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Energy Technology Investments Face Funding Cliff

The views expressed are those of the author and are not necessarily those of Scientific American.


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Funding for research and development in the U.S. is running up to a cliff. If sequestration kicks in on March 1, across-the-board cuts and a decade-long spending cap will go into effect. According to the American Association for the Advancement of Science (AAAS), this would mean an 8.2% ($4.6 billion) cut in the Department of Energy’s R&D budget between now and 2017. These cuts could impact not only the Department’s national laboratories, but also universities and research programs around the country.

Looking at the numbers – the U.S. federal government typically spends $4-6 billion a year on energy RD&D. So, sequestration essentially means eliminating funding for one year out of the next five. While this amount is less than one-fifth of the more than $33 billion per year that the government spends on health research, it is no chump change. And, in invests in the basic research that fuels technological innovation. These funds support graduate students around the nation, and are the seed money for research, development, and demonstration projects that have impacts throughout the industry (for example lithium ion batteries and hydraulic fracturing).

On the private side, US energy firms reinvest a significant amount of money into technology development. According to Bloomberg New Energy Finance, global investment in renewables topped $268 billion in 2012. But, all told, less than 1 percent of energy company revenues are reinvested into research, development, and demonstration (RD&D), compared to the 15-20% level seen in IT, semiconductor, and pharmaceutical companies. The majority of these investments are not in basic science, but in more advanced developing energy technologies.

This is an industry where stability and reliability reign (for many reasons, including legal obligations and social welfare considerations). Their many accomplishments – for example, successful use of floating platforms for deepwater oil drilling – are undeniably impressive engineering feats. But, these are slow developments occurring over decades and not sudden technological revolutions.

The industry’s profile and the nature of energy projects could shed some light on these relatively low numbers and (arguably) more conservative investment approach. Briefly stated, the energy industry is primarily comprised of capital-intensive and long-lived projects. For example, more than half of coal plants operating in the U.S. were built before 1967, with an average age of 43 years. And building a new scrubbed coal power plant would cost upwards of $3.5 billion and require at least a 4-year lead time.

But, with innovation sitting as a critical component in the move toward a more sustainable energy future, these numbers are (quite frankly) concerning. Especially if, in the face of extreme budget problems, a primary energy R&D supporter in the U.S. will not be able to issue checks for awhile.

Photo of American flag and dollar bills © Copyright MinimalistPhotography101.com and licensed for reuse under this Creative Commons Licence.

Melissa C. Lott About the Author: An engineer and researcher who works at the intersection of energy, environment, technology, and policy. Follow on Twitter @mclott.

The views expressed are those of the author and are not necessarily those of Scientific American.





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  1. 1. fedesog 3:45 pm 02/26/2013

    …unless research is done only on Mondays the phrase should be “a significant amount of money”

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  2. 2. Melissa Lott 3:54 pm 02/26/2013

    Thank you for pointing out that typo, @fedesog. It has now been corrected.

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  3. 3. sault 4:41 pm 02/26/2013

    I don’t understand this single-minded push to cut everything…except defense spending. Education, R&D and other investments in future economic growth should be the LAST things that get cut, but we’re always penny-wise and pound-foolish with these things. For exampe, you NEVER save any money cutting education funding since you just end up spending more on prisons within a few years! Or many agencies spend a growing portion of their time planning for these cuts, furlows, shutdowns or whatever other self-inflicted wounds Congress has caused instead of doing their intended function!

    I understand that defense spending is important, but isn’t having intelligent, healthy and capable people prepared to enter the workforce a large contributor to national security as well? And specifically for energy research, wouldn’t taking the financial wind out of the sails of Iran, Venezuela, Russia and other oil exporters VASTLY improve our national security as well? What about mitigating the effects of climate change? Shouldn’t we try to minimize the number of climate refugees, resource wars and the regional instability that these disasters would cause? Throwing more money at defense is increasingly treating the symptoms instead of the cause of a lot of security risks.

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  4. 4. Sisko 5:09 pm 02/26/2013

    Sault

    You have it incorrect once again.

    US defense spending is going to take the largest percentage and actual dollar value hit when the sequester budget cuts hit.

    The basic fact is that the US is currently spending nearly 38% more than it is generating in revenue. It is easy for politicians to make promises that have to be paid for later and that is exactly what has happened. Politicians have previously passed legislation that promised people benefits without establishing a framework to pay for those same benefits. Is it somehow unreasonable to ask that the president and Congress to establish a plan to achieve a balanced budget?

    Does anyone believe that taxes should be raised to make up this entire imbalance between revenues and expenses? Answer- NO as that large of a tax increase would further damped the economy and result in an even deeper disparity between revenues and expenses.

    Does anyone believe that services should be cut until this entire deficit is eliminated? A few people believe that way but only a very few who have examined what would actually have to be cut. The reality is that there will need to be cuts in services and cuts to the growth in programs in order to balance the budget. It may be natural for people to lobby for their favorite pet project or program but the bottom line is that if any program is not cut by 38%, then another program will have to be cut more to make up the shortfall.

    Fixing the horrible shape or economy and budget is in will take time to fix, but failing to address the problem is a terrible crime. Virtually everyone who has studied the issue knows the framework that must be followed. It will involve cuts to many programs and those cuts will be painful to many people. IT IS EASY TO PROMISE THINGS YTHAT DON”T HAVE TO BE PAID FOR UNTIL MUCH LATER, BUT VERY TOUGH ON THOSE WHO ACTUALLY PAY THOSE BILLS LATER WHEN THERE ARE LIMITED CHOICES.

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  5. 5. Carlyle 6:19 pm 02/26/2013

    “The problem with socialism is that you eventually run out of other people’s money.”
    ― Margaret Thatcher
    Unfortunately, this socialism has for too long been the attitude of both sides of politics in the developed world.

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  6. 6. sjn 7:28 pm 02/26/2013

    Sault is absolutely correct – defense spending is taking the “biggest” hit simply because it is by far the biggest portion of our actual Federal budget (i.e. congressional spending, not including the separate income & spending streams of social security and medicare, which are typically folded in to hide the size of the defense budget). As a proportion of federal defense spending the cut is minor, especially when compared to the historic spending reductions in defense typically seen at the conclusion of active wars such as Iraq & Afghanistan.
    After we deduct the ~ 30 billion $ of health related spending noted in the article from our $120 billion + Federal R&D budget, 70-80% of the remaining funds go to DOD, homeland security & DOE’s nuclear weapons programs. That leaves a minuscule remnant to pay for all of NASA, NSF, NIST, all non-nuclear national labs, etc. SO of course there is nothing left for maintaining any lead in key 21st century energy technologies. Meanwhile the rest of the world, particularly China, continue to treat these technologies as the key leaders for future economic growth and fund accordingly. As long as we continue to fund our military at a level approximating the rest of the world combined, and refuse to restore taxes to anything near the historical post WW II levels, there can be no solution to our budget issues that does not involve sending the elderly back into poverty by slashing social security and medicare.

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  7. 7. sault 9:05 pm 02/26/2013

    Sisko, sequestration will probably never happen so those defense cuts will probably never happen either. It’s just that some politicians fight tooth and nail to preserve tax cuts for wealthy folks and military spending to the detriment of everything else. I would be fine with meeting the deficit reductions necessary to avoid sequestration with $1 in revenue for every $2 in spending cuts spread out over a lot of programs. Commodity farm subsidies don’t do a lot of good and tax breaks for oil companies aren’t necessary in this era of record oil prices and oil company profits. And since we should be winding down to something resembling “peacetime”, defense spending is going to have to be trimmed in one way or another. Closing a few bases in Europe and Asia would be a great start. Letting Medicare to bargain for drug prices could save up to $100B a year and introducing best practices over the healthcare industry could lower costs a great deal as well. We need to double gasoline taxes to about $0.40 a gallon just to keep our infrastructure from crumbling into a worse state, let alone improve it. And how about a 1 cent financial transaction tax to discourage reckless speculation while taxing real, human investors hardly anything? Just some thoughts.

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  8. 8. Sisko 10:52 am 02/27/2013

    Sault

    I tend to disagree about sequestration cuts being implemented but certainly last minute deals are possible.

    With all due respect, you seem to be looking at the situation in a convoluted way when analyzing the US budget and do not seem to be on a possible path towards balancing our budget and resolving the real issues.

    Follow that money is a saying that is appropriate in this case. If you examine the US budget and spending projections for legislation already passed you will notice what everyone who has looked at the situation knows. The rate growth in spending on “entitlement programs” is growing at a rate that exceeds the economies growth rate and in 10 years will accelerate to be much worse than today due to changing demographics.

    The US Defense budget most certainly needs to take cuts as it has been on a spending binge in recent years. One of the things that needs to be remembered however is how defense has been funded in recent years. There has been a combination of the basic budget and spending on supplemental war spending. The supplemental spending has already stopped so defense is already working to adapt to those reductions.

    Again, it was easy for our past governments to make promises that future administrations would have to figure out a method of paying. Well, in the next 20 years those bills are coming due. Two dollars in spending cuts and one dollar of tax increases on SOME PROGRAMS will not resolve the problem.

    You mention things like farm subsidies and tax advantages for oil companies, but those items are relatively meaningless to the overall budget. You could cut the defense budget to zero and the problem would not be resolved. That shows how massive the structural budget problem has become. Remember- we spend 38% more than we generate. BTW- this problem gets worse faster as interest rate rise and the cost to service our current debt increases.

    The basis of this article ignores the real problem. We have a large structural deficit and virtually spending will need to be cut because we can not raise taxes enough to balance our budget. Don’t cut your pet program and every other program has to be cut deeper. Tough choices need to be made, but unfortunately what the plan for the last several years has been is to pretend that the problem will go away and to continue to make promises that can not be paid for.

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  9. 9. geojellyroll 11:04 am 02/27/2013

    The vast majority of federal science research spending is through the military: research in material sciences, metallurgy, aerodymnamics, nuclear medicine, satelites, radiation, communication systems, etc

    The military also is the backbone of infrastructure for much non-military research from climate Research in Antarctica to providing wind tunnels for hurricane study and so on. I’ve been on two projects in which we ‘plugged into’ the military infrastructure of support.

    I have no issue with diligent cuts in military spending but these are going to have way more impact on the scientific infrastructure of the USA than cuts elsewhere.

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  10. 10. novadust 12:06 pm 02/27/2013

    it’s foolish to cut spending when unemployment’s so high. but recall that nobody worried about the federal deficit before the 1980s tax cuts. let’s go back to the kennedy tax cut rates for high incomes, observe the effects for a few years, then decide if we need to do more.

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  11. 11. Sisko 1:06 pm 02/27/2013

    novadust

    Yes it is easier to avoid reality. Do you also follow the philosphy that says you can keep spending at home as long as you have unused checks?

    In reality it is stopping the growth curve or at least greatly slowing the growth curve of entitlement programs.

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  12. 12. jerryd 8:22 am 02/28/2013

    The problem with the economy is repubs want it to fail and seem doing everything they can to make sure it does.

    As a fiscal consevrative and small businessman I find their whole economic policy a joke. After nearly putting us into a worldwide depression before Obama pulled their, our butts out of the fire, they have blocked nearly every thing to make the economy better.

    Just the debt ceiling, fiscal cliff, seq., and coming again the debt limit have already cut 4% off the GDP and completely stopped business from growing the last 5 months waiting for repubs to get their acts together.

    Cut gov empolyees alone cut 2% off the GDP more.

    Had they went with the grand bargain they almost did with Obama 2 yrs ago the economy would be going gangbusters now and will if they ever pass a grand bargain instead of obstructing everything.

    This alone will go a good way to balance the budget with increased income from increased economy by making cetainity the rules.

    Long term only thing needed is gov health care which alone would balance the budget if all gov paid health care was done directly instead of the legal theft it is now. This cuts healthcare costs by 50% with better outcomes as proven by every other industrailized country which has it except the US.

    Then just a few simple adjustments to SS and we are back to a balanced budget like we did under Clinton. another detail is stop protecting international oil companies for free as it costs us $400B/yr which should be in the price of oil instead of in our taxes.

    And coal too should have all it’s costs in it instea of taxpayers paying for the damage it cause. And that is on top of CO2 costs.

    If business can’t do better than the gov can providing services they need a better business model.

    And right now too many models have all the money going to management and little to workers, shareholders or customers and costs foisted onto tax payers. We can’t afford the greed anymore.

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  13. 13. Carlyle 1:07 am 03/1/2013

    If you are an example of American fiscal conservatism, all is lost.

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  14. 14. sault 1:23 pm 03/1/2013

    Carlyle,

    Part of fiscal conservativism means that people pay for their mistakes instead of offloading it onto others, right? If you’re going to bellyache over “social programs” keeping people from being responsible for their own actions, why do you then think polluters should get away with degrading our environment and health for free? There’s this little thing called CONSISTENCY…maybe you should get better acquainted with it…

    And if the healthcare industry is abusing their position at the top of the ultimate “seller’s market” to charge 2x per capita that every other developed country for worse outcomes, how is it fiscally conservative to allow them to continue these high profits for inferior service? To highlight an example I was discussing with Sisko, Medicare is forbidden from bargaining for drug prices. This is a $100B annual boondoggle for Big Pharma brought to you by the politicians they have bought off. Hospitals charge 10x the purchase cost for aspirin tablets or charge $100s just to read a chart. Even just a false alarm for a heart attack can run north of $50,000. There’s PLENTY of not-so-fiscally conservative fraud, waste and abuse in the healthcare system, and a lot of it is due to Big Pharma, Health Insurance companies and Not-so-non-profit hospitals all looking to exploit the vulnerability of patients to extract the highest gains possible.

    So why do we target investments in energy, education and many other areas before we go after the massive money grab in healthcare, or the bloated contracts for defense contractors? Well, I have a fairly good idea, and it looks like healthcare, defense, fossil fuel and agribusiness companies have the biggest lobbying budgets around while investments in approaches that can disrupt the system these firms profit MASSIVELY from don’t enjoy the same level of advocacy from paid lobbyists.

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