Report Contents
Report#:SR/OIAF/1999-03

Preface

Executive Summary

Introduction

Tax Expenditures

Federal Energy Research and Development

Trust Funds and Energy Excise Taxes

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Federal Financial Interventions and Subsidies in Energy Markets 1999: Energy Transformation and End Use

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The Federal Government's role in financing large-scale civilian R&D dates from the early 1950s. The principal landmarks were President Eisenhower's decision to commercialize nuclear energy in the wake of his "Atoms for Peace" speech in 1953 and the furor following the launch of the Soviet Sputnik satellite in 1956. Figure 2 shows trends in U.S. Government R&D outlays since 1950, in constant 1999 dollars. Current expenditures exceed $70 billion, 57 percent of which is defense-related. In the 1980s, total Government R&D spending rose by about 40 percent. The increase resulted primarily from increased emphasis on defense R&D. In the late 1980s, spending on health research also increased in relative importance. In the fiscal year 1999 budget, health R&D exceeds all other categories of R&D except national defense. Since the 1980s, energy R&D expenditures have declined. Current appropriations for energy R&D total about $1.6 billion, about 5 percent of all civilian Government-funded R&D.

Figure 2.  Federal Research and Development Outlays by Program, Fiscal Years 1950-1999 (Billion 1999 Dollars)

Federal energy-related R&D can be described as falling into three classes: basic research, research that seeks to develop new energy technologies, and research that seeks to improve existing technologies.

• Basic Research. The potential beneficiaries of basic research could be considered to be the population of the United States or the world as a whole. Basic research includes research projects designed to pursue the advancement of scientific knowledge and the understanding of phenomena rather than specific applications.

• Research To Develop New Technologies. The efforts in this context involve attempts to discover new scientific knowledge that can have commercial application. Although the end objective of the research is known, the research task is difficult and uncertain.

• Research To Improve Existing Technologies. These efforts emphasize the use of scientific knowledge to design and test new processes that may have substantial technical and cost uncertainties. The immediate beneficiaries are generally well defined: current producers and consumers of particular fuels or operators, and customers of the technology being improved.

Energy Research and Development as a Subsidy

It is easier to measure energy R&D spending than to it characterize from a subsidy perspective. R&D spending is intended to create useful knowledge that benefits society. Thus, all Federal R&D spending could, in a general way, be considered a subsidy to knowledge; however, the extent to which specific R&D programs actually affect energy markets is more difficult to ascertain.

The results of research are inherently uncertain. Many programs will advance knowledge across a range of energy and non-energy applications, rather than in the context of a particular fuel or form of consumption. Further, the knowledge obtained may be negative, in the sense that the research may only reveal technical or economic dead ends to be avoided in the future. ⁽⁴²⁾ Thus, only a portion of Federal energy R&D is likely to achieve results (in the form of changes in energy costs or consumption) that can be attributed specifically to a particular R&D program. Moreover, to the extent that there are attributable results, they are likely to be measurable only years after the funded research effort is initiated.

There are no means to determine conclusively whether or not particular Federal energy R&D projects are substitutes or complements for private-sector activities. Moreover, because research is risky, with failure an inherent part of the process, the effectiveness of Federal R&D cannot easily be assessed. This report makes no judgments on either of these issues. Rather, it surveys the current composition of Federal R&D spending and provides a degree of historical perspective on the changing composition of Federal energy R&D efforts.

There is another issue that is specific to U.S. energy R&D programs: much U.S. energy R&D is aimed not at producing fuels per se but at developing fuel-consuming capital equipment (particularly power generation technologies). Such projects may be more properly viewed as a subsidy to capital equipment manufacturers than to fuel producers or consumers. Although, in principle, all successful power generation R&D benefits electricity consumers, the effects on fuel producers are more ambiguous. Because they are energy-saving technologies, the new technologies will only benefit producers if they help to expand the market for their fuel. Thus, if one seeks to understand the effects, rather than the intent, of R&D spending, the success of the programs must be evaluated, noting that expenditures will necessarily occur long before technology adoption, and considering the competitive consequences of any new technologies introduced.

Finally, much of the expenditure that is formally defined as "energy research and development" in the U.S. Government's budget accounts is not directly expended on energy research or development. Some of the funds are expended for environmental restoration and waste management for energy (particularly nuclear) research facilities, or on R&D on environmental restoration and waste management, or on overhead or difficult-to-allocate functions. Such spending may not have a material impact on current or future energy markets.

Energy Research and Development Trends

Table 8 allocates Federal energy R&D by energy type and function. Currently, nearly two-thirds of Federal energy R&D ($2.8 billion) is allocated to basic research. DOE's largest single basic research program is the General Science Program, funded at $1.6 billion in fiscal year 1999. Basic research is difficult to characterize as an energy subsidy, however, because it cannot be allocated between energy and non-energy benefits, or among forms of energy. Therefore, the balance of this chapter focuses on applied energy R&D.

Table 8 lists both "estimated" and "actual" research and development appropriations for fiscal year 1992. The estimated appropriations are drawn from the Department of Energy's fiscal year 1993 budget proposal, prepared in early 1992, which showed appropriations by budget account for the previous fiscal year. ⁽⁴³⁾ The estimated appropriations were used in EIA's 1992 subsidy report. The actual appropriations are drawn from the Office of the Chief Financial Officer's Appropriation History Tables, prepared in early 1997, which show final appropriations by budget account.

The differences between the two columns have multiple causes. The Department transfers (with the approval of Congress) unspent monies from one account to another. This may take place well after the end of a fiscal year if the Department has multi-year spending authority for a particular account. The largest difference between the two columns is due to a large reprogramming of funds for fusion research. There have also been several changes of classification. For example, the account "Biological and Environmental Research" has been transferred from "Environment, Safety, and Health" to "General Science." In addition, minor errors in the original 1992 report have been corrected in the final appropriations column. For example, some of the expenditures on wind in the "Wind, Photovoltaic, and Other Solar" category were interchanged with biomass expenditures in the 1992 report.

Applied R&D is aimed primarily at improving existing technology. Appropriations for applied energy R&D were about $1.5 billion in fiscal year 1999. Of that amount, more than half is allocated to nuclear activities. Within the range of nuclear projects, most of the money is spent on environmental management rather than R&D per se. For coal, the bulk of spending supports development of clean coal technologies. Solar, photovoltaic, and wind energy absorb the major share of renewable energy research funds ($134 million out of a total of $327 million). Expenditures shown as "unallocated" in Table 8 are administrative and miscellaneous programs associated with R&D. For example, unallocated expenditures for nuclear R&D ($143 million) in fiscal year 1999 include program termination costs and program direction. For renewable energy programs, they include program direction and funding for the National Renewable Energy Laboratory ($22 million in fiscal year 1999). The unallocated appropriation for basic energy research ($49.8 million in fiscal year 1999) funds personnel in a variety of research centers and provides support services and other related expenses.

Figure 3 illustrates trends in Federal applied energy R&D appropriations from fiscal year 1978 through fiscal year 1998. There were sharp reductions in energy R&D appropriations during the early 1980s, followed by modest growth after 1992. R&D spending by fuel type is dominated by nuclear power R&D, although coal R&D appropriations were boosted in the late 1980s by the advent of the Clean Coal Technology Program, and renewable energy appropriations have risen somewhat since 1990. Federal R&D spending related to oil and gas is budgeted at $164 million in fiscal year 1999.

Another recent trend in Federal R&D is a tendency for Congress to mandate research on particular projects. Title XIII of the Energy Policy Act of 1992 wrote much of DOE's coal R&D program into law and added some new areas of research, mandating R&D on coal-fired diesel engines, nonfuel coal use, coalbed methane, metallurgical coal development, coal gasification, coal liquefaction, low-rank coal use, and magnetohydrodynamic power generation. There are similar detailed provisions throughout the law for research on other energy sources, including nuclear power, end use, and renewable energy.

Energy Research and Development Programs

Nuclear Power

Figure 4 illustrates trends in DOE's nuclear power R&D programs. DOE received an appropriation of $640 million for nuclear R&D in fiscal year 1999, but the majority of the funds ($466.6 million) are allocated to the cleanup of contaminated nuclear energy and research sites. About two-thirds of the cleanup funds are being used for site closures, and the balance is slated for site and project completion.  (See discussion on "Nuclear Safety Research").

Figure 4.  Federal Nuclear-Related Research and Development Appropriations by Program, Fiscal Years 1978-1999 (Billion 1999 Dollars)

Non-Defense Environmental Safety and Health

A substantial portion of Government-funded nuclear R&D is for managing and addressing the environmental legacy resulting from nuclear energy and research activities. The goal is to clean up as many contaminated sites as possible by 2006. For fiscal year 1999, more than one-half of non-defense environmental, safety, and health funds are allocated for site closures.

Improving Existing Power Plants and Enhancing Nuclear Power

The Nuclear Energy Research Initiative provides funds for R&D at universities, national laboratories, and industry to advance nuclear power technology. It includes proliferation-resistant reactor and fuel technologies, high-performance, high-efficiency reactor technology, advanced nuclear fuels, and new technologies for the minimization and management of nuclear waste. The fiscal year 1999 appropriation for this program is $19 million, out of the $30 million for new or improved nuclear power plants.

Unallocated Expenditures

Unallocated expenditures cover a range of difficult-to-categorize nuclear R&D accounts totaling $143 million in fiscal year 1999 appropriations. The largest single item in this category is termination costs for the Fast Flux Test Facility, a 400-megawatt sodium-cooled research reactor that was shut down in 1992, and the deactivation of an experimental breeder reactor. Termination costs ($95 million out of the $143 million in this category) cover removal of spent fuel and maintenance of the safeguards and security infrastructure for the facilities.

Coal

Figure 5.  Principal Research and Development Appropriations for Fossil Energy, Fiscal Years 1978-1999 (Million 1999 Dollars)

Coal R&D is an integrated program consisting of Advanced Clean/Efficient Power Systems, Advanced Clean Fuels Research, and Advanced Research and Technology Development. The program is focused toward the Vision 21 concept, aimed at doubling the existing power plant efficiency with the flexibility to produce high-value products from coal and other fuels while achieving near-zero pollution and reducing energy costs.

Advanced Clean/Efficient Power Systems Research and Development concentrates on a set of building-block technologies for Vision 21 that will yield the clean coal power generation systems of the future. The Advanced Clean Fuels Research Program will conduct activities to develop clean methods to produce coal-derived liquid fuels. This research consists of coal preparation, direct and indirect liquefaction, and research on chemical storage agents for hydrogen and molecular modeling of carbon structures. Advanced Research and Technology Development includes both long-range research on coal-related systems and crosscutting R&D on fossil energy, including projects in support of Vision 21.

Table 9 lists approved Clean Coal projects by application category. The amounts shown in Table 9 are multi-year project costs, including funds that have already been spent and funds not yet obligated. Currently, of the 40 projects in the program, 23 have completed test operations and have either been concluded, moved into commercially funded operations, or are in the final stages of reporting results to DOE; 7 projects are in design, permitting, and other pre-construction activities; 1 project is in construction; and 9 projects are in operation, generating test data.

In fiscal year 2000, only two projects are expected to have outstanding obligation commitments: the Clean Energy Demonstration Project (an integrated gasification combined cycle project now planned for southern Illinois) and the CPICOR combined steelmaking and generation project planned for Geneva, Utah. DOE's current projections are that neither of these two projects will require funding allotments from previous appropriations in fiscal year 2000, and consequently $246 million can be deferred into future years.