The U.S. Department of Energy spends US$3-$4 billion per year on applied energy research. These programs seek to provide clean and reliable energy and improve our energy security by driving innovation and helping companies bring new clean energy sources to market.
President Trump’s detailed budget request reportedly will ask Congress to cut funding for the Energy Department’s clean energy programs by almost 70 percent, from $2 billion this year to $636 million in 2018. Clean energy advocates and environmental groups strongly oppose such drastic cuts, but some reductions are likely. Where should DOE focus its limited funding to produce the greatest energy and environmental benefits?
My colleagues Laura Diaz Anadon of Cambridge University and Valentina Bosetti of Bocconi University and I recently reviewed 15 studies that asked this question. We found a number of clean energy technologies in electricity and transportation that will help us slow climate change by reducing greenhouse gas emissions, even at lower levels of investment.
Risks and returns
Federal investments in clean energy have produced some major returns. A National Research Council review of DOE’s investments between 1978 and 2000 found that just six energy efficiency programs saved American taxpayers more than four times the money spent on all efficiency programs put together.
Hydraulic fracturing, or fracking, is a more recent example. A 2015 Harvard Business School study estimated that by enabling producers to get more natural gas out of the ground, fracking contributed $430 billion to the U.S. economy just in 2014. Mitchell Energy, the company that pioneered fracking, has acknowledged that DOE’s research helped its own commercial efforts in developing this revolutionary technology.
Research by DOE “determined there was a hell of a lot of gas in shales,” Dan Steward, former vice president of Mitchell Energy, said in 2011. “It was the biggest accumulation of data and knowledge to date.” The agency also helped the company drill its first horizontal well.
Not every investment has proved this successful, especially in well-publicized cases of grants and loan guarantees for specific companies, such as Solyndra, a solar panel manufacturer that failed in 2011 after receiving millions of dollars in federal loan guarantees. But some failures are to be expected since research, by its nature, is uncertain.
In fact, a federal research program with few failures would be too conservative. All in all, the National Research Council study indicates that the Energy Department’s investments have paid off, with energy efficiency showing a 300 percent return on investment, and even fossil fuel programs showing a 2 percent return.
Uncertainty means that putting too many eggs in one basket increases the risk of missing the next big breakthrough. At the same time, tight budgets mean that DOE only has so many baskets, and needs to make choices. The technologies we have identified as priorities share two characteristics: The research can be effective even with smaller investments, and each technology fills a key niche.
Driving change in vehicles
Transportation is a critical target for clean energy research: It accounts for one-fourth of U.S. greenhouse gas emissions and 75 percent of U.S. oil consumption. Making change in this sector is challenging, since it involves changing Americans’ driving habits and the technology of millions of vehicles. But using electricity to power cars is a useful step, since there are many ways to generate cost-effective, clean electricity.
Batteries account for a large share of the cost of hybrid and all-electric vehicles, so bringing those costs down should be a prime goal of government investments. Another priority should be extending the distance that electric vehicles can travel between charges.
Private companies are making gradual improvements in both areas, but the government can afford to take bigger chances with new and different technologies that may be too risky for the private sector. Batteries are also a good bet at a time when budgets are limited because the money needed for research is relatively small, compared to the large investments required for nuclear research or demonstration projects for fossil fuel electric generation technologies. Moreover, in an earlier study, colleagues and I found that federal investments have a strong chance of significantly lowering the costs of advanced batteries.
Increasing our energy options
We also found in our review that technologies that open up new possibilities for meeting society’s energy needs are attractive as the world works to achieve more and more ambitious climate goals.
Carbon capture and sequestration (CCS) fits this criterion. Coal is a dirty but plentiful fuel that is economically important in many parts of the world, including the United States, China and India – the three largest carbon emitters in the world. CCS makes it possible to capture carbon dioxide released by burning coal or natural gas and store it underground. Even better, burning biomass such as trees or corn stover (stalks, leaves and cobs) along with fossil fuels would actually lead to a net reduction of carbon concentrations in the atmosphere, since it would sequester carbon that the plants absorbed from the air as they grew.
Improving grid-level electricity storage with technologies such as large battery banks would also give us more energy choices. Large-scale storage would permit broader use of intermittent technologies like wind and solar power by allowing us to use the electricity any time we need it, not just when the wind is blowing or the sun is shining.
Government’s role in R&D
Strong bipartisan support exists for energy R&D. Even the current Republican-dominated Congress slightly increased funding for energy efficiency and renewable energy in the recent stopgap budget that runs through September 30, 2017.
However, the long-term trend is running in the wrong direction. While funding for energy research has fluctuated over the last 40 years, the proportion of the federal R&D budget devoted to energy has decreased from 14.4 percent in 1987 to just 5.3 percent in 2017.
Not all R&D investments will pay off. In fact, that’s one reason we have federal funding. Governments can take risks that are too big for private firms. The Energy Department can reduce that risk and increase chances of a breakthrough by maintaining a diverse portfolio that invests in a range of very different technologies like solar and nuclear power along with vehicles, CCS and batteries. If these investments are made smartly, our research indicates that some of them will deliver huge and much-needed returns.