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The $50 Billion Earmark: Time to Cut Our Losses

Posted by Mark Cancian on


us-capitol-from-below

Now that conferees have hammered out a 2017 National Defense Authorization Act, the House and Senate must vote on the final product. They may want to read this before casting their votes. Read on. The Editor.

Buried in the fine print of the defense authorization bills is a $50 billion earmark for an obscure facility in South Carolina. The facility, called the Mixed Oxide Facility or “MOX”, is a classic example of a good idea gone awry. Initially estimated to cost $1 billion to $2 billion, MOX is now estimated to cost $50 billion. On top of that, the Russians have just withdrawn from the arms control agreement on which MOX is based. So why is Congress funding this?

Mark Cancian CSIS

Mark Cancian

The program began in 2000 to fulfill a U.S. executive agreement with Russia. Under the agreement both countries would dispose of 34 metric tons of excess — and highly dangerous — weapons plutonium. The United States proposed converting it into a form called mixed oxide that could be burned in commercial reactors to generate electricity. That provided a double advantage: the plutonium would be physically converted into a form that was unusable in nuclear weapons, and the United States could sell the material to offset costs of production. Sales would pay for production. Plutonium disposition would begin in 2007 and finish by 2020.

Delays and Ballooning Costs

Construction did not begin until 2007, with cost then estimated at $5 billion. From there, cost estimates rose steadily. By 2013 the estimated cost had risen to $24 billion for both construction and operation. In early 2014 the high cost caused the Obama administration to propose putting the facility into cold standby and to assess alternative technologies. However, Congress kept adding money to keep the program going, arguing that more study was needed.

The administration then had an outside agency conduct an independent cost estimate. That estimate came in at $47.5 billion for remaining construction and operations—on top of the $5 billion already spent. Plutonium disposal would not finish until 2059 (!) and that was the optimistic estimate that assumed an annual budget increase. The pessimistic estimate was $110 billion with completion in 2100.

So program costs have increased by a factor of 25. DoD’s much criticized acquisition system has average cost overruns of about one third, brilliant compared with the Department of Energy’s (DOE) performance on this program.

As a further concern, commercial nuclear power plant operators are reluctant to use this new fuel lest it have unforeseen effects on their reactors and endanger their standing with regulatory agencies. To get them to use the fuel, the government will need to subsidize the price and protect reactor operators against any losses. Opponents also note that the $47.5 billion cost estimate excluded costs of the legally-required clean up when the facility ends operations. Clean up and subsidies to power plant operators will cost further billions.

Eroding Support & Obsolete Rationale

Program advocates argue that the facility is already half built, so it’s better to just move forward despite the cost. However, nonproliferation advocates, who once supported the program, now mostly oppose it, fearing that it will divert funding from a wide range of other nonproliferation programs. In a world of budget caps, funding MOX at the $600 million to $900 million a year that it needs would essentially cut in half funding for nonproliferation programs that secure, safeguard, and dispose of dangerous nuclear and radiological material worldwide. In 2015 a distinguished group of scientists and arms control experts sent a letter to DOE Secretary Ernest Moniz raising these, and additional, nonproliferation concerns.

Finally, the program’s rationale has disappeared as the Russians, citing U.S. slowness in implementation and the general deterioration of relations, just withdrew from the arms control agreement that formed the basis for the project.

Cutting Our Losses

Yet, both the House and Senate authorization bills would spend another $345 million on the program, an amount that everyone agrees will be wasted because it is barely enough to maintain the facility in a standby status.

As the Congress finalizes an authorization bill, it should do what many of its own members, Democrat and Republican, have advocated: put the facility into cold storage and just keep the plutonium where it is. There is no way the U.S. taxpayers will pay $50 billion over four decades to complete it. Eventually, the Congress will terminate it. The nation has already wasted $5 billion on a good, but failed, idea. It’s time to cut our losses and move on.

Mark Cancian, a former top defense budget analyst at the Office of Management and Budget under President Obama, is a defense analyst at the Center for Strategic and International Studies.

The $50 Billion Earmark: Time to Cut Our Losses

Posted by Mark Cancian on


us-capitol-from-below

Now that conferees have hammered out a 2017 National Defense Authorization Act, the House and Senate must vote on the final product. They may want to read this before casting their votes. Read on. The Editor.

Buried in the fine print of the defense authorization bills is a $50 billion earmark for an obscure facility in South Carolina. The facility, called the Mixed Oxide Facility or “MOX”, is a classic example of a good idea gone awry. Initially estimated to cost $1 billion to $2 billion, MOX is now estimated to cost $50 billion. On top of that, the Russians have just withdrawn from the arms control agreement on which MOX is based. So why is Congress funding this?

Mark Cancian CSIS

Mark Cancian

The program began in 2000 to fulfill a U.S. executive agreement with Russia. Under the agreement both countries would dispose of 34 metric tons of excess — and highly dangerous — weapons plutonium. The United States proposed converting it into a form called mixed oxide that could be burned in commercial reactors to generate electricity. That provided a double advantage: the plutonium would be physically converted into a form that was unusable in nuclear weapons, and the United States could sell the material to offset costs of production. Sales would pay for production. Plutonium disposition would begin in 2007 and finish by 2020.

Delays and Ballooning Costs

Construction did not begin until 2007, with cost then estimated at $5 billion. From there, cost estimates rose steadily. By 2013 the estimated cost had risen to $24 billion for both construction and operation. In early 2014 the high cost caused the Obama administration to propose putting the facility into cold standby and to assess alternative technologies. However, Congress kept adding money to keep the program going, arguing that more study was needed.

The administration then had an outside agency conduct an independent cost estimate. That estimate came in at $47.5 billion for remaining construction and operations—on top of the $5 billion already spent. Plutonium disposal would not finish until 2059 (!) and that was the optimistic estimate that assumed an annual budget increase. The pessimistic estimate was $110 billion with completion in 2100.

So program costs have increased by a factor of 25. DoD’s much criticized acquisition system has average cost overruns of about one third, brilliant compared with the Department of Energy’s (DOE) performance on this program.

As a further concern, commercial nuclear power plant operators are reluctant to use this new fuel lest it have unforeseen effects on their reactors and endanger their standing with regulatory agencies. To get them to use the fuel, the government will need to subsidize the price and protect reactor operators against any losses. Opponents also note that the $47.5 billion cost estimate excluded costs of the legally-required clean up when the facility ends operations. Clean up and subsidies to power plant operators will cost further billions.

Eroding Support & Obsolete Rationale

Program advocates argue that the facility is already half built, so it’s better to just move forward despite the cost. However, nonproliferation advocates, who once supported the program, now mostly oppose it, fearing that it will divert funding from a wide range of other nonproliferation programs. In a world of budget caps, funding MOX at the $600 million to $900 million a year that it needs would essentially cut in half funding for nonproliferation programs that secure, safeguard, and dispose of dangerous nuclear and radiological material worldwide. In 2015 a distinguished group of scientists and arms control experts sent a letter to DOE Secretary Ernest Moniz raising these, and additional, nonproliferation concerns.

Finally, the program’s rationale has disappeared as the Russians, citing U.S. slowness in implementation and the general deterioration of relations, just withdrew from the arms control agreement that formed the basis for the project.

Cutting Our Losses

Yet, both the House and Senate authorization bills would spend another $345 million on the program, an amount that everyone agrees will be wasted because it is barely enough to maintain the facility in a standby status.

As the Congress finalizes an authorization bill, it should do what many of its own members, Democrat and Republican, have advocated: put the facility into cold storage and just keep the plutonium where it is. There is no way the U.S. taxpayers will pay $50 billion over four decades to complete it. Eventually, the Congress will terminate it. The nation has already wasted $5 billion on a good, but failed, idea. It’s time to cut our losses and move on.

Mark Cancian, a former top defense budget analyst at the Office of Management and Budget under President Obama, is a defense analyst at the Center for Strategic and International Studies.

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