For an economist, the notion of relating nonproliferation to markets is an intriguing one.  Over the years, there have been attempts to link nonproliferation to markets, and there have even been instances where markets have supported important nonproliferation initiatives.  However, there has not been any development of a market for nonproliferation per se; in fact, the concept remains ill-defined and is subject to various interpretations.  This article seeks to provide some perspective to the concept of market-based nonproliferation and introduce some ideas about how market mechanisms could develop with the goal of enhancing nonproliferation efforts.

To do this, we will first review some market-based concepts as they pertain to nonproliferation, focusing on nonproliferation as it relates to peaceful nuclear energy.  We go on to discuss how nonproliferation could be valued via market mechanisms.  Here, a comparison is made with carbon markets, as there are similar and overlapping goals between the carbon abatement and nonproliferation.  Finally, we explore how evolving climate,  energy, political, and technological developments may create new opportunities to implement market-based nonproliferation mechanisms, especially when it comes to new nuclear energy in Africa.

Some Approaches and Concepts

In 2007, Henry Sokolski, Executive Director of the Nonproliferation Policy Education Center, presented testimony before the House Committee on Foreign Affairs entitled “Market-Based Nonproliferation.”i  In that piece, Sokolski argued that the full costs of nuclear power would be evidenced in a world without government subsidization of nuclear power which would result in less proliferation because there would be fewer nuclear reactors and expansion of nuclear fuel production from which proliferation could occur.  Sokolski was not the only one to express concern relating to increased proliferation risks associated with the expansion of nuclear power; this was the subject of a report by the Congressional Research Service (CRS) in 2008 during a period of rekindled interest in nuclear reactor construction.ii

The premise for calling this result market-based nonproliferation was that, without subsidization, the future of nuclear power would be left totally to market forces, and with fewer reactors, there would be less proliferation.  Even if one agrees with this premise, this concept of market-based nonproliferation is particularly unsatisfying because all potential nuclear proliferation is not tied to new or even existing nuclear reactors.iii   If nuclear power ceased to grow or ceased to exist, the threat of proliferation would still be with us.  As pointed out by Thomas Neff in a 2008 paper, “(t)he fact is that the civilian fuel cycle has not been a significant contributor to proliferation.  Those nations that wanted nuclear weapons have gone straight for them.”iv  Also, there is no evidence that proliferation concerns are abating with the retrenchment in nuclear power that has recently taken place.

Importantly, this concept of market-based nonproliferation ignores the nonproliferation benefit associated with the operation of reactors and the related market for nuclear fuel, a market that has provided the funding for a key nonproliferation initiative.    Indeed, another (and much better) example of market-based nonproliferation was the HEU (highly enriched uranium) deal between Russia and the United States, a program that has been called one of the greatest arms control agreement ever.  In this case, the funding necessary to finance this nonproliferation effort came from the sale of blended-down HEU into the commercial nuclear fuel market.  As such, this view of market-based nonproliferation is at odds with what Sokolski espoused, since in this case reactors, with their ability to consume and importantly to pay for the blended-down HEU to produce electricity, essentially funded the HEU deal, and thus were a huge positive for nonproliferation, not a negative.

It is important to note that are talking about two types of nonproliferation when it comes to nuclear power:  1) preventing the creation of weapons usable nuclear materials via the nuclear fuel cycle, and 2) disposing of erstwhile weapons material by burning it in nuclear reactors or by other means.  Both are critical goals but are somewhat antithetical as complete success in accomplishing the first implies the cessation of nuclear energy (and its fuel cycle), a development which would eliminate the ability to achieve the second.

The benefit of using reactors to consume HEU has even made it into the financial press, where a writer for The Motley Fool advocated more nuclear power as a way of ridding the world of nuclear weapons.v  While consuming HEU in today’s reactors would not likely be a major motivation to pursue nuclear energy, this type of recommendation does tie nonproliferation positively to the nuclear fuel market, as well as to the financial market to the extent that investments are made with this goal in mind.  Further, it may be more relevant when it comes to advanced reactors, which would run on uranium enriched to higher assays.

There was another market-related element of the HEU deal that is relevant to today’s nonproliferation quest.  At the time of the HEU deal, Russia was in a dire financial situation.  The nation’s leadership would have preferred not to blend down its HEU, which it viewed as part of its patrimony, but was compelled to do so because it needed the hard currency to support its economic transformation.   Importantly, the HEU funds were used to finance the transition of weapons’ experts and the weapons’ infrastructure to other, non-weapons’ purposes.  Thus, it was not just the disposition of the HEU material that benefited from the deal, but the deal also helped finance perestroika, a restructuring of the post-Soviet economy, in a way that improved the nonproliferation regime.

To a large extent, a form of what may be called macro market-based nonproliferation has been pursued recently.  In this regard, the former Trump administration sought to use market sanctions to encourage or attempt to force North Korea and Iran to abandon their nuclear weapons ambitions.  To provide additional incentives, this “stick” approach is coupled with a “carrot” of the promise of economic growth and development if their economies are restructured to take advantage of the greater market access which would be afforded to  So far this approach has not proven to be successful, but it clearly links nonproliferation to the access to markets in a way that would offer immediate as well as long-term benefits.

Thus, there are different approaches to achieving market-based nonproliferation, but there has been no attempt to create a market for nonproliferation itself.  In this regard, despite the great success of the HEU deal, there was no explicit valuation of the nonproliferation benefit it represented.  The deal looked almost entirely to the nuclear fuel market for its financing.  While the U.S. Department of Energy did step in and purchase some uranium feed from Russia to keep the deal going at one point, this was a stopgap measure.  Further, the government was purchasing a commodity that it could and did later sell, since a market existed for it, so it was not making an explicit payment for nonproliferation but was purchasing a commodity that was a byproduct of a nonproliferation enterprise.

There are two major problems with relying on the nuclear fuel market for this type of initiative.  One is that the market may not be able to easily bear the additional supplies from blended down HEU and the like.  This was certainly the case with the HEU deal, as uranium prices were driven to extremely low levels, reducing the incentive for uranium production and exploration.  Therefore, when nuclear power began to recover in the last decade, uranium prices were pushed to exceedingly high levels, as previous low prices depressed supply.  This volatile price environment was detrimental to the further advancement of nuclear power.  Such an environment, if it exists in the future, also could encourage countries that wanted to proceed with nuclear energy to forgo depending on the market for fuel supplies and develop their own internal supplies, which would be a negative for the nonproliferation effort.

The other problem is that if nuclear fuel prices are low, as has been the case recently with the shutdown and cancellation of many reactors following the Fukushima accident, then certain nonproliferation activities may be delayed or abandoned if they seek to rely on revenue from the nuclear fuel market to pay for the activity.  The point here is that while nuclear fuel contained in material that poses a proliferation concern may have value if processed and sold in the market, the value of a nonproliferation activity itself is not derivative of the market.

Valuing Nonproliferation via Markets

This leads to the question:  how does one value nonproliferation?  An associated question is whether a market could be developed for valuing nonproliferation.  If such a market were to develop, then the notion of market-based nonproliferation would have more meaning.  While few would doubt that nonproliferation is extremely valuable, there is no explicit market or unit value for it.  Further, since it is traditionally in the purview of the government, many might reach the conclusion that it is not amenable to market forces.  Perhaps like the commercial says, it is “priceless.”

The notion of a market for nonproliferation might not seem as farfetched or impractical when you consider the existence of the carbon market.  The goal of the carbon market is the abatement of carbon; similarly, the goal of a nonproliferation market would be the abatement of proliferation.  Further, these goals are linked in important ways.   Daniel Poneman, former Deputy Secretary of the U.S. Department of Energy, noted that two existential threats to mankind are climate change and the proliferation of nuclear material.vii  And, nuclear power is an important combatant against climate change, and it has supported key nonproliferation efforts, but it must continuously address the issue of proliferation.

Consider this linkage with respect to the current situation in nuclear power.  Using Sokolski’s definition, the world should be safer following the Fukushima reactor accident and the movement away from nuclear power in certain countries.  Certainly, the past concerns expressed by the Congressional Research Service should be assuaged as nuclear power is no longer on its rapid growth path.  However, it is difficult to demonstrate that fewer reactors have notably reduced the threat of proliferation.  However, the loss of carbon abatement due to shuttered reactors is more demonstrable.  And, a reduction in the ability to fund the conversion of material that poses a proliferation threat into fuel for reactors is also measurable.

The irony is that erstwhile weapons material that is converted for use in nuclear reactors must sometimes be discounted because its isotopic make-up can impair reactor performance when it should be valued more highly if it were credited with a value for nonproliferation.  Utilities should be encouraged and rewarded for burning this material, but how does this happen?  If a market developed that valued this activity, a utility could be incentivized to burn the weapons material.

Nuclear fuel which is wholly or partly derived from weapons material could thus command a higher value in the market, as should the electricity generated by burning this fuel.  This development could encourage further conversion of weapons material into fuel, bringing a real market dimension to nonproliferation.  While such recognition for nonproliferation may not be the main driver in weapons’ conversion or reactor choice, it would more fully recognize the benefits of actions and thus help in investment and deployment decisions.

This nonproliferation benefit should generally accrue to advanced reactor designs which utilize high assay low enriched uranium (HALEU).  This is particularly the case with small and so-called micro reactors.  A primary source of HALEU can be down-blended HEU, which can be otherwise be used in nuclear weapons.  Also, HALEU stays in the reactor for a long period of time, which enhances fuel supply security and should lessen the need for countries to develop their own fuel cycles.viii  In one sense, it can be thought of as a miniature fuel bank that resides in the reactor.

Linkages to Carbon Markets

Are there other ways a market for nonproliferation might develop?  Looking at the carbon example, there are both primary compliance markets and secondary (voluntary) markets for carbon.  In compliance markets, countries are given carbon quotas and can sell any unused quota in the international market.  In voluntary markets, carbon credits are sold in a secondary market providing the opportunity for companies and individuals to offset their carbon footprints.  The funds generated by this process are used to finance projects to reduce carbon emissions.

Is there any reason why a similar mechanism could not be developed for nonproliferation?  There are a vast number of nonproliferation initiatives that could be funded, although some may not be revealed to the public.   While the goal may not be to offset one’s proliferation footprint, there are still plenty of reasons to support nonproliferation initiatives financially.  One is a safer world for your children and grandchildren.  Corporations might want to contribute to ensure markets for their goods and services in the future.ix  Thus, the goals of proliferation abatement and carbon abatement are much the same: ensuring a sustainable future for the planet.

Introducing a market element into nonproliferation would have several important benefits.  It would lead to wider financial participation in nonproliferation efforts and raise the visibility of this issue among the public.  It would also likely spur innovation in financing and monitoring, as has been the case in the carbon market.  There should be no doubt this is possible.  In this regard, the HEU deal, one of the most important nonproliferation initiatives ever, was conceived in the private sector and involved a joint private sector/government partnership for its success.x

In one sense, the precursor of a voluntary market for nonproliferation already exists.  The Nuclear Threat Initiative (NTI) provides information and funds activities to help prevent the spread of nuclear weapons and nuclear terrorism.  People and organizations can and do contribute money to NTI to support its general efforts.  In addition, specific nonproliferation ventures are also funded, such as when Warren Buffett gave $50 million for the creation of a nuclear fuel bank.

One factor that makes it difficult to establish a more robust nonproliferation market – either voluntary or mandatory – is that there is no accepted unit of proliferation abatement.  In the carbon market, carbon releases can be measured and hence their abatement have a unit value, tied to various goals that can be set on a national and international basis.  It is difficult to measure degrees of proliferation and, unlike carbon, no amount of proliferation is acceptable.

One solution to this problem perhaps rests in the close correspondence between installed nuclear power capacity and carbon abatement. A number of studies conclude that climate change goals cannot be attained without the contribution of nuclear power.xi  Linking nonproliferation and carbon credits makes all the sense in the world when it comes to nuclear power generation as nonproliferation is a sine qua non where nuclear power deployment is concerned.  From this perspective, investing in nonproliferation initiatives that enable new nuclear power build should be treated no differently than investment in and operation of the nuclear reactor itself and any carbon credits that are generated, and hence these credits should flow to those making the nonproliferation investment.  Another idea is to provide a mechanism for bonus carbon credits to be awarded if a new nuclear plant meets certain nonproliferation criteria.

A Merging of Interests and New Opportunities

The correspondence between nuclear power, renewable, and climate change abatement may be closer than ever today due to technological and political developments.  Advanced reactors are designed to be more proliferation proof and can be more closely married to renewables in fighting climate change.  For example, the Natrium system, co-developed by Bill Gate’s TerraPower and GE Hitachi Nuclear Energy, seeks to link an advanced reactor and an energy storage tank with renewables (wind and solar energy) to produce continuous carbon-free energy.

On the political side, President Biden has expressed his interest in nuclear energy, especially advanced nuclear reactors, in combatting climate change, a top priority for his administration.  In the age of the coronavirus pandemic, there is an even greater urgency to fend off potentially catastrophic developments like climate change.  Safety will continue to be important in the design of reactors as with the development of vaccines, but it is also the case that greater resources can be expended to accelerate the implementation of these innovations.

The ability of developing countries to earn carbon credits for nuclear may be an important lynchpin in the climate change/nonproliferation nexus.  Developing countries which embark on nuclear power programs and can earn carbon credits need help setting up strong nonproliferation regimes.  This creates the possibility that carbon credits then can be transferred to entities that finance or otherwise can help them establish their nonproliferation regime.  The value of nonproliferation work would thus be derivative of a carbon credit.  While this may not be a perfect solution, it does provide a mechanism to derive a value for nonproliferation.

One area of the world that desperately needs access to electricity is Africa.  An increasing number of African countries are willing to consider nuclear energy.   Small or micro nuclear reactors would likely be the best choice here due to their lower cost and better ability to fit into the existing grid systems of African countries.  In addition, newer generation reactors are designed to safer, more proliferation proof, and easier to operate.

The problem is how to finance this electricity generation.  Since you are starting out with a smaller reactor, the initial capital outlay will be lower.  When operating, a new African reactor would spin off carbon credits, which would help defray the cost.  If the same reactor could generate nonproliferation credits, either from burning HALEU made from HEU or simply in recognition of its more proliferation-proof design, then the cost would be offset even further.

If utilities building a reactor received a financial incentive to select a vendor which agreed to fuel its reactor with blended-down HEU, or even insist that the reactor use blended-down HEU, then it would create another dimension to the competition among reactor vendors that sought to make a sale.  This is one way to interject a market element into nonproliferation via the purchase of reactors.

The case of Africa represents an interesting opportunity when it comes to the expansion of nuclear power on that continent.  In addition to being the recipient of much needed and carbon-free electricity, Africa can be the testing ground for smaller and more advanced reactors and the nonproliferation improvements that come with these reactors.   Finding new ways of incentivizing the selection of reactors to meet both climate and nonproliferation concerns would help attain these goals.

At this point, while there is no definitive way to value nonproliferation, nonproliferation is so important that it is instructive to examine how it could be valued to make its funding more expansive and effective.   Shutting down nuclear power plants is not a solution as it would militate against carbon abatement, and it would create other problems as well.  Relying on the sale of erstwhile weapons’ material in nuclear fuel markets is also not a complete solution to nonproliferation as this approach may not generate adequate funds and could undermine commercial nuclear fuel markets.   However, introducing more of a market element to nonproliferation, like the case with carbon abatement, could complement non-market (government) activity in a way that fosters greater success in dealing with this challenge.  Finally, any person or organization believing that nuclear power is a solution to abating carbon and is concerned about proliferation should be interested in investing in nonproliferation enhancements associated with new reactor projects, as they would be addressing both the carbon and proliferation problems.

i Henry Sokolski, “Market-Based Nonproliferation, Testimony Presented before a Hearing of The House Committee on Foreign Affairs “Every State a Superpower? Stopping the Spread of Nuclear Weapons in the 21st Century,” May 10, 2007.  This represents an early use of the term “market-based nonproliferation.”

ii “Managing the Nuclear Fuel Cycle:  Policy Implications of Expanding Global Access to Nuclear Power,” Congressional Research Service, Report RL34234, September 3, 2008.

iii It should be noted that all decisions to pursue nuclear energy are not entirely market based, just as all decisions to shutter nuclear energy capacity are not market based.

iv Thomas Neff, “The Nuclear Fuel Cycle and The Bush Nonproliferation Initiative,” World Nuclear Fuel Cycle 2004, April 1, 2004.

v Maxx Chatsko, “Want the World to Have Fewer Nukes?  We need More Nuclear Energy,” The Motley Fool, February 18, 2017.

vi Along these lines, Richard Rhodes and Michael Shellenberger suggested that a carrot for North Korea would be to supply it with peaceful nuclear power.  See “Atoms for Pyongyang,” Foreign Affairs, May 23, 2017.

vii This linkage is explored further in Poneman’s book, Double Jeopardy, Combating Nuclear Terror and Climate Change.

viii For example, the 10MWe version of the Holos-Quad microreactor is designed to provide Effective Full Power Years (EFPYs) for 8 years.  Operated at 70% power, the fuel would last 10-11 years before refueling.

ix Similar population-saving investments are being made in the current coronavirus pandemic.

x The HEU deal was suggested by Dr. Thomas Neff in a 1991 op-ed in The New Times: “A Grand Uranium Bargain.”  The potential for then Soviet HEU to be blended down for sale in the commercial market was earlier mentioned in “The Soviets, SWU, and U – A Win-Win Solution?” by Combs and Neff in 1989.

xi For example, see “The Future of Nuclear Energy in a Carbon-Constrained World,” by the MIT Energy Initiative.

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Jeff Combs is founder, owner, and Chairman of UxC, LLC (UxC) and is a leading expert in the nuclear fuel market, with over 45 years of experience providing economic analysis and forecasting for the front-end of the nuclear fuel cycle. He has extensive and varied expertise, overseeing UxC market reports, providing strategic consulting to major commercial companies in the nuclear fuel industry, and advising governments and international organizations on market and policy issues. Under his management, UxC has grown to become the world’s pre-eminent nuclear fuel market information and analysis company, issuing reports and publishing prices for all front-end nuclear fuel markets. In 2007, UxC teamed with CME/NYMEX to introduce the world’s first uranium futures contract. That same year UxC began reporting on the backend of the fuel cycle. In 2018, Mr. Combs created the website to advance understanding of peaceful uses of the atom in today’s world. During his career, Mr. Combs has presented papers at a variety of nuclear industry and energy economics conferences throughout the world. In addition, he has had his work published in academic and public policy journals. Mr. Combs earned a bachelor's degree in Economics at the University of Virginia, where he also completed his doctoral course work in economics. He is a charter member of the International Association of Energy Economics and is a member of the American Nuclear Society.