3 Reasons Why Federal Energy R&D is a Wise Investment

, senior energy analyst | January 18, 2017, 5:33 pm EDT
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Former Texas Governor Rick Perry will head into confirmation hearings in the next few days to become the next Secretary of the Department of Energy (DOE). A colleague of mine penned a great piece about what we might expect from Perry as head of the DOE. One key thing to highlight is that the DOE is responsible for investments in research and development (R&D), particularly related to energy. In an era where Congress is looking to trim federal spending, they should keep in mind that investments in energy R&D are a wise and proper use of limited federal government resources. Here’s why.

What exactly is R&D, and how much does it cost?

First, what exactly do we mean by R&D? Research and development generally refers to basic and applied research that leads to the creation of new products or the improvement of existing products—companies, for example, typically invest in R&D to maintain their leadership and market share.

So why should the federal government care about R&D? In short, there are many examples of innovation and discoveries that are simply too big and too risky for any single private enterprise to undertake. In these cases, the federal government recognizes the importance to society of research and development and advances technologies to the point where businesses and entrepreneurs can take over.

The benefits to society are broad, ranging from medical technology to clean energy. Federal investments in R&D have traditionally enjoyed bipartisan support, and that should continue.

And, the investments are small, compared to the overall federal budget. According to the American Association for the Advancement of Science, which has been tracking federal investments in R&D for decades, the federal government spent about $64 billion on non-defense R&D in FY16, amounting to about 1.6 percent of the total federal budget. The DOE received about $14.4 billion in total R&D in FY16, a mere 0.36 percent of the total federal budget. And that includes a lot of important basic research that is not what we typically think of as “energy.”

 

Federal agency spending on R&D, including both defense and non-defense programs.

Federal agency spending on R&D, including both defense and non-defense programs.

H/T to AAAS and their cool interactive data page, where I pulled the chart above, and where you can geek out over different ways of looking at this information.

So, here are the top three reasons why Congress should maintain support for federal energy R&D programs, even as they consider tightening the federal purse strings.

1 – Federal investments in energy R&D strengthen the economy

Federal R&D stimulates the economy and creates jobs.

  • For starters, some 110,000 people are employed by our national labs, which are managed by the DOE;
  • Universities currently receive some 60 percent of their research funding from the federal government, helping to train the next generation of scientists and engineers in STEM education;
  • Research conducted at the DOE and the national labs leads to ideas and technology that entrepreneurs can pick up and run with. There is so much demand for new technologies that Oak Ridge National Laboratory last year opened an office in Chattanooga in order to “link local companies to the national laboratory’s resources and expertise.”
  • Signed into law by President Bush in 2007, the DOE’s Advanced Research Projects Agency-Energy (ARPA-E) has been successful in overcoming the long-term and high risk barriers to developing innovative energy technologies. Since 2009, ARPA-E has funded over 400 energy technology projects. As of October February 2016, ARPA-E teams have formed 36 30 new companies and 45 projects teams have attracted more than $1.25 billion million  in private-sector follow-on funding.

2 – Federal investments in energy R&D are critical to advancing new life-changing technologies

I can’t possibly list in one short blog post how much our collective lives have been improved and changed because of federal investments in energy R&D. Just to name a few:

  • At the DOE, decades of investments in R&D on hydraulic fracturing and horizontal drilling techniques have opened up unconventional oil and gas resources, leading to a dramatic decline in natural gas prices over the last ten years. One can argue about the positives and negatives of this technology (for example, we are very worried about an overreliance on natural gas), but there’s no question that these investments have fundamentally changed our electricity system.
  • R&D for carbon capture and sequestration is critical to making this technology cost effective, which is needed if coal and natural gas are to play a significant part in our energy system moving forward in a carbon-constrained world.
  • In the category of “things most of us never think about,” exhibit A is flipping on the lights. Here too, the DOE’s work modernizing the electricity grid is critical—and Rick Perry understands a thing or two about energy infrastructure.

3 – Federal investments in energy R&D demonstrate and maintain American leadership

Finally, federal investments in R&D ensure that America maintains a competitive advantage globally.

  • Back in 2015, the U.S. signed on to Mission Innovation, which is a global initiative to accelerate public and private clean energy innovation. Twenty countries signed onto the initiative seeking to double R&D investments in clean energy over five years. Even though this commitment was made during the Obama administration, it should receive bipartisan support because it will help maintain American leadership in the clean energy space.
  • Drastic reductions in the cost of wind energy are, in part, a result of the $2.4 billion dollars invested by the DOE in wind R&D between 1976 and 2014, which has enabled many key innovations such as the taller turbines, longer blades, and improved electronics.
  • The DOE estimates that the $4.1 billion investment in PV technology research and development (R&D) from 1975 through 2008 accelerated the cost reduction progress by an estimated 12 years, while providing a net economic benefit of $16.5 billion.
  • Public-private partnerships R&D investments have also been critical in bringing down costs for LED lighting by 90 percent since 2008

For those last three bullets, check out this DOE report from 2015.

Conclusion

Governor Perry should recognize the importance of federal R&D investments in energy; from his time in Texas, he certainly understands the value of these investments in terms of local economic development. I’ve highlighted only a small sample of ways that federal investments in energy R&D have benefited society—there are many, many more. And those benefits have come at a relatively small cost to taxpayers.

And the benefits of all federal R&D investments extend beyond the energy sector. America won the space race back in the 1960s because the federal government made it a priority, and ponied up the cash to make it happen. The benefits to society have been far-reaching, not the least of which was inspiring an entire generation of men and women to pursue careers in science and engineering. Congress should remember that federal investments in R&D represent some of the biggest bang-for-the-federal-buck of any use of taxpayer money.

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  • Amy Allen

    Thanks for this very informative post! What do you think is the outlook for EERE funding, after Sen. Perry’s hearing in the Senate Energy and Natural Resources Committee, where he seemed to be unaware of the Trump’s administration’s proposed severe cuts, and then gave a somewhat ham-fisted statement of support for research funding?

    • Jeremy

      Thanks, Amy. Admittedly, when it comes to the federal policy landscape, my crystal ball has gone dark. I think we are cautiously optimistic that Perry himself understands the value of R&D, but it’s just not clear where the budget fights are going to lead.

  • Thad Curtz

    Can this number be right?

    “45 projects teams have attracted more than $1.25 million in private-sector follow-on funding.”

    That would be an average of $28,000 a team – which doesn’t seem very impressive…

    • Jeremy

      Good eye, Thad. You’re quite correct, that’s a typo. It should say $1.25 Billion, with a B. I’ll update the post momentarily. Thanks for reading!