2
Overview of U.S. Department of Energy Programs and Planning

This chapter reviews trends in DOE's coal program since the late 1970s and outlines the current program structure and recent budgets. DOE's current strategic planning also is summarized.

MAJOR TRENDS IN THE DOE COAL PROGRAM

Trends in federal funding for coal-related R&D since DOE's inception are illustrated in Figure 2-1. The 1973 oil embargo and subsequent energy supply uncertainties of the 1970s led to a greater federal role in energy technology development, with increased effort directed at more secure energy supplies, as through greater reliance on plentiful domestic coal. Efforts were focused especially on developing more efficient, cost-effective, and environmentally acceptable coal technologies. The 1980 Energy Security Act established the Synthetic Fuels Corporation to develop the domestic nonconventional energy resources, such as liquid fuels from coal and oil shale. This increased federal interest was reflected in the rapid growth of DOE's Office of Fossil Energy (FE) coal R&D budget in the late 1970s, as Figure 2-1 shows.

The intense interest in and funding of federal energy R&D during the 1970s was replaced by the Reagan administration with an emphasis on decontrolling energy markets, relying more on the free market and the private sector. There were significant reductions in federally sponsored fossil energy R&D, cancellations of synthetic fuels demonstration plants, and the eventual phase-out of the Synthetic Fuels Corporation. The marked drop in coal R&D funding from FY 1981 to FY 1982 was largely attributable to very significant reductions in funding for coal liquefaction and surface coal gasification activities (see Appendix C). A



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--> 2 Overview of U.S. Department of Energy Programs and Planning This chapter reviews trends in DOE's coal program since the late 1970s and outlines the current program structure and recent budgets. DOE's current strategic planning also is summarized. MAJOR TRENDS IN THE DOE COAL PROGRAM Trends in federal funding for coal-related R&D since DOE's inception are illustrated in Figure 2-1. The 1973 oil embargo and subsequent energy supply uncertainties of the 1970s led to a greater federal role in energy technology development, with increased effort directed at more secure energy supplies, as through greater reliance on plentiful domestic coal. Efforts were focused especially on developing more efficient, cost-effective, and environmentally acceptable coal technologies. The 1980 Energy Security Act established the Synthetic Fuels Corporation to develop the domestic nonconventional energy resources, such as liquid fuels from coal and oil shale. This increased federal interest was reflected in the rapid growth of DOE's Office of Fossil Energy (FE) coal R&D budget in the late 1970s, as Figure 2-1 shows. The intense interest in and funding of federal energy R&D during the 1970s was replaced by the Reagan administration with an emphasis on decontrolling energy markets, relying more on the free market and the private sector. There were significant reductions in federally sponsored fossil energy R&D, cancellations of synthetic fuels demonstration plants, and the eventual phase-out of the Synthetic Fuels Corporation. The marked drop in coal R&D funding from FY 1981 to FY 1982 was largely attributable to very significant reductions in funding for coal liquefaction and surface coal gasification activities (see Appendix C). A

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--> FIGURE 2-1 History of funding for coal R&D under DOE's Office of Fossil Energy R&D budget. Sources: DOE budget archives; DOE (1994a). Data shown in Figure 2-1 for FY 1976 through FY 1994 represent congressional appropriations for coal-related FE R&D in current dollars. The values shown do not include any adjustments, such as supplementals, rescissions, reprogrammings, etc., that took place after enactment of the appropriations bills. The FY 1995 number shown is the congressional budget request in current dollars. Budget data for FY 1976 through FY 1994 by specific program area are given in Appendix C. sharp decline in the world petroleum price in 1986 substantially decreased the economic attractiveness of coal-derived petroleum substitutes and the perceived need for R&D in this direction. However, sustained interest in coal-based power generation technologies led to congressional funding of DOE's CCT program, starting in FY 1986. This program has constituted a major effort outside the traditional coal R&D projects undertaken by DOE and its predecessor organizations, and CCT funding is therefore not included in Figure 2-1. The CCT program has emphasized the need for demonstration and commercial deployment of environmentally responsive, economically competitive technologies and is based on cost sharing between the private sector and DOE, with the former contributing at least 50 percent of total demonstration cost. During the Bush administration, the National Energy Strategy report was published, providing an overall administration strategy for energy policy (DOE, 1991). A fundamental tenet of this strategy was to continue reliance on market forces wherever possible by removing any barriers to efficient market operation. Emphasis was placed on improving energy efficiency and increasing production

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--> of domestic oil and natural gas. Coal was recognized as an important domestic source of energy, with emphasis on the development of economically viable technologies achieving specified levels of environmental performance relating to acid rain precursors and greenhouse gas emissions. Thus, in the area of electric power generation, advanced systems characterized by high-efficiency, very low pollutant emissions, and competitive economics became the focus of DOE's coal program. Another recognized need was for R&D to reduce the costs, investment risks, and environmental impacts of producing liquid fuels from coal. An important initiative of the Clinton administration has been the Climate Change Action Plan. This plan lays out the goals of returning U.S. greenhouse gas emissions to their 1990 levels by the year 2000 and positioning the United States to compete better in the global market (Clinton and Gore, 1993). A main thrust of this initiative is to reduce energy demand throughout the U.S. economy by actions that align market forces with the goal of reducing greenhouse gas emissions. Thus, the Clinton administration has promoted increased use of natural gas (which emits less CO2 per unit of energy than coal or oil), improved energy efficiency, and renewable energy technologies that release no net CO2 to the environment. As discussed below, decreased coal R&D funding has accompanied these new emphases. THE DOE COAL PROGRAM STRUCTURE AND BUDGET DOE's coal-related activities currently fall under two main budget categories: FE R&D and the CCT program. The first category also includes R&D programs in petroleum and natural gas, which are not considered in the present report, except when directly relevant to the coal program (e.g., cross-cutting R&D in advanced turbines and fuel cells). The CCT program was initiated in 1986 and is scheduled to run through 2004, with the specific goal of demonstrating the commercial potential of advanced power generation technologies. The CCT program is thus more transient than FE R&D, which has been in existence since the inception of DOE and forms the continuing basis of DOE's coal program. Fossil Energy Research and Development Annual funding for FE R&D for FY 1992 through the FY 1995 budget request has remained relatively constant, at something over $400 million. However, the oil and natural gas program budgets have increased at the expense of the coal program (Figure 2-2).1 Fossil fuel prices have declined during the past several years, especially for gas and oil. The low current and projected price of 1   The fuel cell activity was transferred from the coal program to the natural gas program in FY 1994. However, for comparison purposes, fuel cell funding has been included in the natural gas budget rather than the coal budget illustrated in Figure 2-2.

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--> FIGURE 2-2 Recent budget trends for DOE's FE R&D programs. Sources: DOE, 1993a, 1994a. natural gas has resulted in an emphasis on technologies for gas utilization, with the potential to use coal-derived gas. Recent years have seen the completion of R&D on power plant emissions controls to prevent acid deposition, and the initiation of new activities to achieve lower emissions of conventional air pollutants and higher power cycle efficiencies. These activities reflect a change in emphasis within the coal portion of the FE R&D program, with a decline in proof-of-concept activities and an increase in funding for demonstration programs. The current program addresses both R&D and technology demonstration. Table 2-1 shows trends in expenditures for the three main budget categories of the FE R&D coal program: Advanced Clean Fuels, Advanced Clean/Efficient Power Systems, and Advanced Research and Technology Development (AR&TD). A major change in the FY 1994 budget was the shifting of the fuel cell program from the coal component of the FE R&D budget to the gas component. The total FE R&D coal program budget has declined by about 25 percent (almost 30 percent in real terms) since FY 1992, not including the transfer of the fuel cell activity. DOE's FY 1995 request would bring the FE coal R&D program budget (in constant dollars) to just over half what it was three years ago. However, the budget request is not necessarily a good indication of the final budget, since Congress historically has added funds that DOE did not request. Both the Advanced Clean Fuels and Advanced Clean/Efficient Power Systems2 components of the coal program experienced funding reductions of about 2   Excluding the fuel cell activity.

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--> TABLE 2-1 Fossil Energy Coal R&D Program Budget (millions of current dollars appropriated) Program Element FY 1992 FY 1993 FY 1994 FY 1995 (request) Advanced Clean Fuels Coal Preparation 15.1 9.9 11.3 5.5 Direct Liquefaction 19.4 15.7 11.4 5.6 Indirect Liquefaction 13.7 16.2 9.1 7.6 Advanced Research and Environmental Technology 7.1 5.9 5.2 0.8 Systems for Coproducts 4.3 1.5 3.9 0.6 Subtotal 59.6 49.2 40.9 20.1 Advanced Clean/Efficient Power Systems Advanced Pulverized Coal-Fired Power Plant 8.2 9.1 9.1 7.6 Indirect-Fired Cycle 24.6 12.1 14.4 11.9 High-Efficiency IGCCa 18.0 19.5 27.2 28.1 High-Efficiency PFBCb 18.6 18.5 24.1 20.4 Advanced Research and Environmental Technology 26.8 21.7 17.8 13.4 Magnetohydrodynamics 39.9 29.9 4.8 — Fuel Cellsc 51.0 51.1 — — Subtotal 187.1 161.9 97.4 81.4   [136.1]d [110.8]d     Advanced Research and Technology Development Coal Utilization Science 4.0 1.9 3.1 3.1 Materials and Components 9.2 8.9 10.7 7.8 Technology Crosscut 10.8 9.6 9.3 9.4 University/National Laboratory Coal Research 5.9 5.9 5.9 6.0 Subtotal 29.9 26.3 29.0 26.3 TOTAL 276.6 237.4 167.3 127.8   [225.6]d [186.3]d     a Integrated gasification combined-cycle. b Pressurized fluidized-bed combustion. c The fuel cell activity was transferred from the coal program to the natural gas program in FY 1994. Fuel cell budgets are $51.8 million for FY 1994 and $67.8 million for FY 1995 (request). d Excluding fuel cells. Sources: DOE (1993a, 1994a).

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--> 30 percent (in current dollars) between FY 1992 and FY 1994. A significant part of the decrease in the second program area reflects completion of the magnetohydrodynamics program. High-efficiency IGCC is the only area in the Advanced Clean/Efficient Power Systems program that has seen funding increases each year from FY 1992 through FY 1994. CCT Program In the CCT program the most promising of the advanced coal-based technologies are being moved into the marketplace through demonstration. The demonstrations are at a scale large enough to generate the data needed to judge the commercial potential of the systems developed. Congress originally funded the CCT program with almost $400 million, to be spread over FY 1986 through FY 1988. In March 1987, in response to the Joint Canadian and U.S. Special Envoy recommendations concerning acid rain, President Reagan expanded the CCT program's funding by $2.35 billion. Congress established that this funding would be offered in five solicitations for cost-shared projects (CCT-Round I through CCT-Round V), in which industry would provide at least 50 percent of the cost of design, construction, and operation of the demonstration project. A unique feature of the CCT program is that each project must commit to repaying the government's share of the project's funding from the proceeds of successful commercialization of the technology. Table 2-2 shows currently authorized CCT funding, by solicitation round and fiscal year. The CCT program has been authorized and appropriated $2.75 billion altogether, representing 45 active demonstration projects and a total public and private investment of $6.9 billion. The FY 1995 budget request seeks to have previously authorized funding for the CCT program extended to cover solicitation rounds IV and V. Section 1332 of EPACT calls for solicitations for CCT projects in developing countries or countries with economies in transition from a nonmarket to a TABLE 2-2 Authorized Funding for the CCT Program (millions of current dollars) Solicitation Round FY 1986-FY 1994 FY 1995 FY 1996 FY 1997 Total CCT-I 398       398 CCT-II 575       575 CCT-III 575       575 CCT-IV 450 100 50   600 CCT-V 225 275 100   600 Total 2,223 375 150 0 2,748   Source: DOE (1994c).

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--> market economy. The FY 1995 budget request seeks funding for international ''showcase" demonstration projects in Eastern Europe and China. However, it remains unclear whether this will receive congressional approval. DOE'S STRATEGIC PLANNING The Department of Energy Strategic Plan DOE's overall strategic plan (DOE, 1994b) defines the department's mission as follows: The Department of Energy, in partnership with our customers, is entrusted to contribute to the welfare of the Nation by providing the technical information and the scientific and educational foundation for the technology, policy, and institutional leadership necessary to achieve efficiency in energy use, diversity in energy sources, a more productive and competitive economy, improved environmental quality, and a secure national defense. The DOE plan provides a vision, goals, strategies, and success indicators for each of the department's five business areas. Under "Industrial Competitiveness," DOE's laboratory system, R&D capabilities, and core competencies in such areas as energy and environmental technologies are considered valuable resources the private sector can tap through collaborative programs. DOE work under "Energy Resources" is based on the assumption that fossil fuels will remain critical components of energy supply in every nation for the foreseeable future. In the United States, coal, natural gas, and oil will continue to provide most of the energy for electricity generation and the building, industrial, and transportation sectors. A major focus in this area is using fossil fuels more efficiently and cleanly. The business area "Science and Technology" faces the challenge resulting from the continuing industry shift away from basic research. Given constraints in federal spending, DOE must balance its long-term fundamental research against R&D that will help industry compete effectively in the near-term. Specific goals include providing the science and technology core competencies that will enable DOE's other businesses to succeed in their missions and adding value to the U.S. economy through the application of new and improved technologies. "National Security" is concerned primarily with transformation of the nuclear weapons complex, activities that are not within the scope of this report. Similarly, "Environmental Quality" addresses mainly nuclear issues, namely, the decontamination and decommissioning of weapons complex facilities and nuclear power plants. The current DOE strategic plan generally expands on EPACT goals. EPACT will continue to provide guidance to the department in achieving its energy objectives, although, as DOE's plan notes, fulfilling EPACT's detailed requirements "will be difficult in this era of fiscal constraint."

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--> Clean Coal Technologies Research, Development, and Demonstration Program Plan DOE's Office of Fossil Energy is currently developing a "Coal Strategic Plan." As noted in Chapter 1, this document was not available during the conduct of this study. In the meantime, an important source of information on DOE's strategic planning for coal is its Clean Coal Technologies Research, Development, and Demonstration (RD&D) Program Plan (DOE, 1993b). This planning document should be distinguished from the similarly named but programmatically distinct Clean Coal Technology program, that is, the program usually referred to as the CCT program. Activities described in the Clean Coal Technologies RD&D Program Plan include, but are not limited to, the CCT program. For example, development of PFBC systems will involve subsystem and component testing, environmental and economic performance studies, and pilot plant tests, all funded under the FE R&D program; firstand second-generation PFBC demonstrations will be conducted under the CCT program. The RD&D Program Plan focuses on near-term planning; it does not address requirements for coal utilization beyond 2010. (Thus, the planning horizon corresponds to the near-term period and first five years of the mid-term period defined by the committee.) This plan proposes activities that span the full cycle of technology development, from basic research through demonstration and commercialization. Private industry has an important role to play in all stages, with the degree of industry cost sharing expected to increase as a technology moves toward commercialization. In the CCT program the most promising advanced coal technologies are being moved into the market through demonstration at a scale that permits their commercial potential to be assessed; as noted earlier, industry partners must contribute at least 50 percent of the demonstration costs. Activities described in the RD&D Program Plan are aimed at enabling the use of plentiful U.S. domestic coal resources while meeting environmental requirements. Specifically, the following two program goals are defined: enabling the use of coal as a secure, low-cost domestic energy source to support economic competitiveness and employment growth and contributing to the environmental acceptability of coal utilization. Three main program areas are defined: advanced power systems, advanced fuel systems, and cross-cutting technology programs. In the broadest terms these three program areas correspond to the three main budget categories of the FE coal R&D program. However, the advanced power systems and advanced fuel systems areas in the RD&D Program Plan also include CCT activities, and the detailed organization and funding of advanced research and cross-cutting technology programs is complex (see Chapter 9). The advanced power systems program described in the RD&D Program Plan supports the development of several coal combustion and coal gasification op-

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--> tions, which are expected to become commercial at different times. The aim is to enable future coal-fired plants to produce lower-cost electricity with reduced environmental impacts, higher efficiency, and higher reliability levels and to accelerate commercialization of such technologies. This program's strategic objectives are shown in Table 2-3. More specific objectives for individual technologies are presented in the RD&D Program Plan (DOE, 1993b). The advanced fuel systems program described in the RD&D Program Plan supports technologies to produce clean gaseous and liquid fuels and chemicals from coal, emphasizing liquid transportation fuels. There is no work on production of synthetic natural gas (SNG), except for some activities under coal gasification. DOE's strategic objective for the advanced fuel systems program is to demonstrate by 2010 "advanced concepts for production of coal-based transportation fuels, chemicals and other products" that can compete with petroleum products, when petroleum prices are $25/bbl or greater in 1991 dollars (DOE, 1993b), equivalent to $26/bbl in 1992 dollars. Different bases may be used for estimating production costs for liquid transportation fuels from coal. The electric utility industry with its relatively predictable selling prices for electricity and stable production costs can attract capital at a lower prime rate than, for example, the oil industry where future product and feedstock prices are much less certain. Major investments are frequently split between a component with relatively assured, but lower, return and a higher return component that will incur a larger risk. In the utility industry a substantially larger component of low-risk borrowed money is more common than in the petroleum industry, where 100 percent equity financing has been more commonly practiced. Hence, the term "utility financing" is frequently used to de- TABLE 2-3 Strategic Objectives of DOE's Advanced Power Systems Program   Period Objective 2000 2005 2010 2015 Efficiencya (%) 42 47 55 60 Emissionsb 1/3 1/4 1/10 1/10 Cost of energy 10 to 20 percent lower than currently available pulverized coal technology a Based on fuel higher heating value (see Glossary). A DOE presentation to the committee also noted CO2 reduction objectives of 24, 32, 42, and 47 percent for each of the four periods, respectively, based on energy efficiency improvements (Feibus, 1993). All these values are calculated assuming a base plant efficiency of 32 percent. b Current federal New Source Performance Standards (NSPS) apply to emissions of sulfur dioxide, oxides of nitrogen, and particulates from coal-based steam generators. Source: DOE (1993b).

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--> scribe highly leveraged investments, whereas "petroleum financing" describes the smaller component of borrowed money generally employed in that industry. Utility financing has been used throughout the present report for consistency with DOE's approach (see Glossary for further details), although the committee notes that there is no general consensus on the most appropriate financing basis for estimating equivalent crude costs. A number of technologies are relevant to both advanced power and advanced fuel systems. Four corresponding "cross-cutting" technology programs are described in the RD&D Program Plan: coal preparation, alternative fuels utilization, flue gas cleanup, and waste management (DOE, 1993b). Progress in these areas can improve the efficiency, environmental performance, or life-cycle costs of many of the advanced power and fuel systems under development. Specific objectives are defined for each of the cross-cutting technology programs. DOE's planning objectives for advanced power and fuels systems are evaluated later by the committee in the context of its own strategic planning framework (see Chapter 10). The study's conclusions and recommendations on DOE program goals and priorities stem from that evaluation. SUMMARY Federal funding for coal R&D has fluctuated substantially over the past two decades, particularly in response to the energy supply uncertainties of the 1970s. The DOE coal R&D budget increased rapidly in the late 1970s, reaching a peak of over $1 billion per year in FY 1981 (current dollars), but declined sharply in the early 1980s, especially funding for coal liquefaction R&D. The FY 1994 FE coal R&D budget was less than $200 million per year (current dollars), representing a decrease of approximately 50 percent in real terms over the past 10 years. Over the past three years, the oil and natural gas components of the FE R&D program have grown at the expense of the coal component. The increase in natural gas funding is largely in response to the availability and environmental acceptability of low-cost natural gas, although the possibility of using coal-derived gas is recognized. Since 1986, the CCT program, which is budgeted separately from the coal R&D program, has been appropriated $2.75 billion in federal funding for the demonstration of advanced coal technologies, with emphasis on clean, efficient power generation systems. The CCT program represents a marked departure from traditional DOE FE R&D programs in that industry partners must contribute at least 50 percent of the demonstration cost. In addition, there is a strong emphasis on technology commercialization. DOE's strategic planning for coal focuses on the need to exploit coal as a secure, low-cost domestic energy resource and to increase the environmental acceptability of coal use. DOE has defined corresponding quantitative goals for the advanced power and fuel systems programs. Partnership with industry is

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--> envisaged as a key component in the future development of coal-based technologies. REFERENCES Clinton, W.J., and A. Gore, Jr. 1993. The Climate Change Action Plan. Washington, D.C.: The White House. DOE. 1991. National Energy Strategy. First Edition 1991/1992. U.S. Department of Energy. Washington, D.C.: DOE. DOE. 1993a. FY 1994 Congressional Budget Request. U.S. Department of Energy, DOE/CE-0012, Volume 4. Washington, D.C.: DOE. DOE. 1993b. Clean Coal Technologies: Research, Development, and Demonstration Program Plan. U.S. Department of Energy, DOE/FE-0284. Washington, D.C.: DOE. DOE. 1994a. FY 1995 Congressional Budget Request. U.S. Department of Energy, DOE/CR-0023, Volume 4. Washington, D.C.: DOE. DOE. 1994b. Strategic Plan: Fueling a Competitive Economy. U.S. Department of Energy, DOE/S0108. Washington, D.C.: DOE. DOE. 1994c. Clean Coal Technology Demonstration Program: Program Update 1993. U.S. Department of Energy, DOE/FE-0299P. Washington, D.C.: DOE. Feibus, H. 1993. Overview of U.S. Department of Energy Coal Program. Presentation to the Committee on Strategic Assessment of DOE's Coal Program at the National Academy of Sciences, Washington, D.C., November 22.