Negative-Value Property Flashcards
What are Nuclear Plant Decommissioning Trust Funds?
NRC created a trust fund (similar to nuclear waste fund) for every plant.
For every kilowatt that is made, a penny goes to towards fund and decommissioning.
Adequacy of the trust funds?
There have been concerns about the adequacy of these funds, and so there are reviews of the trust funds.
Currently doesn’t meet the amount of money that they need, but at (75%) it is better than other negative-value properties.
Third-Party Purchase of Trust Assets
Will buy the entirety of the plant, liabilities, trust fund,
Apparently, they see value in it – they think they can decommission the power plant with the trust fund or less.
- Holtech International is one of those companies.
Energy and the negative-value property phenomenon
A. Widespread and not unique to energy bc it comes from when one source is converted to another product
B. Demsetz 1968 – a primary function of property rights is that of guiding incentives to achieve a greater internalization of externalities
- Rental car companies have priced the maintenance costs into the price
- In general, though, the incentive system in property law
C. Ellickson 1993 - preeminent advantage of an infinite land interest is that it is a low cost device for inducing a mortal owner to conserve natural resources for future generations
- I am willing to paint my house even if I die because of the benefit of the increased property value.
Negative Value Property Definition
(1) Negative value property is property that cannot practically be alienated without remediation or a side payment.
* the law obligates me to do something w the land affirmatively w/o being able to simply abandon it
Zero Value Property
When there is no requirement to rehabilitate the land, the value is zero to me and I can use it as a land dump or to abandon it
Temporal Spillovers
The conduct is highly lucrative at time A but that same conduct is highly costly at time B.
NOT like typical externality where govt prohibits the conduct, where the landholder is discouraged from engaging in the behavior w/ externality bc it is costly
Direct our attention to
* Rules regarding abandonment
* Rules regarding cleanup
Key Category for NVP
Property that has some kind of valuable resource on it, which exceeds the location value. Create risk of temporal spillovers.
Depleted Resource Extraction Sites
A. Coal Mines
B. Oil & Gas Wells
C. Hardrock and Other mines
- Butte, Montana.
Obsolete and Derelict Facilities
a. Nuclear Power Plants
b. Other power plants (hydropower)
c. Petrol stations and Underground Storage Tanks
Politics of NVP
(1) Legislatures often say, we’re going to clean up this mess, but they never ask the original parties to do the clean-up.
(2) When there is money on the table, owners and states are much more willing to admit the number of abandoned wells that need to be plugged.
(3) Bankruptcy law is being used to get around the clean-up requirements.
History and Future of NVP
We are at the front end of all of these clean-up efforts.
We are going to be dealing with these problems for a long time.
* Millions of oil wells, many of nuclear power plants, coal mines, etc.
Decommissioning processes are largely untested; history is not on our side
Evaluating Exisiting Policies
- Standards are too weak
- There is insufficient financial assurance
- Insufficient enforcement
First-Best Solutions
- Optimize standards (abandonment)
- Optimize Financial assurances
- Optimize Enforcement
Why are First-Best Solutions infeasible
- Politics - energy producers are usually well connected
- Uncertainty about what post-operational clean up would look like and how much it would cost.
- Internalizing externalities is difficult and not always worth doing; may be actually reasonable for a polity to absorb the costs (taxpayers rather than ratepayers should pay)
