Energy Secretary Rick Perry is in a tough spot this week as he makes the case on Capitol Hill for the administration’s proposed energy budget for fiscal year 2019.
Since taking the job, he has crisscrossed the country visiting national laboratories, hobnobbing with scientists, and cheerleading the work done by the Department of Energy (DOE). Yet President Trump's budget is brutal. If enacted, it would impose the largest single-year decrease in spending on energy research, development and demonstration (RD&D) in DOE’s history, surpassing even the decrease made in 1982.
Fortunately for the secretary, Congress is unlikely to accept the administration’s proposal. Republicans and Democrats alike see the value of continuing to invest in energy RD&D. The congressional consensus, which was expressed in significant increases in the fiscal 2018 budget, is well-founded. National imperatives to grow the economy, expand domestic energy supplies, secure vital infrastructure and protect the environment cannot be addressed without energy innovation. Robust federal funding for energy RD&D helps drive innovation, complements other administration and congressional priorities, and generates a significant return on investment for the American public.
Historic cuts based on a faulty proposition
The administration’s FY 2019 budget request reflects a fundamental and misguided skepticism about federal energy RD&D spending. The Office of Management and Budget has directed agencies to focus RD&D spending on early stage research, shifting toward “an increased reliance on the private sector to fund later-stage research, development and commercialization of energy technologies.” This guidance has been used not only to shift research priorities but also as an excuse for overall cuts to federal RD&D.
The proposed cuts therefore fall most heavily on applied research, development, pilot and demonstration projects, as well as tech-to-market, technology transfer, commercialization and advanced manufacturing programs at DOE. These programs seek to address market failures that typically block innovative energy technologies from reaching full maturity.
While public funding for blue-sky, basic research at universities and national laboratories is absolutely essential for a healthy innovation ecosystem, and we fully endorse increases for such work (something that is not in the President’s budget), projects that lead to scientific publications and even patents are far from ready to be deployed in the field and at scale. The risks and costs of technologies that have not been fully demonstrated are too great for the private sector to take them to market, particularly in industries like electric power that must provide reliable, uninterrupted service to customers who demand low-cost energy.
Promising energy innovations spawned by our nation’s creative scientists and engineers thus wind up stranded — or migrate to competitors overseas — unless there is an effective handoff from public to private support and a concerted effort to integrate them into the energy system. As the American Energy Innovation Council puts it, “It’s one thing to prototype a new tablet computer; it’s another thing entirely to prototype a new nuclear plant.”
Public RD&D complements private sector investment
Research by the Information Technology and Innovation Foundation finds that public investment in energy RD&D complements private sector investments, filling gaps in the innovation ecosystem that industry alone cannot address. Since the turn of the 21st century, during both the Bush and Obama administrations, Congress has made progress in filling these gaps, which the Trump administration’s budget proposal would undo.
For instance, Congress created ARPA-E to “sponsor creative, out-of-the-box, transformational, generic energy research.” The administration now proposes to shut down this agency. Congress established the clean energy manufacturing institutes to infuse innovative technologies and practices and strengthen workforce development in key industrial sectors. The administration calls for cutting this program by 75 percent. Congress set up interdisciplinary, integrative centers of excellence that bring together researchers from across sectors to work toward meeting ambitious and targeted technology goals with industry applications in mind. The administration would eliminate two of the four hubs.
To be sure, DOE is far from a perfect institution. It is overly bureaucratic, whipsawed by shifting energy markets, and subject to the changing winds of the political environment. Yet, it has often delivered results. For instance, a 2016 review of the Office of Energy Efficiency and Renewable Energy found that a taxpayer investment of $12 billion in RD&D between 1976 and 2015 yielded $388 billion in net economic benefits, corresponding to an annual return on investment of more than 27 percent.
Building on past success and continuing momentum into FY 2019
DOE’s RD&D investments in solar energy and carbon capture, use and storage (CCUS) show how much progress has been made, but also how much further we need to go.
Consider solar first. Decades of federal investment in solar photovoltaic (PV) power have culminated in the early achievement of the DOE Sunshot program’s 2020 goal of utility-scale solar PV power at 6 cents per kilowatt-hour. In many parts of the world, bids for solar plants are coming in well below this benchmark and are beating competing generation technologies without subsidies. Yet this success is not cause for triumphalism, and should not be seen, as Secretary Perry has suggested, as a reason to cut funding for further solar energy RD&D. In fact, as Varun Sivaram of the Council on Foreign Relations argues in his new book, deployment of current solar technology will hit a wall in the next couple of decades without further innovation.
The proposed budget cut to DOE’s solar program — a 72 percent reduction below 2018 levels — threatens to derail current progress and could delay future cost reductions. Among other things, the proposal would eliminate R&D in solar soft costs — the non-hardware costs that constitute over half the total costs for residential, commercial and community solar PV. The administration also proposes a 94 percent reduction in the solar program’s manufacturing R&D, which provides early stage assistance to help small businesses commercialize innovative solar technologies. Programs on systems integration, concentrating solar power and photovoltaic R&D also would see significant cuts.
The case of CCUS is similar. Many models of the future energy system suggest that to fully decarbonize electric power, CCUS will be necessary. DOE has helped advance these technologies, although progress has been much slower than with solar power. One prominent success story is the Petra Nova project outside of Houston, Texas, which now captures 90 percent of the carbon dioxide emitted by a large coal-burning unit. It opened on time and on budget last year, and the emissions that it captures are used to boost the output of the West Ranch oil field from 300 to 15,000 barrels per day.
Yet, the administration proposes massive cuts in the RD&D programs of the Office of Fossil Energy. Programs for both pre-combustion carbon capture (in which coal is first gasified, allowing removal of CO2 prior to combustion) and post-combustion capture (which removes CO2 from flue gas after fuel combustion, as in the Petra Nova project) would be cut by 80 percent. RD&D to advance systems for storing CO2 would be reduced by 87 percent. Carbon utilization, which focuses on conversion of CO2 into valuable products such as concrete, building products, plastics and fuels also would receive a 10 percent cut.
The administration’s proposals contrast starkly with the strong bipartisan support for CCUS technologies in Congress. In February, Congress expanded a tax credit to incentivize CCUS projects as part of the FY 2018 budget deal. The Senate Environment and Public Works Committee is now considering legislation to further accelerate development of CCUS technologies. Among other provisions, the bill authorizes the Environmental Protection Agency to conduct R&D research on carbon dioxide utilization and direct air capture as a means of reducing emissions.
The global energy innovation race: Still ours to lose and win
The United States remains the world’s overall leader in science, technology and innovation, but the rest of the world is catching up and indeed has surpassed the United States in some fields. Europe brought offshore wind to scale. Japan pioneered the hybrid electric vehicle. China is making massive investments in energy technology across the board.
Yet, the energy innovation race is not yet lost. The transition to a cleaner, more affordable, more reliable global energy system will take many years. Trillions of dollars will be made in the process. The United States will get its fair share of this revenue — while contributing to global security and slowing the pace of climate change, to boot — but only if the federal government makes smart, sustained investments in energy RD&D. Congress gave Secretary Perry the resources to build momentum in fiscal 2018, and lawmakers should keep this good thing going next year.
Colin Cunliff is a clean energy innovation policy analyst at the Information Technology and Innovation Foundation (ITIF). David Hart is a senior fellow at ITIF.