Reduce Department of Energy Funding for Energy Technology Development

Background

The Department of Energy (DOE) supports new technologies throughout the various stages of the development process, from basic energy research through commercial demonstration projects. Roughly one-third of the department's funding for research and development in 2017 went to funding basic research on energy sciences, and the remaining two-thirds went to technology development and demonstration. Excluding defense-related funding, nearly all of DOE's spending for technology development and demonstration supported new technologies in the areas of fossil and nuclear energy, energy efficiency, and renewable energy. Measured in 2017 dollars, funding for developing and demonstrating technologies in those three areas has averaged $2.3 billion per year since 2010.

Option

This option would reduce funding for technology development and demonstration in fossil energy, nuclear energy, energy efficiency, and renewable energy programs to roughly 25 percent of their 2018 amounts. The reduction would be phased in over three years: Funding would be reduced by 25 percent in 2020, 50 percent in 2021, and the full amount of the cuts (75 percent) in 2022 and thereafter. This option would reduce DOE's efforts to support the later stages of technology development and the demonstration of commercial feasibility but would not alter DOE's support of basic and early applied research, which is carried out primarily through the department's Office of Science. (This option would not affect funding for technical assistance or financial assistance, such as that provided for weatherization services for low-income families; for an option that would affect such funding, see "Reduce Funding for Certain Grants to State and Local Governments.")

Effects on the Budget

Provided that federal appropriations were reduced accordingly, reductions in funding for energy technology development would lower discretionary outlays by a total of $16 billion from 2020 through 2028, the Congressional Budget Office estimates. The reduction in outlays is smaller than the reduction in projected funding because of lags between when the funds are appropriated and when they are expended. Historically, DOE has spent its funding for research and development within four to six years of its appropriation. That lag reflects the time it takes to plan and solicit research proposals, consider bids, and award contracts, and it is a key source of uncertainty surrounding the estimated effects of the cut in funding on outlays. A shorter lag time than CBO has estimated would result in greater deficit reduction over the next 10 years, and vice versa.

If funding for technology development was reduced by a smaller amount than it would be under this option, a smaller reduction in outlays would probably result. However, decreasing funding by a greater amount than this option envisions would not necessarily decrease outlays proportionally. For example, depending on the extent of the reductions, DOE might face unavoidable costs related to shutting down programs, which could limit savings in the near term.

Other Effects

An argument for this option is that federal funding is generally more cost-effective when it supports basic science and research aimed at the very early stages of developing new technologies than when it supports research that is focused on technologies that are closer to reaching the marketplace. That is because basic research done early in the technology development process is more likely to lead to knowledge that, although it may be valuable to society, results in benefits that cannot be fully captured by firms in the form of higher profits. In contrast, research done in the later stages of the technology development process is more likely to be profitable for private firms to undertake without federal funding.

Another argument for this option is that the private sector has an advantage in developing, demonstrating, and deploying new energy technologies. Generally, the direct feedback that markets provide to private investors has proven more effective than the judgment of government managers in selecting which technologies will be commercially successful. The limits on the government's ability to promote the development of new energy technologies are illustrated by federal efforts to commercialize technology to capture and store carbon dioxide. Although DOE has offered financial incentives to firms to build that technology into new commercial power plants, it has found few firms willing to do so. Overall, DOE has long sought to introduce new energy technologies for coal through expensive technology demonstration plants that have often failed to deliver commercially useful knowledge or attract much private interest.

An argument against this option is that reducing federal support may result in too little spending on the development and use of products that reduce energy consumption or produce energy with minimal greenhouse gas emissions. Reducing emissions of greenhouse gases would diminish the potentially large long-run costs associated with climate change, but producers and consumers have little incentive to manufacture or purchase technologies that reduce those emissions. That lack of incentive results from the fact that the costs imposed by climate change are not reflected in current energy prices. Federal support could help compensate for the resulting underinvestment in greenhouse gas-reducing technologies.