Reduce Department of Energy Funding for Energy Technology Development

The Department of Energy’s (DOE’s) spending on the development of new technologies in the areas of fossil fuels, nuclear power, and energy efficiency and renewable energy has varied from year to year but has generally been lower in recent years than in the past. Measured in 2015 dollars, spending in those three areas has averaged $4.7 billion per year since 2010, whereas in the early 1990s, it averaged $7.6 billion per year. (A notable exception to the trend occurred in 2009 when substantial amounts of funding were provided by the American Recovery and Reinvestment Act.) Currently, DOE’s programs support the various stages of the development process, from basic energy research through commercial demonstration projects. Roughly one-third of DOE’s funding in 2015 went to basic energy sciences and the remaining two-thirds to applied energy research. About half of the applied research projects that received funding from DOE focused on energy efficiency and renewable energy.

This option would reduce spending for technology development in fossil fuel, nuclear power, energy efficiency, and renewable energy programs to roughly 25 percent of their 2016 amounts incrementally over three years. The Congressional Budget Office estimates that, in total, those reductions would lower discretionary outlays by $16 billion from 2018 through 2026. This option would eliminate DOE’s efforts to support the later stages of technology development and the demonstration of commercial feasibility while leaving untouched DOE’s support of basic and early applied research. (This option would not affect funding for technical assistance or financial assistance, such as that for weatherization services for low-income families; for an option that would affect such funding, see Option 28.)

An argument for this option is that federal funding is generally more cost-effective when it supports basic science and research aimed at the very early stages of developing new technologies than when it supports research that is focused on technologies that are closer to reaching the marketplace. That is because basic research done early in the technology development process is more likely to lead to knowledge that, although it may be valuable to society, results in benefits that cannot be fully captured by firms in the form of higher profits. In contrast, research done in the later stages of the technology development process is more likely to be profitable for firms to undertake.

Another argument for this option is that the private sector 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 effective than the judgment of government managers in selecting which technologies will be commercially successful. The limits on the government’s ability to promote the development of 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.

An argument against this option is that reducing federal support may result in too little spending on the development and use of products that reduce energy consumption or produce energy with minimal greenhouse gas emissions. Reducing emissions of greenhouse gases would diminish the potentially large long-run costs associated with climate change, but producers and consumers have little incentive to manufacture or purchase technologies that reduce those emissions. That lack of incentive results from the fact that the costs imposed by climate change are not reflected in current energy prices. Federal support can help compensate for the resulting underinvestment in greenhouse gas–reducing technologies.