Reduce Department of Energy Funding for Energy Technology Development

Since 1978, the Department of Energy (DOE) has spent more than $45 billion to develop new technologies in the areas of fossil fuels, nuclear power, and energy efficiency and renewable energy (EERE). Currently, a variety of DOE programs support research and development (R&D) of those energy technologies and their commercial demonstration. Spending for such efforts peaked in the 1980s and declined during the following 20 years, but funding began to increase again in 2006. Many lawmakers have questioned the value of those technology development programs and have considered whether DOE should cut back on programs to develop near-term energy technologies and concentrate instead on basic research in those fields.

This option would reduce spending for technology development in the fossil, nuclear, and EERE R&D programs to 25 percent of their 2011 levels. The Congressional Budget Office estimates that, in total, those reductions would reduce discretionary outlays by about $4 billion over the 2012-2016 period and by about $11 billion over 10 years. The specific activities that would be eliminated in those programs are those that focus on the later stages of technology development, the demonstration of commercial feasibility, and the deployment of new technologies. (This option would not affect funds for technical assistance and financial assistance, such as weatherization services for low-income families. See Discretionary Spending--Option 15.)

An argument for this option is that some of DOE's activities are better undertaken by the private sector, which has an advantage in the development, demonstration, and deployment of new energy technologies. Generally, the direct feedback that the markets provide to private investors has proved more cost-effective than the judgment of government managers in selecting which technologies will be successful in the market. The limits on the government's ability to foster new energy technologies are illustrated by DOE's Partnership for a New Generation of Vehicles (PNGV). The original goal of PNGV research was a production-ready vehicle powered by a hybrid (diesel and electric) motor for U.S. automakers. in a small-sized car, were ultimately the first to supply-- and subsequently dominate--the U.S. market for small hybrid cars. Similarly, in the area of fossil energy development, DOE has long sought to introduce new energy technologies through expensive technology demonstration plants that have often failed to deliver commercially useful knowledge. Accordingly, proponents of this option would scale back DOE's efforts to support applied research and the commercialization of new technologies and shift resources to favor DOE's support of basic and early applied research, which is less likely to be undertaken by the private sector.

Another argument for this option is that federal agencies have too many conflicting policy goals to implement a program of investments efficiently, as would be required for large technology demonstration projects. The Government Accountability Office (GAO) has long been critical of DOE's project management, pointing to inadequate oversight of contractors and to projects that failed to meet expectations for costs or schedules. Despite DOE's attempts at reform, GAO concluded in 2007 that DOE's performance had not improved substantially because new management processes had not been applied consistently.

Other arguments focus on the merits of specific programs. Regarding R&D related to nuclear energy in particular, some observers question the wisdom of pursuing new technologies as long as electric utilities--the intended recipients--are not building new nuclear plants. Since many state policymakers moved to deregulate the electricity-generation market in the 1990s, investors have generally shied away from building capital- intensive generating facilities, preferring to rely on less expensive natural gas facilities instead. Recent developments suggest that the natural gas required to power those new generators will remain cheap and plentiful for the foreseeable future, casting further doubt on the financial viability of nuclear-powered generators.

In the EERE area, which includes energy conservation as well as solar, wind, and other renewable energy sources, the federal government provides support through other means. Many of the technologies whose development is supported by the EERE programs also receive the tax credit for renewable electricity production or conservation- related tax credits. Furthermore, several of the EERE industries enjoy high rates of growth. Given the tax preferences and the high level of market penetration, some analysts argue that it may be time to begin withdrawing federal commitments for further technology development in those areas.

An argument against this option is that federal support may be needed because the prices businesses and consumers pay for energy do not compensate for the potentially large long-run costs of climate change. Reducing emissions of greenhouse gases would diminish those costs, but because those costs are not reflected in current energy prices, producers and consumers have little incentive to manufacture or purchase products that reduce energy consumption or produce energy with minimal greenhouse gas emissions. Thus, some observers argue that DOE's energy technology development programs fill a gap left by the market by providing the resources and incentives necessary to develop new technologies to produce and conserve energy.

In addition, most analysts agree that investors in many sectors, not just energy, do not receive all the benefits of investment in R&D because others also benefit from the knowledge gained. That result suggests a possible need for federal support to ensure that adequate R&D takes place. Because society gains even if the original investor does not capture all the benefits, it is argued, the federal government should invest in R&D to compensate for the gap between all the benefits that accrue to society and those that the original investors receive.

Finally, some analysts assert that DOE's technology development programs are a worthwhile activity on their own merits. Panels convened by the National Academy of Sciences have estimated that some of DOE's technology development programs, especially in the area of energy efficiency, have provided substantial benefits that exceed their costs.