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3
A FRAMEWORK FOR P=NNING AND IMPLEMENTING ENERGY R&D
In this chapter the status of energy research and development
(R&D) in the United States is examined briefly, and insights drawn
from past U.S. experience are considered for planning and
implementing energy R&D strategies to reduce greenhouse gas (GHG]
emissions., Concepts are then outlined to set the framework for
the sector-specific analysis and the R&D recommendations presented
in Chapter 4.
R&D AT THE IJ. 8. DEPARTMENT OF ENERGY
Funding for energy R&D decreased substantially during the
1980s, from a peak of nearly $5 billion (in constant 1988 dollars)
in FY 1979 to about $2.2 billion in FY 1989. 2-4 The cutbacks have
been unevenly distributed, as shown in Table 3-1.s Research on
energy from renewable sources (solar, geothermal, wind) has
declined 89 percent since 1979. Nuclear fission, conservation,
and fossil energy research have also been cut drastically. A
deliberate effort has been made to provide for steady annual
increases in the resources devoted to the Basic Energy Sciences
program, supporting research and technical analysis.
Cutbacks in many of the applied R&D programs have been
justified by intentions to reallocate R&D funding In an "upstream"
direction-toward the basic research end of the spectrum. The
rationale for this reallocation is that government support is most
needed for long-term, high-risk Projects that are unlikely to be
undertaken by the private sector. Within most programs there has
been movement away from advanced development activities and
demonstration projects toward exploratory and early-stage applied
research. The shift in emphasis from commercialization during the
Carter administration to a long-term, high-risk focus of R&D in the
Reagan years has caused an erosion in the Department of Energy's
(DOE) ability to influence the deployment of new energy
technologies in the marketplace. While the basic issues of supply
disruptions, rising oil prices, and U.S. energy security continued
to persist through the late 1970s into the early 1980s, the energy
policies of the Carter and Reagan administrations reflected
different perceptions regarding the potential impact of those
issues and hence fundamentally different approaches to their
resolution. In programs retaining significant amounts of
"downstream" activity, industry cofunding has become the norm. An
exception to the general emphasis on moving federally funded R&D
efforts upstream is nuclear fission research, where part of the
effort remains concentrated on downstream activities such as
supporting private sector efforts to meet regulatory burdens.
25
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TABLE 3-1 Budget Authority for DOE Civilian Energy R&D Programs5
Program
Budget (millions of
constant 1988 dollars)
FY1979 FY1989 tChange
Solar and other renewabl:
Nuclear fission
Electric energy
Conservation
Fossil energy
Uranium enrichment
Biological and environmental research
Magnetic fusion
Basic and supporting research
Energy Information Administration
Total
929
1,356
147
350
1,035
203
302
327
297
61
5,007
105
293
36
135
528
115
217
305
438
63
2235
Note: Excluded are activities in general science programs
and superconducting supercollider project.
26
human genome project,
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ENERGY R&D OUTSIDE THE DOB
Other Federal Agencies
During the 1980's other federally funded energy R&D programs
were scaled back along with those of DOE. From its peak in FY
1981, the Nuclear Regulatory Commission's budget authority for
research on nuclear reactor safety and waste disposal declined 64
percent, from $294 million (in 1988 dollars) to $107 million.
Since 1979 the U.S. Environmental Protection Agency has cut its
funding of energy-related research by 70 percent in real terms,
from $175 million to $53 million. 5 Other federal agencies such as
Tennessee Valley Authority, Bonneville Power Administration,
National Institute for Standards and Technology, the Bureau of
Reclamation, U.S. Department of Defense, U.S. Department of
Transportation, and the National Aeronautics and Space
Administration also engage In energy-related R&D, but they are
lesser players.
The Private Bector
Company funds for energy R&D also declined during the past
decade but less dramatically than federal ef forts . In constant
1988 dollars, company-funded energy R&D fell 30 percent, from $3.46
billion in 1979 to $2 .42 billion in 1987, the most recent year for
which company data are available.7 Thus, by 1987, company and
federal efforts were of roughly equal magnitude, whereas in }979
federal funding was 50 percent greater than company funding.
Cutbacks in company-funded R&D, like those of the federal
government, have been unevenly distributed across f ields of
application. Constant dollar company funds for conservation and
renewable energy technologies declined 83 percent from $~.6 billion
in 1979 to $284 million in 1987. Company funds for nuclear energy
R&D fell by 66 percent over the same period, from $2 62 million to
$88 million. Company-funded R&D on fossil fuel technology,
however, increased 24 percent from $1. 2 billion to $1. 5 billion.
Thus, in recent years federal and company efforts in conservation
and renewables have been of roughly the same scale. Federal
resources devoted to nuclear energy have been an order of magnitude
larger than company resources, while company spending on fossil
fuel technology has been three to five times greater than federal
spending. Industrial consortia, other than the Gas Research
Institute (GRI) and Electric Power Research Institute (EPRI), have
not been major sources of funding for energy R&D even though
legislation has reduced the barriers to collaborative projects
among companies in the private sector.
27
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GRI and EPRI
Of particular importance within the private sector are the
research efforts of two large private consortia, the GRI and the
EPRI. GRI's R&D programs (planned and executed under the
jurisdiction of the Federal Energy Regulatory Commission) have
involved an average expenditure of approximately $150 million per
year in recent years . The GRI programs have essentially replaced
federal programs in the aria of natural gas production, delivery,
and end-use conservation. Thus, GRI's and DOE's efforts are
complementary.
EPRI (which, unlike GRT, operates outside FERC jurisdiction)
funds a variety of R&D programs pertinent to the electric utility
industry as well as generic fundamental research. EPRI's annual
expenditure for R&D is now around $300 million, of which about $60
million and $3S million are targeted, respectively, at fossil and
nuclear power plants. Other major R&D targets include
environmental health, safety, and control ($80 million); end-use
technologies ($40 million); electricity transmission, distribution,
and deliv9ery ( $4 0 million); renewables and energy storage ~ $15
million) .
LESSONS FROM R&D PROG~S ~ UNSTRAPS
The committee conducted a limited assessment of the federal
energy R&D programs to gather information that could guide the
design of future efforts targeted at reducing emissions of GHGs.
The assessment excluded DOE's activities under the general science
and basic sciences areas. Several structural impediments to
effective federal energy R&D management were identified.
A common difficulty is political intervention with the
specifics of program design and implementation. In one sense, of
course, it would be not just surprising but alarming if elected
government officials had no say in government programs. On a
deeper level, however, the critique holds that government oversight
is unnecessarily compromising the quality of work in energy R&D.
Regional interests often intrude to boost or restrain
decisions. For example, the Clinch River Breeder Reactor was
funded for many years after a long series of studies, including
those of the National Academy of Sciences, found it to be
uneconomical. CRBR's longevity was helped significantly by its
location. Congress has increasingly viewed the development of
energy technologies as publ ic works programs . Sometimes regional
interests become so powerful that congress directs DOE not to
consider state and local cost-sharing incentives because this might
disadvantage certain states unable to offer them.
Changes in the presidency often lead to major redirection in
federal energy programs. In 1977 the Carter administration
28
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attempted to dismantle many advanced nuclear projects; four years
later the Reagan administration attempted to reinvigorate the same
nuclear projects and to terminate the Carter coal and synfuels
program. Frequent changes in priorities led to uneconomical,
erratic program support as particular issues were of more or less
concern to pal icymakers in the executive or legislative branch.
Indeed, the present study is an example of how congressional
concern about greenhouse warming and climate change is an attempt
to shift energy R&D priorities yet again.
The sensitivity of executive branch programs to changes in the
presidency is sometimes countered by congressional attempts at
stabilization. An example of this is in the fossil energy program,
where 80 percent of projects have been subjected to 1'ne-item
legislation. Technical management of energy R&D programs could be
improved significantly if elected officials in both the executive
and legislative branches exercised restraint.
It is axiomatic for good management of large programs that
clear and relevant objectives be established before the program is
begun and that the program be periodically reviewed relative to its
objectives. Many federal energy R&D programs appeared to the
committee to lack any clear economic rationale. For example,
economic analyses supporting the level of funding or the direction
of the fission and magnetic fusion programs were not clearly
discernible. In terms of monitoring progress, very little effort
appeared to be devoted to understanding whether programs were
meeting goals (when goals were specified) or to reallocating funds
on the basis of the most promising lines of research. Almost all
the federal energy R&D success stories were from programs that had
clear objectives.
The lack of clear and defensible objectives and careful
monitoring tends to invite politicization, contributes to inertia
in R&D programs, and leads to low success rates. As a result,
federal energy R&D funds are not being invested as fruitfully as
they should be.
Today's structure of federal energy R&D in the DOE has its
roots in the nuclear weapons industry, and in many ways the
national defense continues to dominate federal energy decisions.
This arises in part from DOE's budget. In FY 1989 the total
department budget was about $14 billion, of which about $8.8
billion was related to defense and weapons and only about $2
billion was directly related to civilian energy R&D. In addition,
the importance of defense issues in national debates has tended to
dominate the attention of the top administrator, in turn, of the
Atomic Energy Commission, the Energy Research and Development
Administration, and the DOE. Currently, with the massive
difficulties of cleaning up the wastes in nuclear weapons plants
and in starting tritium production, the secretary of energy has
little time to focus on overall civilian energy needs. Budget
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authority for fossil energy, renewables, conservation, and nuclear
reactor R&D declined from FY 1979 to FY 1989, while the trend in
the late 1980s in nuclear energy R&D was to increase the military
component.
In the end the key question concerning the performance of the
federal civilian energy R&D program is whether it has succeeded in
producing or assisting a significant number of energy technologies
to reach technological maturity and market commercialization.
Unfortunately, no comprehensive or well-designed survey of
results of federal energy R&D exists, and given the time
constraints of this study the committee was unable to undertake
such a review. The committee's conclusions, therefore, must
necessarily draw on case studies and episodes that may not be
representative and on expert opinion that may also be selective.
Subject to this reservation, however, DOE's energy R&D programs
have shown a low success rate, with few examples of
commercialization of technology on a viable long-term basis.
However, it should be noted that in the 1980s DOE's criteria and
emphasis were increasingly focused on long-term, high-risk R&D with
a clear Reemphasis on activity close to commercialization.
General lessons from federal energy R&D experience at DOE can
be combined with the experiences of programs dedicated to civilian
technology development such as at National Advisory Committee on
Aeronautics/National Aeronautics and Space Administrations and at
the U.S. Department of Agriculture,'~' to provide the following
general guidance for the design of GHG reduction R&D strategies:
~ To the extent possible, applied R&D programs can and
should involve industry participants in establishing objectives and
carrying out the research. Competition among firms should be
maintained, however, in the commercial development of technologies
based on the results of this research.
· Federal research programs function most effectively as
a complement to vigorous in-house R&D programs within industry.
Especially where such in-house research is lacking, additional
funding for extension and other forms of adoption assistance may
be critical.
· A decentralized program structure, even though it may be
slow to respond to new opportunities or other changes, has
important advantages for fragmented industries or for applications
that are highly idiosyncratic to varied circumstances.
· A diversified portfolio of publicly sponsored research
projects of modest scale is likely to be more effective than a
program that concentrates funding among a relatively small number
of technologies.
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The committee's specific recommendations for improving the
management of civilian energy R&D are presented later in this
chapter in the section titled, Management of Federal Energy R&D.
TEC]INOI,OGY DEVELOPMENT AND APPI,ICATION8 Ilt OTHER NATIONS
The record of publicly funded R&D programs in many Western
European nations is mixed. Many of these programs in aerospace,
computers, microelectronics, and (in Great Britain) nuclear energy
have suffered from efforts to achieve both national security and
commercial objectives within a single program. '3 These programs
tended to concentrate funding and technology development efforts
on a single "national champion" firm, often constructed from forced
mergers among several competitors. Competitive pressure was
lacking, and the results frequently were h~gh-cost, noncompetitive
technologies.
The scale of government-funded ~ndustr'a1 R&D within
contemporary Japan has been modest for most of the postwar period.
Publicly funded R&D programs In Japan emphasize support for
domestic diffusion of scienti fic and technical knowledge.
Cooperative research programs emphasize interfirm diffusion of
know-how and incremental improvements of technologies. Cooperation
in research is combined with fierce competition among the
participating firms in the application of the results of this
research. ]4 In recent years, however, the willingness of Japanese
firms to cooperate in these projects has declined somewhat.
The committee could not review information on the initiation
and nurturing of technology R&D programs and applications in
developing countries. Important lessons remain to be learned from
that experience and appl fed in future cooperative programs with
such countries.
TECENOLOGY-ADOPTION PROCESS
To achieve successful commercial introduction, R&D programs
must frequently be complemented by policies encouraging adoption.
Such policies may require the involvement of federal, state, and
local governments.
Because the transfer and adoption of new technologies are
costly knowledge-intensive activities, public R&D programs are
unlikely to develop technologies to technical readiness and then
let them "sit on the shelf" until needed. Much modification and
improvement occur as technologies are moved into the marketplace.
Public funds can be used to subsidize this process through
demonstration programs, but care must be taken to avoid the
mistakes made in earlier energy demonstration projects. Some
federal energy demonstration programs of the 1970s (e.g., Clinch
River Breeder Reactor) were too ambitious in pursuing commercial-
scale installations in unproven technologies, and they relied too
31
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heavily on government management and funding for projects that were
heavily oriented toward commercial applications.45
ATTAINING LOW—GHG EMI8810NS
Two general concepts govern a move from today's h~gh-GHG
economy to a future economy with lower GHG emissions. The first
is one in which successful R&D leads to future technological
developments favorable to low-GHG fuels and activities that are
less costly than comparable h~gh-GHG-emitting fuels and
technologies, so the economy naturally makes a transition to a
technological base with little potential for climatic impact
attributable to GHGs. Under the second concept, governments take
stringent measures (such as high carbon taxes or regulations) to
move the economy of f h~gh-GHG fuels and technologies toward low-
GHG ones. As a result, the market price of high-GHG technologies
rises relative to those having low GHG emissions. Again, the
global economy would tend to shift away from fossil fuels, thereby
reducing emissions of GHGs.
The point to emphasize about the two concepts is the
difference in the nature of the forces acting on the economy:
Under the first concept, reduction of GHGs comes in response to
the low costs brought about by successful R&D and technology
development; under the second, the impediments or subsidies
provided by government policy make fossil fuels uneconomical.
Investments in R&D, however, can move the economy more quickly
toward low emissions of GHGs and can make the move less painful and
less expensive. These concepts are further elaborated in a
subsequent discussion of strategy options for energy R&D.
ROLE OF RED
What R&D (and initial implementation) can produce is
information. Alternative energy R&D would reduce uncertainty about
the cost, performance, environmental side effects, and other
impacts of technologies designed to reduce energy-related GHG
emissions. This investment in knowledge serves two purposes.
First, it provides a basis for continually redirecting the R&D
program toward alternatives that are potentially less costly.
Second, information about new technologies has insurance value
and provides a range of options for future deployment, although
such deployment will require additional R&D and could take
considerable time. Some new technologies may be worth developing,
if new knowledge about global climate leads society to place a
higher value on reducing GHG emissions. A worthwhile step,
therefore, in the interest of quantifying upper or lower bounds on
critical cost and performance characteristics of a new low-GHG
technology, might be to develop and deploy it on a limited scale,
even if its cost exceeds that of the existing energy technologies
it would replace. Furthermore, in context, although cost reduction
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is one stated purpose of an energy technology R&D strategy, there
is no guarantee that cost reductions will actually be achieved.
Nuclear power is a case in point; its costs increased steadily
during the decades following its initial deployment' despite the
continued existence of a large federal R&D program.,
ENERGY POLICY AND GuGs
In the United States, no fiscal, regulatory, or other
incentives are offered to move away from high-GHG to low-GHG fuels
and technologies aside from those involving chlorofluorocarbons.
Indeed, the economic and energy policies that are in place in most
countries, including the United States, tend to be neutral toward,
if not in favor of, the continued use of GHG-intensive fuels.
Although alternatives to fossil-fuel-based technologies that have
lower GHG emissions are available, these are, for the most part,
more expensive in the marketplace than high-GHG-emitting fuels and
technologies. Given the higher relative cost of low-GHG-emitting
technologies in comparison to high-GHG-emitting technologies, and
the fact that market prices do not incorporate any cost of future
climate change or any benefit from switching to low-GHG fuels,
virtually no incentive exists for private firms to invest R&D funds
in low-GHG-emitting technologies.
The selection of appropriate policy instruments in the United
States for reducing GHG emissions will be strongly influenced by
our recent energy experience as well as by new considerations.
Notwithstanding industry views to the contrary, a variety of
policies in the past spurred development and adoption of
technologies. These policies included federally mandated
performance standards such as those on corporate average automotive
fuel economy and large-appliance energy efficiency; taxation
policies, including gasoline taxes and investment tax credits for
adoption of conservation and renewables technologies; modification
of federal, state, and local regulations, such as building codes;
and electric utility regulatory policies that affect private
payof fs to adoption.
High taxes on GHG emissions or large tax credits that
encourage widespread adoption of low- or zero-GHG emission
technologies throughout the economy could be quite costly to the
nation. Energy-intensive industries, in particular, would be
severely affected. On a national basis, however, these costs could
be partially offset by benefits associated with the production of
new information arising from experience with the technology in a
variety of market segments. Moreover, some segments of the private
sector might invest in more R&D because of the larger market
created by the adoption incentives. Also, broadly decentralized
incentives such as those provided by a carbon tax could identify
the technologies that are least costly to develop and implement
and would place a cap on the cost of implementing them. Private
R&D could be encouraged with tax credits, but this is a relatively
33
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inefficient incentive, producing far less than a dollar of
incremental R&D per dollar of tax expenditure.
Technology-specific factors will also be important
determinants of policy, and experience suggests that future
technology demonstration programs for GHG emission reductions
should strive for the following characteristics:
· sufficient scale for demonstrating performance and
reliability, avoiding premature commitments to commercial-scale
projects or dramatic scale-ups;
· substantial industry involvement in project design and
management;
industry cofinancing; and
· concern for and mitigation of unexpected environmental
effects.
The issue of global climate change introduces two relatively
new considerations into national energy policymaking: how to deal
with pervasive and persistent uncertainties and how to include the
fact that certain elements of the U.S. strategy may be determined
in international negotiations. Because of the uncertainties,
preference should be given to energy R&D strategies that are
compatible with other national objectives such as economic
efficiency and competitiveness, environmental quality, national
security, public health and safety, and maintenance of a healthy
and flexible economy. Diversity is also a hedge against
uncertainty, so U.S. R&D strategy should encompass a broad range
of technologies. The strategy should also be flexible in order to
accommodate changes in R&D objectives as key uncertainties are
resolved. Nevertheless, major irreducible uncertainties will
remain and will limit what science can contribute to a national
policy response.
At the international level, alternative energy R&D strategies
should include policies to assist developing countries in promoting
economic growth while minimizing GHG emissions. The global nature
of the markets for technologies that produce and consume energy may
also create new opportunities for collaborative R&D on alternative
energy technologies with other countries.
ROLE OF THE PRIVaTE SECTOR
Based on lessons learned from R&D experience relevant to
civilian technologies, the private sector will play a vital role
in achieving significant reductions in GHG emissions.
Technological innovation is a continuum of activities from
basic research through product or process introduction and
improvement. The existing state of knowledge of technology at any
given time determines the next activity to be undertaken; the
market potential determines whether an action should be taken. In
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general, the federal government's role is important in developing,
accessing, and communicating the state of technical knowledge.
Industry should manage the demonstration of technology and its
reduction to commercial products and services.
Participation of both the pull ic and private sectors __
i mportant throughout all stages of innovation leading to
technologies with which GHG emissions can be significantly reduced.
Suggested roles for the government and private sector are
highlighted in Table 3-2.
TABLE 3-2 Government and Private Sector Roles
in Energy R&D and Technology Innovation.
Activity
U.S. strategy with
respect to global warming
Energy R&D strategy
Basic research
Applied R&D
Government Role
(federal/state/local)
L
p
L
A
Hard-to-capture benefits ~
Not-hard-to-capture benefits A
Technology implementation
Private Sector Role
(including utilities)
A
p
A
L
T
A
L
Market stimulation L
and intervention
aL ~ lead role, P ~ partnership, and A Advisory role in establishing priorities
and providing funding for research, development and demonstration.
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MANAGEMENT OF FEDERAL ENERGY R&D
The committee's review of federal energy and other R&D
programs summarized earlier suggests ways that the federal
government might improve its management of energy R&~. The goal
of these management suggestions is to improve the effectiveness of
federal energy R&D programs-that is, reduce their costs and
increase their benefits.
While there are some notable exceptions, the committee
concludes that federal energy R&D programs have often been hampered
by conflicting objectives, political interference, inertia in
program selection, and preoccupation of top management with defense
issues. As a result, the payoff in terms of successful
commercialization of civilian energy R&D programs has been modest
at best. A clear and more defensible set of project and program
management procedures could reduce current temptation for political
intervention in program management and project selection. The
committee therefore puts forth four recommendations for changes in
the management of federal energy R&D that it believes will greatly
enhance the social return to federal investments:
· Federal energy R&D programs should establish clear
objectives and should systematically reevaluate the individual
projects and general direction of R&D In light of these objectives.
· The variety of policy instruments used by the federal
government to support energy R&D should be increased. Among the
options to be considered are an increase in the peer review of
proposals and programs and an increase in the portion of the budget
that is open to competitive bidding.
· The management and budget of civil fan energy R&D should
be insulated from unnecessary political interference and from other
programs, particularly those related to defense.
· To improve the management of civilian energy R&D,
separation of these programs from both defense and fundamental
science now performed by DOE may be advisable.
The sole-source funding of national laboratories should be
examined carefully and managed in such a way as to avoid conflicts
with R&D programs that are peer reviewed and competitively bid.
Political factors and the defense domination of DOE have
tended to reduce the effectiveness of management of civilian energy
R&D. While the committee does not recommend removing the energy
R&D budget from the normal appropriations process, the selection
of projects must be assured on the basis of technical and economic
merit rather than political pressure or the existing programs and
capabilities of the national laboratories. Stronger DOE evaluation
and management procedures could contribute to this goal.
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Over two-thirds of the total budget of the DOE is devoted to
defense. The high visibility of defense, along with recent
difficulties in managing nuclear waste disposal and defense nuclear
production facilities, makes it difficult for the top
administrators of DOE to give adequate attention to civilian R&D
issues. The committee therefore recommends that Congress consider
investing DOE's civilian energy functions with accountabilities
that are distinct and separate from its defense energy functions.
The committee also suggests that Congress consider alternative
budget strategies for DOE such as those outlined below.
ALTER~ATI=: BUDGET STRATEGIES
Appropriate criteria for budgeting, research, development, and
demonstration (RD&D) designed to reduce GHG emissions include
stable funding over time and focused attention on the technological
merits. These GHG-related criteria must compete with other highly
desirable objectives. Among these are substantive policy
objectives, such as reducing the deficit and maintaining economic
competitiveness, and procedural objectives, including facilitating
choices among national priorities and making these choices
transparent. There Is also an implied objective in maintaining the
integrity of the process by revealing all costs on an equal plane.
All objectives could be met, given necessary political
agreement, by a lump-sum annual appropriation to a lead agency,
which would then divide this budget authority among the
participating units. The funds would be available; they would be
provided in a public and, therefore, accountable manner; and the
program would be fiscally responsible.
There are other ways of funding programs outside the
appropriations process. Private research, for instance, could be
funded by tax credits. In this way its funding is automatic, and
this tax expenditure is not formally counted toward the deficit,
though, of course, it does reduce revenues. Trust funds could be
established based on earmarked taxes. The fate of the highway
trust fund, however, warns against the premature view that such
funding is guaranteed.
A multiyear or "no-year" appropriation could be sought. By
taking funding out of the appropriations process, instability in
funding might be avoided. Yet that stability could be obtained,
given the deficit, only at the expense of other programs. In any
event, nothing can stop Congress from reconsidering any time it
chooses . Tt is the public political support behind the programs
that matters.
There is no need to rely on a single form of funding. If,
say, tax credits were deemed superior for private industry,
appropriations could still be used by in-house government and
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noncorporate researchers. However, tax credits are difficult to
target appropriately.
The committee's preference is for a maximally visible fund
through the annual appropriations process.
LEVERAGING FEDERaL INVESTMENTS GLOBALLY
The global character of the GHG issue imposes a special
requirement on R&D. Both the advancement of science and the
development of alternate "solutions" require an international
context. The foreseeable R&D costs to make progress in these two
areas will be high; hence, it would be desirable to share these
costs as broadly as possible and to seek priority solutions that
offer the greatest promise for GHG emission management should they
be needed.
International cooperation has been an established tradition
in the natural sciences. Research on climate has involved major
international experiments; these are ongoing programs that will
yield important results about climate change. Analogous programs
aimed at technology development to respond to GHG management have
been discussed in ad hoc forms. Only recently, through the
Intergovernmental Panel on Climate Change (IPCC), have talks begun
on an international technological response. The IPCC deliberations
should generate at least a framework for international RD&D;
however, it is unlikely that the IPCC will institutionalize such
a program. .
Parallel to the IPCC activity, there are ad hoc industry
discussions taking place. These are building on informal
cooperative relationships developed in the electric utility
industry and the petroleum and gas sector. Existing arrangements
facilitate a continuing development of non-fossil-fuel electrical
generation opportunities as well as transportation options.
Examples of such arrangements include the United States-United
Kingdom-France-Japan cooperation in developing safe nuclear power
and the U.S.-DutCh coal generation demonstrations. A different
example is the independent Japan-European R&D leading to improved
fuel-efficient internal combustion engines. These focus on the
applications and needs of the developed world but not on the needs
of developing counties.
Industry discussions in the United States concerning R&D on
energy use and emissions are also under way but are outside the
context of climate change at the present time. Most recently, 14
of the largest oil companies have j oined the three domestic
automobile manufacturers in a con laborative R&D effort on
alternative transportation fuels for the United States. The
results of this collaboration are bound to have international
significance.
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Analysis of the future energy options for the world indicate
that, although considerable gains on GHG emissions are achievable
in the developed countries, the greatest leverage on future change
is in developing countries. The latter is set in the context of
projected increases in population, progress toward economic parity,
and greater industrialization. .
A major opportunity is at hand for RD&D in cooperation with
the developed countries to seek options for energy supply in the
developing world. The s must take advantage of resources such as
forest management; simple, small-scale, ef f icient electrical
generation; efficient public transportation; high end-use
efficiency; and emission control schemes that will permit continued
exploitation of world coal resources. At present the options are
available for technical means to arrest GHG emissions while
providing for energy needs. However, the means for demonstrating
the feasibility and reliability of alternatives has not been
provided for. Demonstration of technology is an expensive and
long-term commitment. To enable such demonstration, a cooperative
program between government and the private sector would be an
important element of U.S. energy strategy.
International cooperation in energy RD&D can be encouraged
through governmental arrangements or by ad hoc agreements with
energy producers. Government commitments have been facilitated by
formal programs of the United Nations, by informal arrangements
using national laboratories, or by ad hoc organizations such as
the International Institute for Applied Systems Analysis or the
Center for European Nuclear Research. In the energy sector,
commitments have been made through such institutions as the
National Academy of Sciences, the GRI, and the EPRI, linked with
sister organizations like the foreign academies of sciences and the
foreign electric and gas research laboratories. The latter
organizations are well suited for and experienced in the
development and management of demonstration programs. The strategy
choices for a U.S. RD&D effort should take advantage of this
experience.
8TRATEGY OPTIONS
Two energy R&D strategies together with market intervention
policies and actions are available to the United States for
achieving reductions in GHG emissions:
~ Focused R&D Strategy. Pursue energy R&D that is aimed
at reducing GHG emissions and that would make sense for other
reasons even in the absence of concerns about global climate
change.
· Insurance Strategy. Pursue energy R&D that would be
viable only in the presence of concerns about global climate
change.
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Both strategies follow the conventional R&D paradigm of
reducing uncertainties about the cost and performance of a
technology by producing new knowledge. They address, in general
terms, roughly the same set of technologies (encompassing the
entire fuel cycle from supply through utilization), and span the
full range of activities from fundamental research to technology
adoption, but they differ in purpose, cost, and policy instruments.
The economic rationale for the Focused R&D Strategy is based
on the inability of private firms to capture the benefits of basi c
research and the fact that the price of fossil fuels is less than
the full social cost associated with their use. The rationale for
the Insurance Strategy Is that additional energy R&D is warranted
by the conditions that prevention of climate change may assume a
high priority in the future and that new technologies would be
needed to reduce GHG emissions. The Insurance Strategy is
incremental to the Focused R&D Strategy. The fundamental
difference between them is the difference in the magnitude, timing,
and costs of actions that can be justified on non-GHG grounds and
those that need a GHG j ustif ication.
The federal R&D program under the Insurance Strategy will be
considerably more costly to the government (involving multibillion
dollar increments over the Focused R&D Strategy), and a greater
fraction of the government's R&D would be directed toward reducing
the uncertainties associated with the technology-adoption phase.
Through the Insurance Strategy the nation would, over time, invest
in the development and demonstration of a variety of "backstop"
technologies for their "insurance" or option value.
For example, before a new type of nuclear reactor becomes
viable, it might have to be sited, licensed, and successfully
operated for a number of years in order to convincingly demonstrate
that dealing with safety and environmental concerns would not
substantially increase the real cost of the technology, as occurred
in the case of the light water reactor. Similarly, the government
may need to underwrite the costs of demonstrating the economies of
mass production of advanced batteries or the biological
sustainability and environmental acceptability of large-scale
biomass plantations in various regions of the country. Resolving
uncertainties associated with the ''infrastructure" for these new
technologies may require full-scale testing in certain market
niches (e.g., fleets of electric or biomass-fueled delivery
vehicles or rental cars) or in government programs (e.g.,
silviculture for erosion control) where the existence of other
benefits may reduce the cost of implementation.
The Insurance Strategy need not be directed exclusively on
alternative energy technologies aimed at the domestic market.
Technologies suitable for use in other countries such as India and
China could have leverage for af fecting worldwide GHG emissions.
Furthermore, the strategy may include the development and
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demonstration of CO2 sequestering technologies that would be of
little interest in the absence of concern about GHG-induced climate
change.
It Is not sufficient to define energy R&D priorities in
isolation from the marketplace for which the products of the R&D
are intended. Prevailing market forces must be considered and
government actions may be required to achieve specific national
objectives. In the past, particularly at times of crisis, the
government has used intervention mechanisms such as taxes, tax
credits, energy efficiency standards, loan guarantees, subsidies,
federal procurements, and liability limitations to influence the
supply and demand of fuels and energy resources. In the event that
the nation makes a commitment to reduce emissions of GHGs
significantly, such actions ought to be considered again as a
supplement to the Focused R&D and Insurance strategies. This would
stimulate energy R&D in the private sector and the adoption of GHG-
reducing technologies in the marketplace.
In the near term (i.e., from the year 1990 to 2000), such
actions could spur the adoption of GHG-reducing technologies that
already exist and that can be shown to be economically viable for
reasons other than low-GHG emissions but that are not currently
being used. For example, policies may be needed to influence the
regulatory environment at the state and local levels and facilitate
widespread adoption. Tax and regulatory policies may be warranted,
because they yield net benefits consistent with reliability of
energy supply and other national goals such as security (e.g.' an
oil import tariff or automotive fuel economy standards) or economic
efficiency (e.g., promote investments In energy-conserving
equipment or buildings).
Market intervention could also be formulated to shift the
entire burden of applied energy RD&D the private sector. For
example, a carbon tax could stimulate development of alternative
technologies by making fossil-fueled vehicles more costly to
operate. It could elicit a diverse R&D response from the private
sector and facilitate an efficient transition (e.g., encouraging
the use of methanol made from natural gas while biomass plantations
were becoming established). A carbon tax could also send clearer
signals to the market about the relative costs of electric and
biofueled personal transportation systems, as electricity prices
began to reflect the costs of generating technologies having low-
or zero-GHG emissions. Such actions could enable the private
sector to capture the benefits that the nation may attach to
reducing GHG emissions. They would, however, still leave the
government with its traditional role of performing basic generic
research because its benefits cannot be appropriated. A pure
market intervention strategy would not change what needs to be done
by way of energy R&D but would shift to the private sector the
responsibility for its planning and execution.
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Chapter 4 draws on the framework presented in this chapter,
and defines alternative energy R&D programs and actions to achieve
reductions in GHG emissions. The committee's recommendations are
not governed by explicit objectives to achieve specific levels of
reductions in U.S. GHG emissions over different time horizons.
However, the technology-adoption actions identified in the various
market sectors relate to existing technologies that can be shown
to be reasonably cost-effective (i.e., economically viable aside
from their GHG emissions reduction value) and to technologies in
R&D once the uncertainties regarding their cost and performance
have been reduced to acceptable limits.
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NOTES AND REFERENCES
For a detailed treatment of federal energy R&D, see R. G.
Hewlett and B. J. Dierenfield, The Federal Role and
Activities in Energy Research and Development,_1946-1980:
An Historical Summary, Oak Ridge National Laboratory, Oak
Ridge, Tenn., 1983.
2. Fiscal Year 1990 Budget Highlights, U.S. Department of Energy,
Washington, D.C., January 1989, p. 4.
3.
Federal R&D Funding by Budget_Function: Fiscal Years 1989-
1990. NSF 89-806: National Science Foundation,
Washington, D.C., April 1989.
The Advanced Nuclear Systems ($38 millions and the Space and
Defense Power Systems programs ($66 million) are directed
entirely at NASA and military applications. An unspecified
fraction of the expenditures on the Test Facilities ($138
million) program is also directed toward noncivilian
applications. See DOE's Fiscal Year 1990 _Budget
Highlights, pp. 15-16.
5. Federal R&D Funding by_Budget Function, National Science
Foundation, Washington, D.C., various years.
6. Private sector underinvestment in R&D occurs not because
projects are long term and high risk but because marginal
social returns exceed marginal private returns. Such
circumstances arise because (~) the marginal returns to R&D
cannot be fully appropriated by the innovator (e.g., there
are spillovers to competitors) or (2) the products or
services on which R&D Is focused are unpriced or
inappropriately priced in the market (e.g., market prices
fail to reflect environmental damages or premiums for
national security). To the extent that the results of
long-term, high-risk projects are less appropriable than
the results of short-term "downstream" projects, such
projects are prone to underinvestment by the private sector
and may warrant government support.
Data on company-funded R&D were supplied by the Science
Resources Section of the National Science Foundation.
Historical Review of Gas Research Institute Research and
Development. Gas Research Institute, Chicago, Ill., May
1987.
9. Research and Development Program 1989-1991, Electric Power
Research Institute, Palo Alto, Calif., January 1989.
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10. The discussion of NASA's research programs draws on
D. C. Mowery's paper presented at the NAS workshop on the
returns to federally funded R&D, November 1985; and
D. C. Mowery and N. Rosenberg, Technology and the Pursuit,
of Economic Growth, Cambridge University Press, New York,
1989, Chapter 7.
11. R. E. Evenson, ''Agriculture,'' in R. R. Nelson fed.),
Government and Technical Progress, Pergamon Press, New
York, 1983, provides the basis for this paragraph.
12. "Overall, the experiment stations have generally moved their
work into areas where they have a comparative advantage
vis-a-vis the private sector. In direct competition with
market-oriented private firms, the public sector does
poorly and generally does not invest heavily in research
of that type. It tends to be pressed into work of a
testing and certifying nature, designed to help farmers
make choices among suppliers of inputs. In recent years
it has played a major role in facilitating adjustment to
regulations both in the chemical inputs fields and in food
technology" (Evenson, op. cit., p. 275~.
R. R. Nelson, High-Technology Policies: A Five-Nation
Comparison, American Enterprise Institute, Washington,
D.C., 1984. The French nuclear program, which shares many
of the undesirable features of the British nuclear program
and both the British and French programs in computers and
aircraft, appears to have been relatively successful in
producing reactors for extensive domestic use. This
success was aided by the existence of a state-owned
monopolistic domestic customer for the French reactors,
which facilitated design standardization and reduced
regulatory obstacles to adoption. Framatome, the major
French producer of reactors (also state owned),
nevertheless does not appear to be highly successful as an
exporter in world markets.
14. See D. Okimoto, "The Japanese Challenge in High Technology,"
in R. Landau and N. Rosenberg teds. ) , The Positive Sum
Strategy, National Academy Press, Washington, D.C., 1986,
and Mowery and Rosenberg, op. cit., Chapter 8.
15. J. F. Ahearne, Why Federal Research and Development Fails,
Discussion Paper EM 88-02, Resources for the Future,
Washington, D.C., July '988.
16. Nuclear Power in an Age of Uncertainty, Report OTA-E-216, U.S.
Congress, Office of Technology Assessment, Washington D.
C., February 1984.
17. Tax Policy and Administration: The Research Tax Credit Has
Stimulated Some Additional Research Spending, U.S. General
Accounting Office, Washington, D.C., September, 1989.
44
Representative terms from entire chapter:
federal energy
