# Meeting Our Long-Term Energy Needs through Federal R&D

By Senator Pete V. Domenici
July 2006

The funds we spend on research and development (R&D) for new energy technologies are some of the most important dollars in the federal budget. But we have a problem – federal funding for energy R&D has been declining for years, and it is not being made up by increased private sector R&D expenditures. There is a vital need for a bipartisan effort to increase federal R&D funding for energy technology, to leverage those funds with increased private sector investment and to work with the Executive Branch to bring new energy technologies quickly to the market place. In the last year, we have taken important steps to implement this vision.

Over the 25-year period from 1978 to 2004, federal appropriations for energy R&D fell from $6.4 billion to$2.75 billion in constant year-2000 dollars, a reduction of nearly 60 percent. Even worse, federal and private sector expenditures combined are less than one percent of total energy sales. Private sector investment in energy R&D fell from about $4 billion in 1990 to about$2 billion today. Of our nation’s high-technology industries, energy is the least intensive in terms of R&D. Consider, for comparision, that private sector R&D investments equal about 12 percent in the pharmaceuticals industry, and about 15 percent of sales in the airline industry. It is past time to reverse that trend.

Last August, Congress enacted the first comprehensive energy legislation in 12 years – the Energy Policy Act of 2005. Already we are seeing results. But the challenges we face are long-term — they will require continued hard work for years to come. To this end, the Act strengthens our commitment to investing in energy-related R&D. In all, it calls for $24.2 billion in funding over the next three years for research programs in energy technology and energy-related science. The Energy Policy Act also provides a framework for a balanced set of programs in energy research, development, demonstration, and commercial application. Previously, the Secretary of Energy had no guidance in choosing research topics and program components for energy R&D. The Act addresses this problem, establishing clear guidelines for research programs in energy efficiency, renewable energy, fossil energy, and nuclear energy technologies. With the Energy Policy Act, the Department will be better able to manage our R&D investments. The Act creates a new Under Secretary for Science to serve as the primary science and technology advisor to the Secretary of Energy. The new Under Secretary is responsible for monitoring civilian research and development programs, and advising the Secretary in managing national laboratories supporting basic research. The Under Secretary for Science will also ensure that the Department remains focused on our long-term energy goals. In particular, we need to build bridges between basic science and applied energy functions. This is vital for crossover applications — so that areas in applied energy where we need scientific breakthroughs are addressed. An example is the workshop held in 2003 that produced the report on Basic Research Needs for the Hydrogen Economy. The new Under Secretary for Science should help ensure that more of this kind of bridging work is undertaken by the Department and that the Department gives it high priority. While our nation must increase domestic energy production, we must also increase our production of new energy technologies. And these technologies must move from laboratory to market, or we will be no closer to realizing a stronger energy economy. Crossing this “Valley of Death” is not easy. Even technologies with obvious commercial potential often confound attempts to find successful markets. Federal funding for energy R&D is critical, but we also need policies that encourage greater private sector investment. The Energy Policy Act strengthens Department of Energy efforts to partner with private companies interested in lab-developed technologies. The Act establishes a technology transfer coordinator to advise the Secretary on technology transfer and commercialization. It also creates a technology commercialization fund with a budget of about$25 million annually. That federal funding will be seed money to leverage private sector investments through partnerships with local businesses. Helping laboratories “spin-off” technologies to the private sector will lead to new businesses, job creation, and a more innovative economy.

The Energy Policy Act also gives the Department of Energy new authority to hold prize competitions in “grand challenge” areas of energy technology. The Department can use this authority to accelerate progress in challenging areas — such as hydrogen and fuel cell vehicles and carbon capture and storage. This prize authority is modeled after that used successfully by the Defense Advanced Research Programs Agency (DARPA). DARPA spurred private sector investment in robotics technologies, for example, through a well-publicized race through the Mohave Desert. The X-Prize stands as another example of successful use of prize authority. This $10 million privately-funded award produced the first successful space flight ever achieved without public support. These prizes encourage multiple teams to undertake novel approaches, and they generate significant private sector investment due to their inherent prestige. We need to encourage high-technology industries, including energy sector industries, to increase their R&D investments. Legislation that I introduced with my Senate colleagues Jeff Bingaman (D-NM) and Lamar Alexander (R-TN) will do just that. The Protecting America’s Competitive Edge through Finance (PACE-Finance) Act will modernize and make permanent the R&D tax credit. After two decades of extending the tax credit for just a year or two in advance, it is time to give industry the certainty it needs. This certainty will lead to greater spending on R&D, leading to more innovation, and to a stronger, more competitive economy. In his State of the Union address earlier this year, the President announced his Advan-ced Energy Initiative (AEI). The President’s Advanced Energy Initiative builds on the Energy Policy Act by identifying key technologies where we will focus our efforts. The purpose of the AEI is to reduce our national dependence on foreign sources of energy, including the natural gas we use to heat our homes and the crude oil we rely upon to fuel our cars. To support this initiative, the President has requested for an overall 22 percent increase in fiscal year 2007 funding for the development of key technologies. Under the President’s Initiative, we will invest in technologies for zero-emission coal fired power plants. These plants will capture and store pollutants and carbon dioxide rather than releasing them into the atmosphere. We will continue our support for revolutionary new solar and wind technologies, to make them more cost competitive. Through the Global Nuclear Energy Partnership, we will develop a nuclear fuel cycle that enhances energy security, while addressing proliferation concerns. The AEI emphasizes the importance of advanced transportation technologies. To accelerate consumer adoption of hybrid-electric vehicles, the administration has committed to increase the energy storage and the lifetimes of batteries for these vehicles. To achieve greater use of homegrown renewable fuels, the initiative will develop advanced technologies to make competitively priced ethanol from cellulosic biomass, such as agricultural and forestry residues, trees, and grasses. Moreover, President Bush three years ago gave Americans the vision of a hydrogen future free from a reliance on foreign oil. The Energy Policy Act moves us toward that future with an authorization of over$3 billion in research on hydrogen and hydrogen fuel cells.

Our nation has a bright energy future. Greater public and private investment in energy R&D will produce a suite of new technologies that will make our energy sector cleaner, more secure, and more resilient. We laid the groundwork in the Energy Policy Act, and by following through on the President’s vision of the Advanced Energy Initiative we will meet the energy challenges that lie ahead.

Senator Pete V. Domenici (R, NM) chairs the Senate Energy & Natural Resources Committee and the Senate Appropriations Energy & Water subcommittee. He is serving in his sixth term.

Senator Pete V. Domenici