Funding RD&D

There is no way to make the progress this country requires on energy technology without increasing RD&D budgets. The federal deficit means that it is very tough to find those funds. This section suggests methods to meet the challenge.

First and most important, we believe that underfunding RD&D is an exercise in gross fiscal irresponsibility. The oil embargoes of the 1970s caused recessions that cost this nation more than a trillion dollars—yet we invest tiny sums in reducing petroleum dependence. The country sends $1 billion overseas every day to purchase oil, but publicly funded research in advanced vehicles and alternative fuels totals just $680 million annually —about 16 hours worth of oil imports. Blackouts cost the economy over $1 billion each, yet the nation typically spends only $170 million per year on electricity delivery and reliability. We will not save money by starving ourselves of future options.

Second, we believe that energy innovation should be financed from within the energy system. Our recommendations would total just 1.5 percent of the U.S. energy bill. This is a healthy jump from today’s levels, but is still about one-tenth as much, as a fraction of sales, as other high technology industries.

The energy system should finance its own innovation—for three reasons:

  • It is good economics to peg investments to the systems that generate social costs.
  • Funding RD&D from sales is the normal way to build new technologies. The costs are more a user fee than a tax.
  • Investment success in RD&D will pay off through lower energy bills.

There are several options for financing this investment. When there is a system to reduce greenhouse gas emission in the United States, it will likely generate revenue—in the form of permit sales, for example. The first $16 billion of these greenhouse gas revenues should be devoted to RD&D— because new technologies will make it far cheaper to reduce emissions. This is a virtuous cycle.

The United States employs other user fees on the energy system today that could be expanded. Wires charges (a small fee on electricity sales) are a natural way to finance improvement in the electric sector, just as gasoline taxes pay for transportation infrastructure. Reducing today’s subsidies to fossil fuel industries could also cover much of the distance.

The essential requirements, though, are that we make the basic investment, and that we commit these funds, steadily, over the long term.

Measuring success

Monitoring progress in stimulating energy innovation will be critical for adjusting to new conditions, making midcourse corrections, and maintaining accountability. Below we outline metrics to chart progress in the short, medium, and long term for each of our five recommendations.

Recommendation 1:
Create an independent national Energy Strategy Board.

Short term: Have we convened the Energy Strategy Board? Is it appropriately independent and does it have access to capital?
Medium term: Has the Energy Strategy Board developed a National Energy Plan with concrete and measurable goals? Has it provided guidance to the New Energy Challenge Program to deploy large-scale pilot energy projects? Has the secretary of energy responded to the National Energy Plan? Has Congress reviewed the plan and begun to adjust policy accordingly? Has the energy innovation community responded to the Plan?
Long term: Has the Plan been updated to account for new technologies? Have the Plan’s goals been met?

Recommendation 2:
Invest $16 billion per year in clean energy innovation.

Short term: How much money is the nation investing in energy RD&D?
Medium term: Are investments driving down prices for the most critical energy technologies? Have the technologies met and passed performance gates?
Long term: Are key technologies being built and sold at a reasonable price? Are low-carbon technologies being deployed at sufficient scale?

Recommendation 3:
Create Centers of Excellence with strong domain expertise.

Short term: How many Centers of Excellence have been created? How much funding are they receiving?
Medium term: What innovations have been pioneered by the Centers of Excellence? Are they using funds efficiently? Are the Centers catalyzing productive relations between government bodies, universities and the private sector?
Long term: Are technologies developed by the Centers for Excellence competitive in price and being deployed widely? Are the Centers the nucleation points for industry? Are they, in effect, new Research Triangles or Silicon Valleys for energy?

Recommendation 4:
Fund ARPA-E at $1 billion per year.

Short term: How much funding is ARPA-E receiving? How many projects is it supporting?
Medium term: What innovations have been pioneered by ARPA-E? Is the project using funds efficiently?
Long term: Are technologies developed by ARPA-E competitive in price and being deployed widely?

Recommendation 5:
Establish and fund a New Energy Challenge Program to build large-scale pilot projects.

Short term: Has a New Energy Challenge Program been established and funded? Does it have Congressional and White House support to operate nimbly and quickly? Has it successfully assembled a group of experts and launched a series of roadmaps? Has it brought in private sector resources to support its mission?
Medium term: Have the technology roadmaps successfully informed the National Energy Plan and the Technology Demonstration Initiatives? Are the initiated projects meeting cost, performance and schedule milestones? Has the NECP established international partnerships? Is the Program maintaining an appropriate risk profile?
Long term: Are there follow-on projects from the Program’s first-of-kind projects? Has the organization maintained strong private sector participation and financial support? Are supported projects operating at capacity, generating clean power for the American economy and sequestering harmful greenhouse gases?

Conclusion and payoff

Energy innovation is a commitment to long-term prosperity.

If the United States invests in its clean energy future now, our nation can reap immense benefits. We have seen this work in other sectors, and it can work in energy. Public- and private-sector innovators have made miracles happen right here on home soil—Americans developed the computer and the Internet, delivered air and space travel and decoded the human genome. Standing on their shoulders, we can see a clean energy future within reach. By scaling the good technologies of today and discovering new technologies that do not yet exist, we have an opportunity to achieve a similar miracle in energy.

On the other hand, if we starve energy research, there is no doubt that this country will have constrained future options. The national energy system is almost unfathomably large, and it will take many decades for its sunk investments to turn over. Today’s investment decisions on transportation systems, power plants, buildings, and factories have the effect of locking in long-term consequences for our economy, national security, and environment. There is vast room for improvement in our energy system.

The American way is to invent our future, to seize control of our destiny. In the energy realm, that means a step-function change in the way we innovate. As Americans, we all need to create new patterns in power, transportation, manufacturing, and housing that strengthen—rather than undermine—our national security and economic health.

The recommendations in this report are specific and affordable. They are not especially difficult, and they need not inspire a partisan battle. The recommendations reflect hundreds of years of private sector management experience, and the seasoned advice of scientists, academic leaders, government lab directors, and energy specialists.

We call upon the Congress and the president to act on these recommendations. We stand ready to help with further consultation, design, and implementation.

Endnotes

1. Figure Source: (1) National Science Foundation Data table 36. Federal research and development obligations, budget authority, and budget authority for basic research, by budget function: FY 1955–2009. http://www.nsf.gov/statistics/nsf08315/content.cfm?pub_ id=3880&id=2
(2) G.F. Nemet, D.M. Kammen, U.S. energy research and development: Declining investment, increasing need, and the feasibility of expansion, Energy Policy 35 (2007) 746–755.
(3) Pharmaceutical Research and Manufacturers of America (PhRMA), Pharmaceutical Industry Profile 2008. Washington DC. http://www.phrma.org/files/attachments/2008%20Profile.pdf
(4) National Science Foundation’s Science and Engineering Indicators 2010, www.nsf.gov/statistics/seind10/pdf/c04.pdf
2. Martin, Dan. The PV Learning Curve: How Does it Compare with Semiconductors? SEMI, 2009. http://www.pvgroup.org/ AboutPVGroup/ctr_029584
3. Figure Source: European Photovoltaic Industry Association and A.T. Kearny. SET for 2020. Published 2009. http://www.setfor2020.eu/
4. National Academies. Energy Research at DOE: Was it worth it? National Academy Press: Washington, DC. 2001. President’s Council of Advisors on Science and Technology. Assessing the U.S. R&D Investment. October 16, 2002. United States Government Accountability Office. Department of Energy: Key Challenges Remain for Developing and Deploying Advanced Energy Technologies to Meet Future Needs. Report to Congressional Requesters, December 2006.
5. This program described in Recommendation 5.
6. The Clean Energy Deployment Administration (CEDA) is a proposed new public financial institution that would facilitate the deployment of advanced energy technologies into the marketplace. A bill authorizing this institution was passed in the House of Representatives and is currently pending in the Senate.
7. Figure sources: (1) Energy Technology RD&D 2009 Edition, International Energy Agency, http://wds.iea.org (2) The world fact book, Central Intelligence Agency, https://www.cia.gov/library/publications/the-world-factbook.(3) China Statistical Yearbook on Science and Technology, 2008.
8. Figure source: National Science Foundation Data table 36. Federal research and development obligations, budget authority, and budget authority for basic research, by budget function: FY 1955–2009 (adjusted to 2005 USD), http://www.nsf.gov/statistics/ nsf08315/content.cfm?pub_id=3880&id=2. Note: The National Science Foundation estimate of public energy R&D spending is smaller than the DOE number reported in our model budget because the NSF uses a stricter definition for what constitutes energy R&D.
9. See http://www.americanenergyinnovation.org for these details.
10. Mowery, David C., Richard R. Nelson and Ben Martin. Technology Policy and Global Warming. National Endowment for Science, Technology, and the Arts. October 2009.
11. United States Senate. The Benefits of Medical Research and the Role of the NIH. May 2000.http://www.asbmb.org/ uploadedFiles/Advocacy/
Senate%20Report%20on%20the%20Benefits%20of%20Medical%20Research.pdf
12. Figure source: National Science Foundation Data table 36. Federal research and development obligations, budget authority, and budget authority for basic research, by budget function: FY 1955–2009 (adjusted to 2005 USD). http://www.nsf.gov/statistics/nsf08315/content. cfm?pub_id=3880&id=2.