presented to the committee in briefings and background documents, reflects the general themes of the DOE mission statement and is encompassed within it.

Based on these stated objectives, the committee adopted the three generic classes of benefits (and related costs) for the energy R&D programs: “economic,” “environmental,” and “security” benefits. The entry in each cell of the matrix is a measure of the economic, environmental, or security net benefit further characterized according to the column classification schemes, discussed below. Economic costs, or undesirable consequences, are quantified as negative components of net benefits, and economic benefits, or desirable consequences, as positive components. Ideally, the entries in the cells would be quantitative measures of each category of net benefits; in some cases, however, only qualitative descriptors are possible.

Economic net benefits are based on changes in the total market value of goods and services that can be produced in the U.S. economy under normal conditions, where “normal” refers to conditions absent energy disruptions or other energy shocks. The benefit must be measured net of all public and private costs. Economic value is increased either because a new technology reduces the cost of producing a given output or because it allows additional valuable outputs to be produced by the economy. Economic benefits are characterized by changes in the valuations based on market prices. These benefits must be estimated on the basis of comparison with the next best alternative, not some standard or average value. The “next best alternative” is defined as a technology (or combination of technologies) that is available and commercially proven that would accomplish essentially the same objective as a technology being evaluated and would be the technology of choice for a buyer in the market. This avoids the common problem of comparing a new technology with technology currently in general use rather than with technology that is already available and that could replace the existing technology. In many instances, there may be no alternative better than the one in general use.

Environmental net benefits are based on changes in the quality of the environment that have occurred, will occur, or may occur as a result of the technology. A technology could directly reduce the adverse impact on the environment of providing a given amount of energy service by, for example, reducing sulfur dioxide emissions per kilowatt-hour of electric energy generated by a fossil fuel-fired power plant, or by indirectly enabling the achievement of enhanced environmental standards (by, for example, introducing the choice of a high-efficiency refrigerator). Environmental net benefits are typically not directly measurable by market prices but by some measure of the valuation society is willing to place on changes in the quality of the environment. They can often be quantified in terms of reductions in net emissions or other physical impacts. In some cases, market values can be assigned to the impacts based upon emissions trading or other indicators.

Security net benefits are based on changes in the probability or severity of abnormal energy-related events that would adversely impact the overall economy, public health and safety, or the environment. Historically, these benefits arose in terms of national security issues, i.e., they were benefits that assured energy resources required for a military operation or a war effort. Subsequently, they focused on dependence upon imported oil and the vulnerability to interdiction of supply or cartel pricing as a political weapon. More recently, the economic disruptions of rapid international price fluctuations from any cause have been emphasized.

Currently, the economic and health and safety consequences of unreliable energy supply have become a more general security issue. The reliability of electric power grids was the initial concern, but natural gas transportation and storage and petroleum refining and product supply systems are now receiving attention.

Security net benefits can be seen as special classes of economic net benefits or environmental net benefits. They are “special” because they accrue from preventing events that have a relatively low likelihood or a low frequency of occurrence.

Range of Benefits (Columns of the Matrix)

The columns in the matrix are the first step toward a more explicit definition of the benefits to be included. They recognize a range of benefits from R&D that are logical measures of the value of the programs. The categories are “realized,” “options,” and “knowledge.”

The three columns reflect degrees of uncertainty about whether the particular benefits have been or will be obtained. Two fundamental sources of uncertainty are particularly important: technological uncertainties and uncertainties about economic and policy conditions.

The technology development programs can be classified according to whether the technology has been developed, is still in progress, or has terminated in failure. All else being equal, a technology still under development is less likely to result in benefits than a technology that has already been successfully developed, since technological success is not assured in the former case. However, even if a technology is never successfully developed, the knowledge gained in the program could lead to another beneficial technology.

Similarly, if a technology is fully developed and economic and policy conditions are favorable for its commercialization, there can be reasonable confidence that future benefits will accrue. However, it may be that economic and policy conditions are not expected to be favorable but might become favorable under plausible circumstances. In this case, the benefits may occur, but their probability is lower. Finally, while it may be virtually certain that the economic and policy conditions will never become favorable and that the technology itself will never be adopted, the knowledge associated with the technology development may be appli-

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