Congressional conferees reportedly stripped the $50 billion energy loan guarantee authorization from the final version of the stimulus package. Although most emissions-free sources would have been eligible for the program, removing it disproportionately affects large capital projects like nuclear energy.

While this is viewed as a set-back from many in the nuclear industry, it could be used as an opportunity to address some of the structural problems that create the risk that loan guarantees are meant to off-set.

The reality is that the federal government’s schizophrenic association with commercial nuclear power since the industry’s inception creates substantial risk. Although the industry’s decline in the late 1970’s cannot be completely blamed on government, bad public policy and over regulation certainly played a significant role.

This cannot be allowed to happen again.

The versatility, affordability, and availability of nuclear energy is critical to the future of the nation. Squandering this opportunity for a commercial nuclear energy rebirth is simply not an option. Yet it seems that is exactly what we see unfolding.

Just a few years ago, the nuclear industry seemed unstoppable. Firms were ready to start building new reactors for the first time in nearly 30 years. In fact, the primary government program to help bring industry along, Nuclear Power 2010, was originally supposed to bring our first new reactor on line by 2010.

Then came the push for subsidies. Many were included in the Energy Policy Act of 2005. The thought was that these would push industry forward. And in some respects they did. Approximately 20 entities are pursuing permits to build around 30 new reactors and this has spawned substantial growth in the nuclear industrial base. How much of this was due to subsidies is questionable. What is not questionable is that market viability is necessary for these gains to be sustainable.

As of now, one thing is definite. No new reactors have been built. None have been started. None have even been ordered.

Why is that?

There have been a number of problems. One of which is the administration of the Loan Guarantee program that EPACT 2005 authorized. The Department of Energy simply has been too slow and inefficient. Many utilities were depending on this program to back up their financing so as the program slowed, so did the nuclear renaissance. And therein lays the danger of government dependence.

Government programs beget dependence. The more independent an industry can be, the better shot it has of long-term success, and the nation needs nuclear energy to be successful.

For this to happen, three things need must occur:

1. Short-term government programs must be set up that off-set near-term government imposed risk;

2. Policies must be put in place that institutes a higher level of political and regulatory stability; and

3. The federal government’s role in nuclear energy must be reduced primarily to one of oversight, while industry develops its own way forward.

Until the right combination of these three things are implemented, despite nuclear energy being affordable, safe, clean and domestic, sustainability might be a problem.

The pieces are in place to advance this type of agenda.

First, the Energy Policy Act of 2005 put in place substantial subsidies to reduce the risk of about six or seven nuclear power plants. While EPACT 2005 had some good provisions and some bad, there is real value in off-setting the near-term risk posed by government interference with some short-term help to get the industry up and running. That does not mean that EPACT 2005 provisions should be expanded, much less made a permanent fixture on which industry depends.

Second, Nuclear Power 2010 and the Next Generation Nuclear Plant are Department of Energy Programs that are helping to meet the second objective. These industry-government cost sharing programs are working to develop predictable regulatory frameworks and helping to overcome other obstacles to bringing nuclear technologies to the marketplace. While 2010 should declare victory and be phased out, NGNP should be accelerated and a new program should be created to do for small and alternative reactors what these programs did for light-water and high temperature gas cooled rectors.

The third objective is more difficult. Heritage has developed a free-market plan to achieve this objective that consists of regulatory reform, moving away from subsidies, and overhauling how the nation manages its nuclear waste. Making this transition does carry substantial risk in itself. But this risk is outweighed by the risk of either doing nothing or of growing an industry that is too dependant on government. The fact is that without substantial reform, there will be no real nuclear renaissance.

EPACT 2005 should not be thought of as a band-aid to temporarily off-set the risk posed by government but instead as a mechanism to permanently reform policy and regulation so that nuclear power can move forward without relying on government acquiescence.

Perhaps for now, maybe what seems like a setback to many, could be used as an opportunity to reform the structural issues that could not just kick-start the nuclear renaissance, but keep it running for decades to come.

Jack Spencer, Research Fellow in Nuclear Energy Policy at The Heritage Foundation, authored this blog.