November 13, 2013

Discretionary SpendingOption 12

Function 270 - Energy

Reduce Department of Energy Funding for Energy Technology Development

(Billions of dollars) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014-2018 2014-2023
    Reduce Funding for Fossil Energy Research, Development, and Demonstration
Change in Spending                        
  Budget authority 0 -0.1 -0.1 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.5 -1.4
  Outlays 0 * * -0.1 -0.1 -0.1 -0.2 -0.2 -0.2 -0.2 -0.2 -1.0
                           
    Reduce Funding for Nuclear Energy Research, Development, and Demonstration
Change in Spending                        
  Budget authority 0 -0.1 -0.3 -0.4 -0.4 -0.4 -0.4 -0.4 -0.5 -0.5 -1.2 -3.5
  Outlays 0 -0.1 -0.2 -0.3 -0.4 -0.4 -0.4 -0.4 -0.5 -0.5 -1.0 -3.2
                           
    Reduce Funding for Energy Efficiency and Renewable Energy Research, Development, and Demonstration
Change in Spending                        
  Budget authority 0 -0.3 -0.5 -0.8 -0.8 -0.8 -0.9 -0.9 -0.9 -0.9 -2.4 -6.8
  Outlays 0 -0.1 -0.2 -0.4 -0.5 -0.6 -0.7 -0.8 -0.8 -0.9 -1.2 -5.0
                           
    Total
Change in Spending                        
  Budget authority 0 -0.4 -0.9 -1.4 -1.4 -1.4 -1.5 -1.5 -1.5 -1.6 -4.1 -11.7
  Outlays 0 -0.2 -0.4 -0.8 -1.0 -1.2 -1.3 -1.4 -1.5 -1.5 -2.4 -9.2

Notes: This option would take effect in October 2014.

* = between -$50 million and zero.

Since 1980, the Department of Energy (DOE) has received about $120 billion (in 2012 dollars) to develop new technologies in the areas of fossil fuels, nuclear power, and energy efficiency and renewable energy (EERE) and to promote energy efficiency. Currently, various DOE programs support research and development (R&D) of those energy technologies and their commercial demonstration. Many analysts 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, which is less likely to be undertaken by the private sector.

This option would reduce spending for technology development in the fossil, nuclear, and EERE R&D programs to 25 percent of their 2013 amounts stepwise over three years. The Congressional Budget Office estimates that, in total, those reductions would reduce discretionary outlays by $9 billion from 2015 through 2023. This option would eliminate DOE’s efforts to support the later stages of technology development and demonstration of commercial feasibility while leaving untouched DOE’s support of basic and early applied research. (This option would not affect funds for technical assistance and financial assistance, such as weatherization services for low-income families; for such an option, see Option 28.)

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 proven more cost-effective than the judgment of government managers in selecting which technologies will be commercially successful. The limits on the government’s ability to foster new energy technologies are illustrated by federal efforts to commercialize technology to capture and store carbon dioxide. For example, although DOE has offered financial incentives to firms to build that technology into new commercial power plants, it has found few firms willing to do so. Overall, DOE has long sought to introduce new energy technologies for coal through expensive technology demonstration plants that have often failed to deliver commercially useful knowledge or attract much private interest.

Furthermore, 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. For example, 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, electric utilities—the intended recipients—have not built much new nuclear capacity that would make use of such technology in many years. 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 sources of renewable energy, the federal government provides support through other means. Many of the technologies whose development is supported by the EERE programs also receive support from the tax credit for renewable electricity production or conservation-related tax credits. Furthermore, several of the EERE industries already have high rates of growth. Given the tax preferences and the high level of market penetration, 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, energy is one of the many sectors in which investors 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.