Tariffs Can’t Help an International Nuclear Industry

The Trump plan to “unleash” American energy may run directly into the Trump plan to extract a better trade deal with Canada. This is especially true for nuclear energy. The immediate victim may be the GE-Hitachi small modular reactor that Ontario Power Generation wants to build. The sale may be crucial to the United States because the Tennessee Valley Authority is following the Ontario plan closely, and wants to be GE-Hitachi’s second customer.

Tariffs imposed by the U.S. on goods entering the country from Canada won’t raise the reactor’s cost to Canada in money, but may make it unaffordable because of public resentment.

Other trade related to nuclear energy may also be at risk.

The problem for the pending nuclear renaissance in the United States is that vast sums of money have gone into research and design work, but so far, orders have not followed. Two projects, intended to be half financed by the Department of Energy, are moving forward: TerraPower’s Natrium high-temperature fast reactor coupled with molten salt energy storage, in Kemmerer, Wyoming, and X-energy’s Xe-100 high temperature gas-cooled reactor for Dow in Seadrift, Texas, where it will displace natural gas in making steam for chemical processing.

But the traditional customers for reactors, the utilities, are watching and waiting, not ordering. The utilities could get federal subsidies for clean energy and for domestic content (if the new administration does not repeal them) and a non-money incentive: they have promised to cut their carbon emissions, and in some cases are under legal obligation from their host states to do so. But none of this is as generous as the federal program under which Natrium and the Xe-100 are to be built.

Canada is doing better. Ontario Power Generation wants four of the GE-Hitachi BWRX-300 models. These are small modular reactors designed to be simpler and easier to build, and to require far fewer safety systems, yet have an even lower probability of accident, because of inherent design features. They are also light water reactors, meaning that they are closer to what the United States operates today, and thus probably present a lower technical risk.

Making this model successful will require multiple orders. Four in Ontario, plus the possibility of another in Saskatchewan, would be an excellent start and would reduce the risk associated with construction of a first-of-a-kind reactor enough to let U.S. utilities follow.

That means Canada is not the best country to alienate when seeking to launch a nuclear renaissance in the U.S. While investor-owned utilities in the United States are nervous about ordering a first-of-a-kind reactor, with uncertain costs and schedule requirements, provincial utilities in Canada are a good alternative. Canada, which is probably more vulnerable to climate change and is certainly more committed to reducing its carbon dioxide output, has strong public support for new nuclear and is determined to build new reactors. It could take that difficult first step on our behalf.

There are two ways that tariffs can get in the way of this. A 25 percent tariff imposed by Trump on goods from Canada, announced in a February 1 proclamation but quickly paused for reconsideration at the beginning of March, or, in a second version, a 25 percent tariff on Canadian steel and aluminum, and 100 percent tariffs on the auto sector, seem certain to lead to retaliatory tariffs, and a general reduction in trade. And such tariffs have already led to a consumer backlash and a “buy Canadian” movement, mostly for consumer products, like supermarket items.

There is a risk that resistance to big-ticket items, like reactors, will follow.

A Bi-National Project

That spells trouble for the Ontario project, which would very much be a cross-border exercise. Ontario Power Generation has recently signed contracts with BWXT-Canada, a subsidiary of the U.S. company, to build the reactor vessel, and do other work. But much of the hardware would come from the United States, and it would make GE-Hitachi’s design vastly more valuable if it were proven with construction.

The fuel would probably be enriched outside Canada, and possibly in the United States. Canada has no uranium enrichment industry. But in a trade war across the border, it might have to come from somewhere besides the U.S. even if the reactors are built.

None of that seems to have gone into the new administration’s thinking about tariffs. “The administration isn’t making that much of a distinction between allies and competitors,” said Elaine K. Dezenzki, a trade expert and head of the Center on Economic and Financial Power at the Foundation for Defense of Democracies, speaking at a recent webinar on what to expect from the new administration on trade.

And Canadians are taking offense. One prominent Canadian nuclear advocate, Chris Keefer, wrote sarcastically on LinkedIn, “by all means let’s take FOAK (first-of-a-kind) development risk and pour hundreds of millions of Canadian taxpayer dollars into developing privately held IP on US origin reactor technologies” like the GE-Hitachi model.

Prime Minister Justin Trudeau has articulated both sides of the equation. He told delegates at a recent conference on AI, “Let me say this once and for all: as an environmentalist, the debate is over.”

“Large-scale nuclear reactors must be part of the solution for the future because if we’re not willing to embrace nuclear now, then coal-powered AI from other parts of the world will shape the coming decades for the worse,” he said.

But he also said, “We have been doing things together in an extraordinarily integrated way for many many years, and we will look to continue to work with our closest ally and partner. We should be doing more together, not fighting with each other. But Canadians will stand up strongly and firmly if we need to.”

And Canada could stand up firmly by picking its home-grown reactor, the CANDU, which is a source of national pride.

To understand Canada’s attitude towards the CANDU reactor, it helps to remember why it was developed in the first place. Its origins were in the 1950s, when the thinking was that any self-respecting country would have to build nuclear reactors. But Canada lacked (and still lacks) enrichment technology to raise the proportion of the kind of uranium that is easily split, U-235, to three to five percent, from its natura 0.7 percent. And it did not have the ability to fabricate metal parts as big as a reactor vessel.

It could, however, make strong metal pipes, and it has the world’s largest reserves of high-grade uranium ore.

So, Canada invented a reactor that can use natural, unenriched uranium, because instead of water, it uses “heavy water,” deuterium, which does not steal neutrons from the chain reaction as ordinary “light water” does. It is the Canada Deuterium Uranium reactor, CANDU for short, which is a word play on the slang phrase popular in the middle of the last century, “can do.”

Canada has sold reactors to China, Argentina, Pakistan, Romania, South Korea, and India—which has developed its own SMR version of the CANDU.

The National Pride Factor

Canada has always been proud of its nuclear energy capabilities. When cost overruns caused construction to falter at the Seabrook reactor, in New Hampshire, in 1984, New Brunswick Electric, already operating one CANDU at Pt. Lepreau, offered to build a twin to supply the New England market, Seabrook was 75 percent complete, but the New Brunswick utility said it could start from scratch and be ready before Seabrook was finished. Using a proven design and relying on an established supply chain, the company said it could build at a cost of approximately half the cost per unit capacity of Seabrook. (In the end, Seabrook’s main builder went bankrupt but its partners finished the reactor.)

A new model CANDU is a clear alternative to GE-Hitachi’s imported boiling water reactor technology. Canadian utilities may have thought that the CANDU wasn’t quite as good, but it is certainly native. Nuclear industry executives talk about the “social license to operate,” meaning public acceptance. At the moment there is a shrinking social license for anything imported from the United States.

The country has seen an explosion of patriotism and pride on social media. Canadians are posting lists of items sold in supermarkets that are made in Canada and can substitute for similar items that are imported from the United States. Posts on Facebook promote Sun-Brite Foods Brands, which makes Primo ketchup and pizza sauce, over Heinz and Frenchs, and Nivea skin care products over Oil of Olay. The company that makes Babybel cheese is reassuring customers that their product comes from Canadian milk.

Websites are making lists of made-in-Canada products, and inviting consumers to pledge to prefer them.

Provincially-owned utilities must be sensitive to public sentiment.

But it’s not just the GE-Hitachi reactor that is under threat. The nuclear industry has long touted that its fuel is secure because it comes from friendly countries, notably Canada, which is right next door. Did the industry contemplate that we could turn a friendly country into an unfriendly country?

Tariffs on uranium, which have been threatened as part of a general tariff, could in the long term stimulate production in this country, but their effect for years to come would be to raise prices for nuclear energy and make it less competitive.

Canada does not believe that its uranium mining is threatened, because demand for uranium is price-inelastic. “They don’t really have a lot of other options to go get that uranium from,” Devan Mescall, a professor at the University of Saskatchewan’s Edwards School of Business, told the Saskatoon StarPhoenix. “You’re not going to start and stop nuclear reactors,” he said

Tariffs could stifle the bi-national effort to build the 300-megawatt GE-Hitachi SMR, pushing Canadian utilities into using Canadian, rather than U.S. technology. Tariffs could also set back the micro-reactors that Canada wants for isolated communities and mining operations, and U.S. customers want for reliable, on-site power for computer centers and other installations that require high reliability In the past, the United States was so central to the world reactor market that a supplier could easily launch a model here and think later about selling it abroad. But now we have a “nuclear renaissance” in which there are no orders beyond two demonstration projects. The industry needs to get the ball rolling, and losing the Canadian market will not help.

SMRs and micro-reactors are going to work if they get economies of scale. Canada is a promising partner, because unlike other potential customers around the globe, it has money, technical know-how, and no desire to use U.S. equipment to make nuclear weapons material. If driving away this potential customer doesn’t constitute a runner shooting himself in the foot, it at least represents intentionally tripping his running partner.

*Note: the cover image is of the Canadian nuclear power station, Pickering Nuclear Generating Station. The station has eight CANDU reactors.