Energy efficiency, part 5: ‘The highest documented rate of return of any federal program’
I was at the U.S. Department of Energy when the Gingrich gang took over and tried to shut down all of DOE’s applied energy research, claiming it was a waste of taxpayer money. I helped organize a major report documenting the large return to the U.S. taxpayers of federal spending on energy efficiency (and other energy technologies). The once-honorable GAO (formerly General Accounting Office, hypocritically renamed Government Accountability Office) didn’t want to meet the same fate as the Congressional Office of Technology Assessment, so it became a wing of the Gingrich hit squad.
The GAO tried and failed to debunk the report, but the end result was a request to the National Academy of Sciences to independently verify the stated benefits of DOE energy research. The ensuing report Energy Research at DOE: Was It Worth It? Energy Efficiency and Fossil Energy Research 1978 to 2000 was a stunning vindication:
… The report examines 17 R&D programs in energy efficiency and 22 programs in fossil energy funded by the U.S. Department of Energy (DOE). These programs yielded economic returns of an estimated $40 billion from an investment of $13 billion.
Three energy-efficiency programs, costing approximately $11 million, produced nearly three-quarters of this benefit. Most significant were advances made in compressors for refrigerators and freezers, energy-efficient fluorescent-lighting components called electronic ballasts, and low-emission, or heat-resistant, window glass. Standards and regulations incorporating efficiencies attainable by these new technologies ensured that the technologies would be adopted nationwide, thus dramatically compounding their impact.
Let me expand on that last point: The handful of energy technologies cited above, developed through funding by my old office, the Office of Energy Efficiency and Renewable Energy, have returned about $30 billion on an R&D investment of about $400 million. I defy anybody to identify an independent report from a body as credible as the National Academy showing such a staggering return on investment for U.S. taxpayer dollars.
(Of course, you can’t know a priori which investments will pay off and which won’t, so you need to invest in many technologies, just to have a few winners. The GAO actually argued in a Congressional hearing where I was a DOE witness that if the DOE invested in 10 technologies for $10 million, and nine of the technologies failed, but one of the technologies saved taxpayers $100 million, that the entire effort was a waste of money. Such was the logic of the Gingrich Congress.)
I would add that the above numbers do not even count the environmental benefit of reducing pollution, although the report notes that, on the whole, the energy technologies in the report avoided “more than $60 billion in damage and mitigation.” And even that estimate does not include any benefit from carbon reductions.
Significantly, the way we did the benefit analysis was quite conservative by nature. We did not assume a technology funded by the DOE would never have been commercialized, only that the DOE involvement accelerated the date of commercialization by five years.
I have said many times that I do not believe that we need an Apollo program aimed at technology breakthroughs to solve our energy problems. This is especially true because most advocates for those programs focus on supply-side technologies, which I think the capital markets, including venture capitalists, have started to do a pretty good job on — and will do even better once we have a significant price for carbon and demonstrate a serious national and global commitment to deep reductions in emissions.
But energy efficiency is a different matter. It is always going to be underinvested because the biggest barriers to employment are not better technology but flawed regulations, as I have discussed many times. Also, the upside of low carbon technologies is immense for the industries involved, but companies that make commercial and industrial products and processes themselves see very little benefit from developing a widget that uses 10 percent less energy with a four-year payback.
So I very much think that we should have an aggressive energy efficiency development and deployment program that is several times larger than today. Indeed, in 1997, the President’s Council of Advisors on Science and Technology recommended doubling the energy efficiency budget from $450 million to $880 million, noting [PDF] “the return for this portion of the government investment would be on the order of 40 to 1 — a cost to the government of about $5 per ton of carbon” with annual fuel cost savings of $75 to $95 billion in 2020, and reductions in oil consumption of 4 to 10 million barrels of oil a day by 2030.
Sadly, this administration has reduced the energy efficiency for buildings program and gutted the industrial efficiency program, all to pay for the hydrogen fuel-cell boondoggle.
One addendum — the National Academy report noted it had counted no benefit whatsoever for three major programs:
In addition, three programs — the Partnership for a New Generation of Vehicles [PNGV], integrated gasification combined cycle [IGCC], and advanced turbine systems — have created important options that could produce large benefits if economic or policy incentives support their commercialization.
Well, the PNGV ultimately ended up having no direct benefit because the Bush administration and the U.S. auto industry shut it down once Clinton left office. Too bad — PNGV was in the process of developing hybrid vehicles with Ford, GM, and Chrysler. Can you imagine the benefit to the nation’s economy, environment, oil dependence, and auto industry if Detroit had actually followed through and commercialized hybrids? And someday, IGCC may well be a central technology in the fight to save the climate, since it enables carbon capture and storage — if the coal industry ever gets serious about global warming and if we ever get a competent administration.