Clean Energy: Best Documented Rate of Return of ANY Federal Program

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I kept meaning to come back to this post of Joe Romm’s from last week. Finally, I’m just going to repost it in full. Check it out:

The National Academy of Sciences concluded in 2001 that a handful of clean energy technologies returned about $30 billion on an R&D investment of about $400 million.  The United States is an amazing venture capitalist when it comes to clean energy R&D.

But the all-Solyndra, all-the-time stenographers of the status quo at the Washington Post put out this context-free nonsense:

If you read the Post article (wearing multiple head vises), you’ll see that Mufson and the Postdon’t understand the first thing about venture capital nor have they done even the minimal amount of homework on the myriad major independent studies of the value of clean energy research.

You’d never even know from the article that most private sector VC investments go bankrupt or have no positive return.  It is a risky business that investors put money into for the few really big wins.  You’d never know that VC  investments are judged by their portfolio return — and by that criteria you would have to say that federal clean energy investments are wildly successful.  I reviewed the data on this in a 2008 post, which I’ll update below.

First, though, let me quote from the Post:

An Energy Department report in 2008 estimated that the federal government had spent $172 billion since 1961 on basic research and the development of advanced energy technologies.

What does Washington have to show for these investments? And should the government even be in the business of promoting particular energy technologies?

Some economists, executives and financiers — as well as Energy Secretary Steven Chu — argue that the government must play a role because certain technologies have non-financial benefits, such as producing fewer greenhouse gas emissions or easing U.S. reliance on foreign oil.

Actually, experts support clean energy investments because they have such huge financial benefits, as we’ll see.

But first, the following chart from that report shows just how grossly misleading the Post’s attack is:

Yes, the Post uses the $172 billion figure to create outrage  over how much the federal government has spent on energy research, but the overwhelming majority of it didn’t go to energy efficiency and renewables.  The Post makes the briefest passing mention to a key point:

Many policy experts say some of government’s biggest energy investment payoffs have come in the small stuff, such as testing the use of magnesium alloys to make lightweight car batteries more efficient or developing ballasts that make compact fluorescent bulbs more efficient.

Actually, it isn’t just “many policy experts” who says this, it is the National Academy of Sciences, among others.  And their findings invalidate the Post’s entire analysis.  Here’s the back story.

I was at the US 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 the taxpayers money. I helped organize a major report documenting the large return to the US 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, havereturned 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 US 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.  Such apparently is the logic of the Washington Post.

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 notassume a technology funded by the DOE would never have been commercialized, only that the DOE involvement accelerated the date of commercialization by 5 years.

I have said many times that I do not believe that we need Apollo program aimed at technology breakthroughs to solve our energy problems (See “The breakthrough technology illusion“).

But clean energy R&D and demonstration and deployment is going to be severely underinvested in until the full harm to society of  fossil fuel use is reflected in its cost (see Economics Stunner: “Oil and Coal-Fired Power Plants Have Air Pollution Damages Larger Than Their Value Added”; Natural Gas Damage Larger Than Its Value Added For Even Low CO2 Prices — and Life-cycle study: Accounting for total harm from coal would add “close to 17.8¢/kWh of electricity generated”).

Energy efficiency is especially underinvested in because the biggest barriers to deployment are not better technology but flawed regulations (see, for instance, “Why we never need to build another polluting power plant“). 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% less energy with a 4-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 (PCAST) recommended doubling the energy efficiency budget from $450 million to $880 million, noting “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.

So the government appears to be a very good venture capitalist when it comes to clean energy.  Can anyone in the media get this story right?