Governance

Characterizing the future performance of energy technologies can improve the development of energy policies that have net benefits under a broad set of future conditions. In particular, decisions about public investments in research, development, and demonstration (RD&D) that promote technological change can benefit from (1) an explicit consideration of the uncertainty inherent in the innovation process and (2) a systematic evaluation of the tradeoffs in investment allocations across different technologies. To shed light on these questions, over the past five years several groups in the United States and Europe have conducted expert elicitations and modeled the resulting societal benefits. In this paper, the authors discuss the lessons learned from the design and implementation of these initiatives.

Expanding estimates of North America’s supply of accessible shale gas, and more recently, shale oil, have been trumpeted in many circles as the most significant energy resource development since the oil boom in Texas in the late 1920s. How large are these resources? What challenges will need to be overcome if their potential is to be realized? How will they impact U.S. energy policy?

To address these questions, the Belfer Center for Science and International Affairs and two of its programs ― the Environment and Natural Resources Program and the Geopolitics of Energy Project ― convened a group of experts from business, government, and academia on May 1, 2012, in Cambridge, Massachusetts. The following report summarizes the major issues discussed at this workshop. Since the discussions were off-the-record, no comments are attributed to any individual. Rather, this report attempts to summarize the arguments on all sides of the issues.

The United States and the world need a revolution in energy technology—a revolution that would improve the performance of our energy systems to face the challenges ahead. In an intensely competitive and interdependent global landscape, and in the face of large climate risks from ongoing U.S. reliance on a fossil-fuel based energy system, it is important to maintain and expand long-term investments in the energy future of the U.S. even at a time of budget stringency. It is equally necessary to think about how to improve the efficiency of those investments, through strengthening U.S. energy innovation institutions, providing expanded incentives for private-sector innovation, and seizing opportunities where international cooperation can accelerate innovation. The private sector role is key: in the United States the vast majority of the energy system is owned by private enterprises, whose innovation and technology deployment decisions drive much of the country's overall energy systems.

"The focus of the workshop was on the demonstration stage of the technology innovation cycle. Current policies do not adequately address the private sector’s inability to overcome the demonstration "valley of death" for new energy technologies. Investors and financiers fear that the technology and operational risks at this stage of the cycle remain too high to justify the level of investment to build a commercial-sized facility."

"There is broad political consensus that the current energy system in the United States is unable to meet the nation's future energy needs, from the security, environment, and economic perspectives. New energy technologies are required to increase the availability of domestic energy supplies, to reduce the negative environmental impacts of our energy system, to improve the reliability of current energy infrastructure (e.g., smart grid, energy storage), and to increase energy efficiency throughout the economy."

There is uncertainty about the ex-ante returns to research, development, and demonstration programs in the United States on carbon capture and sequestration (CCS) technology. To quantify this uncertainty, we conducted a written expert elicitation of thirteen experts in fossil power and CCS technologies from the government, academia, and the private sector. We asked experts to provide their recommended budget and allocation of RD&D funds by specific fossil power and CCS technology and type of RD&D activity (i.e. basic research, applied research, pilot plants, and demonstration plants) for the United States....On average, experts estimated that if their recommended RD&D portfolio was implemented, the capital cost of new coal plants with CCS in 2030 would decrease by 10% in addition to the cost reductions/increases that would occur by 2030 through non-public RD&D related factors.

This analysis provides an overview the Department of Energy's fiscal year 2011 energy research, development, demonstration, and deployment (ERD3) budget proposals, and lays out actionable recommendations to strengthen the effort.  Overall, the report concludes that the 7 percent requested increase in applied energy research, development, and demonstration funds, while welcome in a time of budget stringency, remains well short of the sustained investment likely to be needed to meet the energy demands of the 21st century.

A new analysis of energy research, development, demonstration, and deployment (ERD3) funding in the Obama administration's FY2010 budget and the American Recovery and Reinvestment Act of 2009 finds that the total available for energy research development and demonstration alone and ERD3 in FY2010 would double and increase by two-thirds, respectively, compared to FY2009 (based on certain assumptions). These substantial funding increases—coupled with a range of institutional innovations the administration is implementing and movement toward putting a price on carbon emissions—will help accelerate innovation for a broad range of energy technologies. This report analyzes DOE's budget request for ERD3 and the Recovery Act and makes recommendations for further action by Congress and the administration.