From the time the Department of Energy was formed in 1977, successive administrations in Washington, D.C., have looked to technological innovation as a critical tool for ensuring that the nation has a reliable supply of affordable, clean energy. Recognizing the importance of technological innovation, DOE, the Office of Management and Budget (OMB), and congressional committees have given increasing attention to understanding the effectiveness of federal funding for applied energy research and development (R&D).² Evaluating government investment in applied energy R&D programs requires assessing their costs and benefits. Doing so is not a trivial matter. First, the analysis of costs and benefits must reflect the full range of public benefits—environmental and energy security impacts as well as economic effects. Second, the analysis must consider how likely the research is to succeed and how valuable the research will be if it is successful. Finally, the analysis must consider what might happen if the government did not support the project: Would some private entity undertake it or an equivalent activity that would produce some or all of the benefits of government involvement?

Congress provided funds for “a continuing annual review by the [National] Academy [of Sciences] of programs … to measure the relative benefits expected to be achieved and to inform decision making on what programs should be continued, expanded, scaled-back, or eliminated.”³ The NRC has completed two studies to date. The first study committee, whose report was published in 2001,⁴ conducted a retrospective examination of the first 22 years of DOE-funded R&D on energy conservation.⁵ A second NRC committee adapted the methodology developed by its predecessor committee for use in prospectively assessing the benefits of the portfolio of ongoing R&D directed at energy conservation. Its report,⁶ published in April 2005, culminated phase one of the prospective study.

The methodology suggested by the phase one committee uses expert panels to review the DOE R&D program and estimate the expected economic, environmental, and energy security benefits of the program in three different global economic scenarios, with the results summarized in the matrix shown in Attachment C. The expert panel evaluation process is facilitated by a decision analysis consultant, and the panels construct simple decision trees to describe the main technical and market uncertainties associated with the program and the impact of DOE support on the probability of various technical and market outcomes. The