Carbon caps to spur nuclear industry: ETF fund

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By Timothy Gardner

NEW YORK (Reuters) - Looming U.S. greenhouse gas regulations should make U.S. nuclear plants cost the same or be cheaper than new coal-fired power stations, backers of a new nuclear exchange-traded fund said.

A nuclear plant hasn't been built in the United States since 1996 in part because it would cost about $3 billion per power station. But the industry is getting a fresh look from Wall Street amid rising concerns about competing fuels coal and natural gas.

Coal emits more of the main greenhouse gas carbon dioxide than any other fuel, while U.S. natural gas production is flat and local communities have opposed imports of liquefied natural gas.

Under U.S. law, coal plants currently don't pay for the CO2 they pump into the atmosphere because there are no caps on greenhouse emissions. But that may change soon as the U.S. Congress debates how to regulate the gases and as 2008 presidential candidates from both major political parties favor caps.

Greenhouse regulation could add costs to coal plants that may have to add equipment to capture and bury carbon emissions. But nuclear plants, which emit virtually no heat-trapping gases, would see no new costs.

"Make sure you're comparing new coal plants to the costs of nuclear plants," Jan van Eck, principal for Van Eck Global, a New York-based asset manager, told reporters at a meeting announcing the launch of the nuclear fund.

"The economics for coal plants will change pretty dramatically," once greenhouse regulations come in, he said.

Though the nuclear industry still must find ways to permanently store its radioactive fuel waste, Jone-Lin Wang, a senior director at Cambridge Energy Research Associates, Inc., said in a report earlier this year that carbon concerns and high fossil fuel prices could lead to a U.S. nuclear renaissance.

NUCLEAR ETF

Van Eck launched Market Vectors-Nuclear Energy, an ETF on the American Stock Exchange, on Wednesday. It is the first ETF listed in the United States to enable investments in a broad spectrum of companies involved in nuclear energy.

The ETF is based on the DAXglobal Nuclear Energy Index, a basket of securities of 38 nuclear energy companies listed on global exchanges, specializing mostly in uranium mining, nuclear plant infrastructure and nuclear equipment.

The move comes in the wake of NYMEX Holding Inc.'s launch of a uranium futures contract earlier this year, allowing producers and consumers to hedge risk and speculators to access the booming market.

U.S. nuclear regulators expect to receive nearly 30 applications for new nuclear plants over the next two years. Nuclear power plants provide about 20 percent of U.S. electricity, while coal plants generate about 50 percent of the country's electricity.

Eric Loewen, chief consulting engineer for GE-Hitachi Nuclear Energy, agreed that new coal plants that gasify coal and use carbon capture and burial technologies change the cost equations of the two power sources.

"Once they do that, nuclear is definitely more economic," he said at the ETF launch.

Not everyone agreed that the nuclear industry would be competitive. "I find that to be a particularly self-serving description," Luke Popovich, spokesman for industry group the National Mining Association, said in an interview. "We clearly don't know what the additional costs would be from a carbon regulation regime."