The spread of sensitive nuclear fuel-cycle facilities—uranium enrichment and spent fuel reprocessing plants—presents an increasingly urgent problem for U.S. security. This memorandum summarizes the threat and outlines a three-pronged U.S.-led multinational approach to contain it.The “Red Zone” ProblemThe nuclear programs of Iran and North Korea have exposed an ominous flaw in the international nonproliferation regime, one predicted more than a generation ago by Albert Wohlstetter. According to the prevailing interpretation of the 1968 Non-Proliferation Treaty (NPT), non-nuclear weapon states can acquire the key building blocks of a nuclear weapons program—uranium enrichment and spent fuel reprocessing facilities—if their intended use is for peaceful nuclear power development. However, such facilities enable states to rapidly produce fissile materials for nuclear weapons following a political decision to do so. Factors that could lead to such a decision include unexpected changes to a state’s security environment, political pressure from a domestic scientific bureaucracy or other interest group, or a change in leadership. In other words, enrichment and reprocessing facilities allow states to cross into a proliferation “red zone”, putting them dangerously close to a nuclear weapons capability.The red zone problem is especially urgent given that nuclear power will play a major role in long-term sustainable energy development. Significant increases in nuclear power generation are already planned in East Asia (especially China and South Korea), South Asia and South America, and interest in nuclear power is also growing among states in the Middle East and Southeast Asia. If states turn increasingly to nuclear power to meet domestic electricity needs, they may desire their own enrichment and reprocessing plants—and that will increase the risk of nuclear terrorism. Once a state produces the highly-enriched uranium (HEU) or plutonium needed to build a nuclear bomb, these materials will remain a threat for thousands of years. If states do not adequately secure nuclear material stockpiles, terrorist groups or criminal organizations could steal the material and use it to unleash a catastrophe that would make the 9/11 attacks look mild by comparison.The Multinational SolutionThe solution to the red zone problem is to provide states with a multinational alternative to an indigenous nuclear fuel cycle. This will involve creating a multinational supply regime to provide enrichment and spent fuel removal services to states that abstain from domestic enrichment and reprocessing, submit to strict safeguards (such as those stipulated in the IAEA Additional Protocol), and reaffirm their intention not to pursue nuclear weapons. National security, economic and environmental interests all weigh in favor of adding this new regime to the existing NPT system, as evidenced by the following four key facts.1) Indigenous enrichment is an order of magnitude more expensive than multinational supply at market-based prices. The cost of constructing even a small-scale, “strategic” enrichment facility would likely exceed $1 billion, depending on a state’s licensing procedures, its level of technical expertise, the availability of suitable facility sites and the costs of labor and materials. Over a plant lifetime of forty years, total costs (including construction and amortization, operation, maintenance and security) would likely approach $150 million annually. By contrast, at current market prices and assuming typical light water reactor (LWR) specifications (See Annex 1), the cost of enriching enough fuel to power a 1,000MW (e) LWR for one year would total less than $15 million. Even if a state reduced its tails assay and the price of enrichment were to double, annual enrichment costs would remain well below the hefty price tag associated with enrichment plant construction and operation. In short, an indigenous enrichment plant would be economically attractive only for a state with potentially large commercial markets and heavy reliance on nuclear power [at least ten operational 1,000MW(e) LWRs]. Given that fuel production costs are a very small fraction of the nuclear reactor’s operating cost, it would make little economic sense for any state to risk political and economic isolation by building its own enrichment plant.2) The uranium enrichment market possesses sufficient existing and planned capacity to accommodate a multinational supply regime. Both USEC (the United States Enrichment Company) and Urenco (the British/Dutch/German enrichment consortium) plan new gas centrifuge facilities in the next several years, while Eurodif (the French enrichment company) and Tenex (Russia’s state-owned enrichment conglomerate) each plan to install significant new capacity. These planned capacity increases should satisfy projected demand far into the future. Moreover, the modular nature of new centrifuge enrichment plants will enable companies to further ramp up capacity in response to unanticipated spikes in demand.3) The raw uranium market can accommodate a multinational supply regime. Uranium feedstock accounts for approximately a third of the cost of finished LWR fuel. Although the raw uranium market is tightening, further price increases will not make indigenous enrichment any more or less attractive for most states. A state without significant uranium reserves would have to pay the market price for uranium regardless of whether it enriches fuel domestically or purchases it from a multinational supplier. High uranium prices may therefore cause states to reconsider nuclear power development altogether, but not where to procure enrichment services.4) Spent fuel removal guarantees would provide an economically and politically attractive alternative to domestic spent fuel storage and/or reprocessing. Construction and operation of a small, indigenous spent fuel repository would cost tens of millions of dollars annually, depending on cost drivers such as specific waste characteristics, the type of waste packaging, and the repository’s design, scale, depth and geology. By contrast, multinational spent fuel removal would require states to pay only a small surcharge, part of which can be passed on to consumers in the form of higher electricity prices. Assuming a spent fuel removal surcharge of $260/kg of heavy metal in fresh fuel (equivalent to the $0.001/kWh that the Department of Energy charges U.S. utilities for the right to store spent fuel at the Yucca Mountain repository), total spent fuel removal costs for a single 1,000 MW(e) LWR would average about $5 million annually (See Annex 2). Reducing reactor burnup from 50 MWd to 30 MWd/kg of heavy metal increases annual spent fuel removal costs to approximately $8.6 million, still only a fraction of the likely costs for construction and operation of a spent fuel repository, and roughly comparable to the costs of dry-cask storage. Even more important, spent fuel removal would allow recipient states to avoid the enormous political, environmental and logistical headaches associated with domestic spent fuel disposal.Overcoming ObstaclesAlthough a multinational supply regime offers compelling security and economic benefits, U.S. policymakers must lead the international community in resolving a series of questions concerning regime design and implementation. In particular, a multinational supply regime must balance supplier state goals of nonproliferation and commercial protection against recipient state concerns about supply assurances and NPT rights.The feasibility of any multinational supply regime will depend, first and foremost, on the credibility of nuclear fuel supply assurances. If potential recipient states believe that policy changes in supplier state governments will jeopardize fuel deliveries and spent fuel removal, they will be reluctant to forego domestic enrichment and reprocessing programs.As potential recipient states see the situation, the credibility of supply assurances varies directly with the number and “mix” of states that would control fuel supply decisions in a multinational regime. Regional or international fuel cycle centers, controlled by a multinational governing body such as the IAEA, would provide the greatest degree of supply assurance. However, some major nuclear supplier states might be unwilling to cede control of existing enrichment facilities to the IAEA, or to fund the construction of an international enrichment facility that would compete with domestic enrichers.A more realistic option is to create a commercial supply consortium in which the current major uranium producers and enrichment providers, backed by intergovernmental agreements, would band together to guarantee the supply of fresh fuel to and spent fuel removal from recipient states that agree to forego indigenous enrichment and reprocessing. The consortium would require supplier states to coordinate a common set of criteria governing nuclear exports and a consistent set of nonproliferation obligations for recipient states. Given that four major suppliers occupy the current enrichment market, potential recipient states would have adequate protection against politically and commercially motivated supply disruptions. On the other hand, commercial suppliers must operate within the boundaries set by their respective governments, which often adopt like-minded policies.A multinational supply regime threatens to ignite a debate about non-nuclear weapon state rights under the NPT. Article IV of the NPT recognizes the “inalienable right of all Parties to the Treaty to develop research, production, and use of nuclear energy for peaceful purposes.” Many non-nuclear weapon states party to the NPT, including several whose participation in a multinational supply regime would be highly desirable, believe that this “inalienable right” includes the right to acquire national enrichment and reprocessing facilities, regardless of whether a state can demonstrate a compelling need for such facilities.However, Article IV guarantees non-nuclear weapon states an “inalienable right” to nuclear power for peaceful purposes only in conformity with the nonproliferation obligations stated in Articles I and II of the treaty. A more restrictive interpretation of Article IV would view acquisition of enrichment and reprocessing facilities as a de facto violation of these nonproliferation obligations. But unless the United States can convince the international community to accept this more restrictive interpretation, any multinational approach that entails permanent renunciation of access to enrichment and reprocessing facilities by non-nuclear weapon states will fail to win broad international support.One solution to this problem is to structure a multinational supply regime so that recipient states forego fuel cycle facilities in exchange for supervised access to fuel cycle technologies. For example, enrichment partnerships modeled after Urenco would allow members to share resources and technological expertise. However, a state could abuse these privileges by developing a clandestine enrichment program or by selling sensitive technology to potential proliferators. (Indeed, the enrichment programs of Pakistan, North Korea and possibly Iran can be traced back to centrifuge designs that A.Q. Khan stole from Urenco during the 1970s.)Another option (proposed by John Deutch, Arnold Kanter, Ernest Moniz and Dan Poneman) is to reward states that forego access to sensitive fuel cycle technologies by including them in an international collaborative R&D program focused on developing advanced fuel cycle technologies. However, recipient states may not attach a high value to such technologies, which remain decades away from maturity and may never prove economical enough for widespread deployment. International R&D into advanced fuel cycles could even inadvertently facilitate proliferation by providing an opportunity for states to build cadres of scientists and engineers trained in the fundamentals of spent fuel reprocessing.Rather than offer supervised access to sensitive fuel cycle technologies, an effective multinational supply regime should provide incentives that reduce the appeal of such technologies to recipient states. For example, an enrichment partnership modeled after Eurodif would allow recipient states to take an equity stake in an enrichment facility, enjoy priority access to nuclear fuel and participate in facility administration, but would not allow access to sensitive technology. For recipient states without hidden agendas, it would make little sense to pass up such an advantageous business arrangement. Moreover, if a multinational supply regime can offer credible supply assurances, recipient states will be unable to demonstrate a compelling need for access to sensitive technology.RecommendationsThe United States has a clear interest in leading international efforts to develop a multinational fuel cycle supply regime that can preempt the red zone problem over the long term. Both President Bush and Senator Richard Lugar have called for such a step. Since controlling nuclear materials is a key U.S. security objective that cannot be accomplished unilaterally, this is a perfect candidate for effective U.S.-led multilateralism in the second Bush term. Such a regime would offer mutually reinforcing economic and nonproliferation advantages, and should consist of three major elements.1) The IAEA should facilitate the creation of a supply consortium comprised of major uranium producers and enrichment providers. In particular, the IAEA should bring together willing supplier state governments to negotiate an intergovernmental agreement establishing a political framework for industry, acting as the executive agents of their respective governments, to cooperate in meeting global nuclear fuel needs. The consortium would encourage widespread adoption of the once-through LWR fuel cycle with high burnup, and would guarantee, in writing, the safe and timely supply of low-enriched uranium fuel to states with civil nuclear power programs. If one supplier state is unable to deliver on its commitments (for reasons not related to suspicions of proliferation), the agreement would obligate other supplier states to meet the affected recipient state’s needs from existing inventories. The defaulting supplier state would either have to restock those inventories or provide financial compensation to the other consortium members.2) Supplier state governments should create a “strategic uranium reserve” to provide an additional layer of supply assurance. Supplier states would have the option of either donating surplus material (as the United States pledged to do last September) or paying Russia to blend down specific quantities of weapons-origin HEU into LEU. The material would be held off the market and either stored entirely in Russia or distributed among the supplier states in proportion to their initial contributions. The uranium strategic reserve would be administered by a joint committee comprised of representatives from the IAEA and participating supplier and recipient states. In the event that the supply consortium is unable to meet its fuel supply obligations (again, for reasons other than suspicions of proliferation activity), the affected recipient state would petition the joint committee for permission to draw upon the strategic reserve to meet its fuel needs. The consortium would then be responsible for replenishing the reserve.Supplier states could count their contributions to the strategic reserve toward their commitments under the G-8 Global Partnership Against the Spread of Weapons and Materials of Mass Destruction. Although the G-8 initiative is close to achieving its goal of $20 billion in pledges through 2012, little of these funds have been committed to actual projects. The concept of a strategic uranium reserve can therefore provide a broad, unifying goal for the G-8 initiative as member countries consider how best to fulfill their remaining commitments. It would also link efforts to control the spread of sensitive fuel cycle capabilities with another important U.S. nonproliferation objective: the elimination of Russia’s vast stockpile of weapons-usable HEU.3) The United States should work closely with foreign governments, industry, the IAEA and Russia to construct an international spent fuel storage facility in Russia. Russia would own and operate the spent fuel storage facility, subject to IAEA safeguards and inspections. Recipient states would pay a per-kilogram spent fuel removal charge to help cover Russia’s costs. (The charge would depend on the number of contributing states and the size of the storage facility.) States from which spent fuel originated would retain prior consent rights over any future transfer of their fuel. In addition, Russia would agree not to reprocess spent fuel. Given the relatively small quantity of spent fuel at stake and the huge stockpiles of separated plutonium already in existence, Russia should be willing to make such a commitment.To facilitate the implementation of these recommendations, supplier states would negotiate, with IAEA assistance, a model safeguards agreement that would govern all supply consortium transactions as well as access to the strategic reserve. The agreement would specify a common set of nonproliferation obligations applicable to recipient states, including acceptance of existing Nuclear Suppliers Group export criteria, adoption of the IAEA Additional Protocol, implementation of UN Security Council Resolution 1540 (a nonproliferation measure), and a temporary commitment, renewable every ten years, to abstain from indigenous enrichment and reprocessing. The requirement for temporary abstention from indigenous enrichment and reprocessing attempts to sidestep any paralyzing arguments over Article IV of the NPT. Theoretically, recipient states should find a ten-year abstention politically more acceptable than a permanent renunciation. If the multinational supply regime proves effective over the initial ten years, recipient states might voluntarily agree to further, possibly indefinite abstention.Over the long term, supplier states could offer additional incentives exclusively to recipient states, provided they demonstrate good non-proliferation behavior. For example, when it becomes necessary to add capacity to the enrichment market, supplier states could offer recipient states an equity and managerial stake in new enrichment plants. As with the Eurodif model, recipient states would also enjoy priority access to enrichment plant output. In addition, supplier states could provide recipient states with assistance in building new light water reactors or opportunities to participate in developing advanced reactor concepts with appropriate supervision.Finally, the multinational supply regime must include punitive measures against holdout states that pursue indigenous enrichment and reprocessing facilities for motivations that are fundamentally non-economic in nature—particularly nuclear weapons ambitions, but also naval nuclear propulsion, commercial gain, energy independence or national pride. For example, the regime could make certain benefits, such as reactor-related assistance, available only to participating recipient states. The Nuclear Suppliers Group (NSG) could adopt a presumption of denial of all nuclear exports to holdout states. Enrichment suppliers could deny holdouts the opportunity to invest in future enrichment facilities, and the IAEA could deny them spots on its Board of Governors.The multinational supply regime outlined above represents the best near-term way to alleviate the growing “red zone” problem because it offers incentives to all potential stakeholders. Industry participants would enjoy preferential access to new markets and an opportunity to prevent the emergence of commercial competition. Supplier state governments would achieve nonproliferation benefits by slowing the spread of enrichment and reprocessing technologies. Recipient states would avoid the capital costs associated with indigenous nuclear fuel cycles as well as the political, financial and environmental hassles associated with spent fuel management. Simply put, recipient states would benefit from avoiding activities that are economically unjustifiable in the first place.The proposed regime can also cast increased suspicion upon the intentions of determined proliferators by exposing any purported economic or commercial justifications for their nuclear programs as illegitimate. In so doing, it can remove political barriers to building international coalitions to confront proliferators with diplomatic pressure, economic sanctions or military force should it become necessary.And finally, such a regime would vindicate the Administration’s approach to multilateralism—its insistence on patient approaches to serious problems that must be measured by effective results.
1Assuming a spent fuel removal surcharge of $260 per kilogram of heavy metal in fresh fuel (equivalent to the $0.001 per kilowatt-hour that the Department of Energy charges U.S. utilities for the right to store spent fuel at the Yucca Mountain repository), total spent fuel removal costs for a single 1,000 MW(e) LWR would average about $5 million annually (see table on last page). Reducing reactor burnup from 50 MWd to 30 MWd per kilogram of heavy metal increases annual spent fuel removal costs to approximately $8.6 million, still only a fraction of the likely costs for construction and operation of a spent fuel repository, and roughly comparable to the costs of dry-cask storage.