy, this scene could play out repeatedly for decades.
THE DEVELOPING WORLD GOES NUCLEAR
Although atomic energy is in steady decline in the EU, United States, Japan, and elsewhere, it is poised for growth in the world’s emerging economies. In an effort to combat climate change, ten countries accounting for more than one-third of the world’s energy demand—including three without existing nuclear programs—are already incorporating nuclear power into the climate pledges they made under the Paris Agreement. These include China, Turkey, and the United Arab Emirates. Asian countries alone are forecasted to increase nuclear power generation sixfold by 2040. And even India, whose climate strategy relies mostly on solar deployment, plans to boost its nuclear capacity eightfold. Although such plans might seem overly ambitious in the short term, they signal how some of the world’s largest countries plan to meet long-term demand for energy.
Atomic energy is poised for growth in the world’s emerging economies.
The renewed rush toward nuclear power is good news given that, under current forecasts, global nuclear capacity would have to double by 2050 to safely limit global warming to two degrees Celsius. As nations increase the ambition of their respective climate plans every five years, as the Paris Agreement mandates, more will likely incorporate nuclear power into their climate plans.
Moreover, continued investment in the next generation of reactors will open vast new markets to nuclear power. Many emerging economies cannot currently sustain nuclear power because existing technologies require prohibitively expensive and complex safeguards. But one medium-term design, the small modular reactor (SMR), could help civil nuclear programs thrive worldwide. These new reactors—compact and factory fabricated—circumvent many of the barriers that prevent less developed countries from adopting nuclear power today. SMRs require lower initial capital investments, have greater scalability and siting flexibility, and can be transported by truck or rail. Simply put, SMRs could help countries that currently face financial and geographical barriers to atomic power adopt it.
Down the road, SMRs may provide a bridge to the commercialization of new, innovative models known as Generation IV reactors. Although they are not yet ready for commercial construction, these designs are more efficient, cheaper, and consume rather than create nuclear waste. SMRs and Generation IV reactors alike could thrive in a renewables-dominated future because, unlike today’s designs, they are designed with scalability in mind. Renewable power is intermittent, so as more of it is added the grid, the risk of power shortages and overloads rises. In turn, the consistent baseload power generation necessary to satisfy minimum demand must become more dynamic, able to quickly turn on and off to avoid blackouts and negative pricing.
THE ATOMIC GREAT GAME
Russia stands to benefit most from the developing world’s increasing appetite for nuclear power. Rosatom currently has export orders valued at more than $300 billion—60 percent of the overall market—for 34 plants in 13 countries. Russia’s share of the global nuclear export market will increase as long as the Kremlin considers it a matter of state policy. Putin’s visit to Hungary was only one stop in an international tour to sign nuclear power deals that resulted in broad agreements on nuclear power with 13 nations on nearly every continent.
Rosatom’s dominance is explained, in part, by its business model. The firm operates on a Build, Own, and Operate scheme–that is, Rosatom constructs the reactor, retains ownership of it, and offers the full range of services from initial financing to fuel disposal. And, in part, because of generous state funding, Rosatom is able to offer cheap financing and sell reactors at far lower costs than its international competitors. In 2010, for example, the development and construction cost of a nuclear plant in Russia was 20 to 50 percent less than Western equivalents. At the same time, Russia is racing ahead with plans to deploy the world’s first two Generation IV reactors domestically by 2025. In the absence of serious rival suppliers, the combination of favorable financing and advanced technology will sustain Russia’s competitive edge for decades to come.
But Moscow’s dominance comes with significant costs for international security. As the world’s foremost nuclear supplier, Russia is unlikely to address the emerging threats tied to the growth of atomic power, including the proliferation of nuclear material to less secure locations. Russia’s own lax standards are well-known, and it is doubtful Moscow would compel stronger security from potential client states. Already, there are large quantities of unsecured fissile materials. The global inventory of civilian highly enriched uranium is already enough to construct 5,000 nuclear bombs. And that could only grow.
The United States could come out of all of this the loser. If the country attempted to construct an updated nuclear nonproliferation regime, it could easily be thwarted by Russia and its coterie of client states. Countries that receive Russian exports and benefit from softer standards could disregard future multilateral meetings at Russia’s request. In the near future, Russia could find itself with more allies and the United States with fewer.
A NEW NUCLEAR AGENDA
Yet a future in which Russia wields outsize influence at Washington’s expense is not preordained. To avoid it, the United States can invest heavily in revitalizing its own nuclear industry. It is already well equipped to do so. Until the 1990s, the United States dominated the world market as the main supplier of nuclear technology. This commercial leadership allowed the United States to design international nuclear security standards and cultivate long-term partnerships globally, setting the rules for atomic energy. The United States enforced its high criteria through 123 agreements—the legal framework mandating physical security and IAEA oversight for transfers of nuclear material and technology. Returning to this tactic could safely shepherd the world into a future with inevitably more atomic power.
To get there, the White House should streamline the labyrinthine federal bureaucracy overseeing the commercial nuclear trade. Currently, it is managed across myriad offices and agencies, including the Departments of State, Commerce, Treasury, and Energy, as well as the National Security Council and National Nuclear Security Administration. Simply negotiating a nuclear cooperation agreement with the United States can take several years. To cut the red tape, the administration should create an assistant U.S. trade representative for nuclear energy. The office would inherit responsibilities for negotiating nuclear cooperation agreements, licensing, and authorization. It could aggressively pursue tentative 123 agreements with countries seeking nuclear power. These agreements are touted as powerful tools in advancing nonproliferation; however, the strict standards they prescribe are meaningless if most countries eschew U.S. technology.
Another solution is to lower borrowing costs. The U.S. Export-Import Bank, founded to assume risk that would be untenable for the private sector, should offer favorable loans to level the playing field for U.S. companies competing with foreign government-funded firms. To this end, the Overseas Private Investment Corporation, which helps U.S. businesses operate in emerging markets, should reverse its decision to exclude financing for nuclear power under its environmental responsibility rules, especially considering nuclear generation is a clean energy source. The Department of Energy could also extend its loan guarantee program to U.S.-led international nuclear projects. Even incremental changes toward favorable financing would sharply boost U.S. competitiveness. On $7 billion of debt, normal for a nuclear project, a one percent decrease in interest rates would save $45 million per year.
Last, and most important, the United States should invest in nuclear innovation to guarantee its place in the market for decades to come. Already, the Department of Energy is investing in accelerating the commercialization of SMR and Generation IV technologies. But without a domestic market, there is little hope for serious deployment. In the near term, the Pentagon could provide a stepping stone market by deploying proven reactor designs as back-up power for domestic military bases and for critical infrastructure. This would provide both an opportunity to showcase new technologies and relieve the need for immediate financial returns. Along these lines, the Nuclear Regulatory Commission can also expedite its design certification process to support technological advances. This effort, along with Department of Energy investment, could give to boost needed for the U.S. private sector to begin large-scale deployments of next-generation nuclear technology abroad.
The expansion of nuclear energy worldwide is a foregone conclusion, but the United States has the opportunity to guide growth safely. By revamping its approach, Washington can stem the erosion of its geopolitical influence, benefit economically, and remain the global defender of nuclear security standards. Inaction or indecision otherwise might leave the twenty-first century to Russia.