Volatility in federal funding of energy R&D

Beth-Anne Schuelke-Leech n

The John Glenn School of Public Affairs, The Ohio State University Columbus, OH 43210, United States

H I G H L I G H T S

� Funding for different areas of energy research and development varies significantly between 2000 and 2012, reflective of different policy prioritiesand energy needs.

� Budget volatility can be as significant of a problem as overall funding levels.� Research programs may suffer as a consequence of budgetary volatility and resources may be wasted.

a r t i c l e i n f o

Article history:Received 29 October 2013Received in revised form19 December 2013Accepted 23 December 2013Available online 18 January 2014

Keywords:Energy policyEnergy R&DR&D funding

a b s t r a c t

Funding for Research and Development in any given industry or technology is considered essential to itsongoing competitiveness and longevity. This paper analyzes the allocation of federal R&D funding forenergy between 2000 and 2012. The results show that funding for energy R&D is very volatile for boththe aggregate energy research types, such as coal or nuclear power, and specific research areas, such ascarbon capture and sequestration or nuclear waste reprocessing. While overall funding levels are oftensources of frustration, budgetary volatility may be as much of a problem.

& 2014 Elsevier Ltd. All rights reserved.

1. Introduction

Advanced technologies are considered essential for ensuringsufficient energy availability to meet growing global demands andreduce the harmful effects of fossil fuels (Lester and Hart, 2012).Research and development (R&D) are foundations for innovation.Federal expenditures are an essential component of R&D fundingin energy. In recent years, there have been calls to significantlyincrease federal investments in energy R&D in order to provide thefoundation for technological advancements (see for example,Peters, 2011; Schario, 2013). President Obama called for a doublingof R&D funding in his 2013 State of the Union Address (Sargentand John 2012; Jones, 2013; U.S. DOE, 2013a). Overall federal R&Dinvestments in energy as a percentage of overall R&D budgets havebeen declining since the 1980s (Nemet and Kammen, 2007;Dooley, 2008). In 2001, Department of Energy R&D expenditureswere $4.2 billion in 2012 dollars. By 2011, Department of EnergyR&D expenditures had increased to $4.99 billion in 2012 dollars(U.S. GPO, 2013).

While important, the aggregated funding levels for energy donot provide a complete picture of the effects on specific areas ofresearch. Inconsistent funding and changing requirements can bejust as problematic as declining amounts. That is, the productivityand outcomes of investments in energy R&D are not just about thetotal amount of funding, but also how this funding is allocated andthe consistency with which it occurs.

Volatility in funding can be just as much of a problem as theoverall funding levels (Freeman and Van Reenen, 2009). Rapidlyincreasing budgets can create perverse incentives as researchersand public administrators scramble to use the funds during theappropriation period (Stephan, 2012). Institutions and programsmay expand graduate programs even when there is no long-termimprovement in employment prospects for the graduates (Stephan,2012). The investments made in graduate student education andknowledge creation may be wasted when researchers cannot getfunding to continue their research or support all of the newstudents. In addition, momentum in a particular research fieldmay be lost as budgets are cut or funding priorities change. This canmake it very difficult to create the critical foundation for techno-logical innovation and advancement.

With the critical need for energy innovation, it is worth consider-ing how energy research is being funded and whether the lessonsfrom the National Institutes of Health (NIH) budget volatility over the

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Energy Policy

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n Tel.: þ1 6142478798.E-mail addresses: schuelke-leech.1@osu.edu(B.-A. Schuelke-Leech)

Energy Policy 67 (2014) 943–950

past decade apply. This paper explores the implications of FederalR&D volatility across all energy sectors. This empirical study willshow that like the health research funded by the NIH, researchfunding into various areas of energy have experienced the same (orworse volatility in federal funding. Therefore, we infer that theprogress of energy innovation is impeded by the consequences ofextreme volatility in R&D funding.

2. Lessons from the National Institutes of Health budgetexpansion

The NIH budget doubled between 1998 and 2003 (Levin, 2007).However, this massive increase in resources was not withoutproblems. With the increase in funding, there was push byinstitutions to expand facilities and research capacity spurred bythe expectation of substantial grant funding (Brinard, 2004). Therewas an enormous increase in positions for graduate students andpostdocs. This, in turn, led to greater competition for funding andgrant applications (Monastersky, 2007). Rather than restructuringprograms and policies to ensure that the new resources were mosteffectively utilized, the NIH and research institutions scrambled toabsorb the additional funds (Levin, 2007). When the annualincreases to approximately 15% and suddenly decreased to a muchmore modest 3% per year in 2003, researchers and institutionsstruggled to adjust (Levin, 2007).

Between 2003 and 2007, funding in real terms declined by 13%for the NIH (Agres, 2007). Thus, funding has become more difficultto get, despite the 1998–2003 doubling of the overall NIH budget.The success rate for grant applications actually decreased from 31%in 1998 to 18% in 2011 (National Institutes of Health, 2012). As aresult, researchers spend more effort seeking grants, withdecreased likelihood of success. This problem has been exacer-bated by the federal budget sequestration and automatic spendingcuts in 2013, forcing many researchers to cut graduate student andpost-doc positions and abandon potentially fruitful research pro-jects (Gore, 2013; Printz, 2013).

The volatility of R&D funding from the NIH has inadvertentlycreated an environment in which researchers are frustrated andconcerned about future funding (Gore, 2013; Printz, 2013). Rapidlydoubling the NIH budget in five years and then stabilizing it at thenew increased level actually fostered uncertainty among research-ers and instability in research (Freeman and Van Reenen, 2009).Rather than focusing on creating knowledge and training graduatestudents, researchers are confronted with greater competition andgreater difficulties in securing funding.

In considering the implications of doubling R&D spending forthe physical sciences, Freeman and Van Reenen (2009) drawlessons from the doubling of the NIH budget. The authors concludethat there are substantial adjustment costs to large and rapid R&Dbudget increases. The authors also argue that increased spendingmay not address problems in the research environment. Instead,funding agencies must more carefully consider how they arefunding research and what their overall objectives are. In addition,gradual and sustained increases may be much more effective inensuring long-term stability and research productivity. The funda-mental problem with large increases in R&D budgets is thesubstantial budgetary volatility and distorted incentives that theycreate. The empirical results of this paper show that changingpolicy priorities and shifting political agendas are creating thesame budgetary volatility within the energy R&D community.

3. Research budget volatility

The allocation of public resources is an indication of policypriorities and strategy. Governments must decide how to allocate

their limited resources. Research and development expendituresare typically considered long-term investments in the scientificinfrastructure and an important component of future economicgrowth. Though there is a perception that all R&D funding is donethrough peer-reviewed grants, the amounts allocated to differentprograms are reflective of policies. Thus, energy R&D funding isreally an indication of energy policy, even if prevailing rhetoricindicates otherwise. At the level of funding for particular energysources, the allocation of R&D funding indicates the priorities forinnovation.

Theory that would help to explain and justify budgetaryallocations is weak. Incrementalism, originally applied to publicbudgeting in the 1960s (Davis et al., 1966), is still the dominanttheory. The literature on the process and effects of budgetarydeclines and cutback are centered on a few articles (Levine, 1978,1979; Levine et al., 1981). Despite a body of literature on thebudgetary process, there is little prescriptive guidance on how toallocate resources so as to minimize political conflict whilemaximizing policy outcomes. Thus, public budgets are statementsabout the political agenda and policies. Within the field of energy,this has included substantial debates about the existence, causes,and potential solutions for climate change, as well as the propermix of renewables and carbon-based energy, and how to deal withthe negative externalities of the energy production process (see forexample, Smil, 2010; Levi, 2013).

Like science and technology policy (Sarewitz, 2007), energypolicy is really about politics. The recent problems with the federalbudget have included forced budget cuts through sequestrationand a government shutdown in October 2013. These budgetaryconflicts show the difficulty of getting political agreement on theallocation of public resources and the particular policies thatshould be funded. Thus, a closer examination of R&D expenditureson different components of the energy system can reveal bothpolicy priorities and potential problems.

4. Data

The data on R&D expenditures in this analysis comes from thefederal government agency and department reporting websiteUSAspending.gov. Each U.S. federal agency or department mustreport its external expenditures, which are then compiled into asearchable database. Though this database may be incompletebecause some agencies are slow to report or fail to fully reporttheir expenditures, it does provide a good source of data ongovernment expenditures in specific areas of research. Aggregateddata provided by a government agency such as the Department ofEnergy or the Energy Information Administration does not provideenough details about individual projects or technology develop-ment. Individual contract and grant data, on the other hand,provide a means for examining the types of projects and organiza-tions that are being funding.

Getting consistent and accurate energy R&D expenditures forthe federal government can be difficult. Different sources usedifferent components of the federal budget and then discountthem or inflate them. Often the numbers from the Department ofEnergy0s Science budget published by the U.S. Government Print-ing Office are used. This understates the R&D expenditures sinceother departments and agencies in the federal government fundenergy research (e.g., the Department of Energy, the Departmentof Homeland Security, the Nuclear Regulatory Commission, theNational Science Foundation). Occasionally, the total Departmentof Energy budget is used, but this overstates the amount spent onR&D by the Department of Energy and still misses the fundingfrom other departments and agencies. Another common method isto report R&D funding relative to the National GDP. This can be

B.-A. Schuelke-Leech / Energy Policy 67 (2014) 943–950944

misleading since changes in the percentages are not necessarilyreflective of absolute changes in funding level. They may be theresult of the changing GDP. This is another reason that using datafrom individual projects can be useful in providing an alternativesource for analyzing R&D funding.

For each energy source, searches were done looking for R&Dexpenditures on relevant technologies, research areas, and com-ponents. R&D expenditures were identified two ways: first, bylooking for all expenditures that were classified as “Research andDevelopment;” and second, by searching for any expenditure thatincluded “Research” in its abstract or description. The nature of thesearches does exclude research that presently does not have anapplication in a particular area, but may in the future. In order tobe included in the data, R&D projects must include the specificenergy application area. For instance, research on carbon captureand sequestration must in some way identify this application inthe title, abstract, or project description to be included in this area.This necessarily excludes potentially applicable research unless itis specifically identified as such. Thus, the results may understatethe expenditures in a particular area of energy research.

The results are dependent on the thoroughness of the searchparameters. Searches for general energy R&D expenditures weredone initially. Next, substantial searches were done in each area ofenergy research: coal; oil and gas; alternative energy; renewables;and nuclear. For coal R&D, searches were done for coal; coalextraction, mining, and production; carbon sequestration; carboncapture; clean coal technologies; gasification. Oil and gas searchesincluded petroleum; fossil fuel: oil; natural gas; methane; anddrilling technologies, such as hydraulic fracturing, horizontaldrilling, and deep water drilling. Nuclear power R&D includednuclear reactors; nuclear physics; turbines; generators; fission;fusion; radiation; nuclear detection; nuclear waste; spent fuel; andspecific nuclear technologies, such as Molten Salt Reactors, SmallModular Reactors, Thorium, Uranium, and Plutonium. EnergyEfficiency and Conservation searches included efficiency; conser-vation; climate change; alternative energy technologies; energyquality; smart grids; and power systems. Alternative energy andrenewables research included searches for renewable; alternativesources, such as solar, photovoltaic, wind, fuel cells, and hydrogen;energy storage; battery technologies; wood; biomass; andbiofuels.

The results include any federal government expenditure to anexternal organization. This includes R&D contracts and grants.Contracts are generally more restrictive than grants, and carry thelegal obligation to fulfill the contract. Grants, on the other hand,serve as structured incentives for performing some activity orresearch rather than requirements to do so. Therefore, grants oftenhave greater flexibility and provide more discretion for theresearchers. Contracts are more typically used when there is adesire to have specific outcomes from the research, as opposed tocuriosity-driven research. As such, contracts are rarely peer-reviewed in the competitive process, as many grants are. Instead,contracts are compared based on cost, quality, and compliance tocontract specifications.

In total, 19,664 contracts and grants related to energy R&Dresearch were issued between 2000 and 2012. Coal research, forexample, included 2093 contracts and grants. Oil and gas researchincluded 1749 contracts and grants. Nuclear power R&D included5310 contracts and grants. Energy efficiency and conservationincluded 5535 contracts and grants. Alternative and renewableshad 5654 R&D expenditures.

Once the federal R&D expenditures were captured, it was neces-sary to classify each of the expenditures and ensure that any duplicateentries were eliminated. An Energy Systems Engineer familiar withthe energy innovations and technologies reviewed each grant abstractand contract description and classified the expenditure according to its

main research focus. Each expenditure was classified into one cate-gory. Research that covered multiple research areas, such as theefficiency of fuel cells, was allocated to the type of research thatseemed most appropriate to the research (“Alternatives” in thisexample).

R&D expenditures have a broad range of definitions and caninclude activities and research that does not really support theadvancement of knowledge or applications. Often organizationaloverhead is included in R&D costs, as are other non-technicalcosts. The funding of national laboratories is particularly proble-matic since expenditures are typically lump-sum payments tocover annual operations. This payment does not break down theuse of the funds and it also includes funding for general laboratorymanagement and administration rather than specific R&D pro-jects. Thus, it can be difficult to ascertain the exact nature andfocus of the work.

National Laboratories typically receive both individual fundingand bulk funding. The lump-sum payments were excluded fromthe final dataset. Any individual projects were retained. This likelyresulted in an under-reporting of federal expenditures in anyparticular area of energy research. Nonetheless, there is a valueto analyzing individual federal expenditures in this way.

5. Energy R&D funding

To get a complete picture of energy R&D investments, it isnecessary to look beyond federal government sources of funding.For the past 15 years, industry-funded R&D accounted for anaverage of approximately 65.2% of all R&D in the United States. Thefederal government funded an average of 28.8%. The remaining 6%of the funding came from other sources, such as state and localgovernments, non-profit foundations, and academic institutions.

Energy companies have generally invested less in R&D thanhave other industries. A study by the Boston Consulting Groupfound that energy companies in the United States invested lessthan 1% of their revenues in R&D and product development,compared with the 15–20% invested by other sectors such asInformation Technologies, semiconductors, and pharmaceuticals(Chazan, 2013). Electric utilities were particularly unlikely toinvest in innovation. Utilities are typically highly risk adverse,with an older and more conservative workforce. Consequently,stability and consistency are more important than innovation andchange. The Boston Consulting Group study found that only 64% ofenergy companies viewed innovation as a priority, whereasinnovation was a priority for 91% of automotive industry respon-dents and 85% for entertainment and media respondents.

Between 2000 and 2012, government expenditures in externalenergy R&D projects were approximately $16.011 billion (inconstant 2012 dollars), as shown in Table 1. These expenditureswere allocated to different energy sources, depending on policypriorities and perceived problems. Of the $16.011 billion: $2.9billion (13.3%) went to coal R&D; $879 million (8.5%) went to oiland gas, $4.29 billion (35.2%) funded nuclear R&D; $2.75 billion(18.5%) went to renewables; $344.9 million (1.8%) went to alter-native fuel R&D; and $5.2 billion (24.4%) went to energy efficiencyand conservation R&D.

Looking at the overall energy R&D expenditures during the pastdecade reveals that the Bush administration was more focused onfossil fuels and funded less climate change research than theObama administration, which has been more focused on greenenergy and renewables. Expenditures in 2009 and 2010 weresignificantly higher than other years since energy R&D was aspecific focus of President Obama0s stimulus expenditures.

R&D expenditures for coal research almost tripled between2000 and 2012, from $48.8 million to $143.7 million in 2012. R&D

B.-A. Schuelke-Leech / Energy Policy 67 (2014) 943–950 945

in oil and gas has also increased substantially from $34.1 million in2000 to $79.5 million (or by 2.33 times). R&D expenditures inrenewables and alternatives have grown even faster. Energyefficiency R&D grew by 5.28 times (from $95.9 million to $506.0million), renewables grew by 10.8 times (from $53.8 million to$581.1 million), and Alternative fuels grew by 31.12 times (from$1.99 million to $62.0 million). Nuclear research, however, wasvirtually unchanged during this period, increasingly slightly from$170.2 million to $185.1 million. This shows that although the U.S.federal government is not substantially increasing its fundingof nuclear R&D, it is not substantially decreasing it either. Thisindicates that there was fairly consistent political and budge-tary support for nuclear R&D between the Bush and Obamaadministrations.

However, these numbers are misleading unless the volatility ofthe funding is taken into account, as shown in Fig. 1 and Table 2.

Fig. 1 shows the annual percentage of funding allocated to eachresearch area between 2000 and 2012. Table 2 shows the percen-tage of change in funding over the previous year. Taken together,these show the significant volatility in funding for main areas ofresearch over the decade. Coal R&D, for instance, experiencedrapid growth between 2000 and 2003, then significant decreasesin funding, then large increases, followed by significant decreasesafter 2010. These changes in annual funding range from an annualincrease of 1162.3% in 20101 to an annual decrease of 90.5% in2011. Oil and Gas R&D, on the other hand, experienced significant

increases in funding in 2002 and in 2007, but received virtually noadditional funding in 2010.

Differences in R&D expenditures are a function of many factors.Some of the differences can be explained by accounting and admin-istrative procedures. Though expenditures are required to be spent inthe year in which the appropriations are made, delays in theappropriations or implementation of the budget do occur, as doaccounting errors and corrections. These are assumed to be randomlydistributed. However, they cannot explain all of the volatility.

Unquestionably, some of the variation is reflective of changingpolicy priorities. Energy efficiency and conservation, for example,received comparatively more funding after President Obama tookoffice than it did during the Bush administration.

While aggregated data can be useful in highlighting trends, it isimportant to take a fine-grained look at individual research areasto determine if they are also affected by the volatility that isevident within the larger sectors. To do this, several specific areasare investigated. These are Carbon Capture and Sequestration; CoalGasification; Biomass; Hydrogen Fuel Cells; Wind Power; NuclearSafety; and Nuclear Waste and Reprocessing.

Table 3 shows the annual R&D expenditures in specific areas ofresearch in 2012 constant dollars. Table 4 shows the percentagechange in R&D expenditures from the previous year.

5.1. Carbon capture and sequestration

Coal is an important source of energy. It is also a source ofsubstantial amounts of carbon dioxide (CO2), a major greenhousegas. Each year approximately 18 billion tonnes of CO2 are emitted inthe process of using 6 billion metric tonnes of coal (Chu, 2009).Carbon Capture and Sequestration (CCS) is one proposed method ofdealing with the CO2. CCS essentially prevents CO2 produced duringthe burning of coal from going into the atmosphere. CCS isolates theCO2 and then stores it in some way, such as injecting the CO2 into ageological repository (MIT, 2007). Capturing and holding CO2 forlong periods of time presents significant technological challenges.

R&D expenditures on carbon capture and sequestration havegrown steadily in the past decade. In 2000, federal governmentR&D expenditures were approximately $5.9 million (in 2012constant dollars). By 2012, expenditures had grown to $58.4million. There were significant changes in funding of CCS R&Dprojects, ranging from an increase of 1151.1% in FY 2010 with theARRA stimulus funding to a 5.7% decrease in 2008.

5.2. Coal gasification

Gasification converts solid matter into a synthetic gas, allowingit to be used in place of natural gas (MIT, 2007; Higman and van

Table 1Total R&D expenditures in each area of energy research (in millions of 2012 U.S. $).

Year Coal ($) Oil and gas ($) Nuclear ($) Renewables ($) Alternatives ($) Energy efficiency ($) Total ($)

2012 143.72 79.49 185.11 643.09 62.00 506.00 1557.412011 177.03 64.66 247.33 356.58 110.80 246.77 1092.372010 1860.07 93.52 582.41 590.63 108.89 3015.79 6142.422009 147.36 92.52 526.96 221.51 14.98 286.39 1274.742008 74.02 98.47 433.58 137.14 12.19 155.19 898.392007 91.01 79.23 524.55 173.39 18.19 109.88 978.072006 73.01 38.64 707.87 115.88 4.53 111.94 1047.352005 57.01 47.93 251.86 118.41 3.54 146.06 621.272004 75.01 59.06 178.46 81.73 3.89 149.10 543.362003 82.67 62.60 263.12 108.26 2.05 143.23 659.882002 74.30 84.74 103.12 62.29 0.52 114.25 438.702001 57.32 44.65 85.37 61.07 1.34 104.33 352.742000 48.78 34.09 170.18 55.81 1.99 95.91 404.77Total 2961.30 879.60 4259.92 2725.80 344.92 5184.85 16,011.47

0%

20%

40%

60%

80%

100%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Year

Perc

enta

ge o

f Fun

ding

Energy Efficiency

Alternative Fuels

Renewables

Nuclear

Oil and Gas

Coal

Fig. 1. Percentage of energy R&D funding.

1 During fiscal year 2010, significant extra energy R&D expenditures weremade as a component of the economic stimulus spending, known as the AmericanRecovery and Reinvestment Act (ARRA).

B.-A. Schuelke-Leech / Energy Policy 67 (2014) 943–950946

der Burgt, 2008) or to be used in the production of a variety ofchemicals, such as ammonia, hydrogen, methanol derivatives, andethanol. Gasification is done most typically on coal and, morerecently, on biomass. The process is done in commercial gasifiers,which can also be coupled with technology to capture CO2, toensure that the process emits as little carbon dioxide as possible(Higman and van der Burgt, 2008).

Like R&D expenditures for carbon capture and sequestration,R&D expenditures for gasification have been fairly volatile since2000. Expenditures have ranged from a high of $51.6 million in2003 to a low of $5.7 million in 2012. Yearly fluctuations in R&Dfunding can be high. In 2001, funding was 215.5% higher than ithad been in 2000 (in constant dollars). There were significantdeclines in funding in 2008, 2009, 2011, and 2012. Between 2001and 2008, there was relatively stable funding, which wouldindicate political support for gasification during the administrationof President Bush. During the Obama administration, support has

been less consistent. With the 2010 stimulus, funding in 2010 wastemporarily restored to approximately the funding levels that hadexisted during the Bush administration, before it dropped sharplyin 2011 and again in 2012.

5.3. Biomass

Biomass is the term used for any plant-based (organic) sub-stance (McKendry, 2002). Biomass can be converted to usableenergy in a variety of ways by producing either liquid or gaseousfuels (McKendry, 2002). The quality of the fuel produced isdependent on the type of organic material used. R&D, thus,explores a myriad of issues around the types of organic materialsthat can be converted and the most effective way to process them(McKendry, 2002).

Biomass R&D expenditures have increased significantly since2000. Expenditures grew from $33.4 million in 2000 to over $171.7

Table 2Percentage change in R&D expenditures over the previous year.

Year Coal (%) Oil and gas (%) Nuclear (%) Renewables (%) Alternatives (%) Energy efficiency (%) Total (%)

2012 �18.8 22.9 �25.2 80.3 �44.0 105.0 42.62011 �90.5 �30.9 �57.5 �39.6 1.8 �91.8 �82.22010 1162.3 1.1 10.5 166.6 626.8 953.0 381.92009 99.1 �6.0 21.5 61.5 22.9 84.5 41.92008 �18.7 24.3 �17.3 �20.9 �33.0 41.2 �8.12007 24.7 105.0 �25.9 49.6 301.6 �1.8 �6.62006 28.1 �19.4 181.1 �2.1 28.0 �23.4 68.62005 �24.0 �18.8 41.1 44.9 �8.9 �2.0 14.32004 �9.3 �5.6 �32.2 �24.5 89.1 4.1 �17.72003 11.3 �26.1 155.2 73.8 298.1 25.4 50.42002 29.6 89.8 20.8 2.0 �61.4 9.5 24.42001 17.5 31.0 �49.8 9.4 �32.9 8.8 �12.9

Table 3R&D expenditures in specific research areas (in millions of 2012 U.S. $).

Date Carbon capture and sequestration ($) Gasification ($) Biomass ($) Fuel cells ($) Wind power ($) Nuclear safety ($) Nuclear waste and reprocessing ($)

2012 58.42 5.69 171.74 13.02 18.30 85.71 3.452011 68.19 8.67 163.43 8.53 29.07 110.20 19.332010 941.83 36.07 494.89 83.57 141.45 107.73 15.022009 81.82 14.44 432.73 17.69 34.39 93.05 33.122008 37.19 26.46 181.00 8.96 8.22 121.80 59.742007 39.45 38.46 111.90 74.71 1.28 187.30 66.312006 22.61 33.58 68.92 33.84 11.64 54.35 33.642005 15.02 30.97 66.01 37.22 9.97 34.57 29.842004 19.44 40.40 55.66 20.72 5.86 12.83 17.292003 13.09 51.64 43.88 19.02 3.82 17.75 1.822002 9.41 46.45 36.40 15.76 4.42 9.37 8.252001 4.18 38.45 28.17 5.33 1.96 10.88 5.872000 5.88 12.19 33.39 3.25 0.35 12.57 68.47Total 1316.52 383.47 1888.11 341.62 270.72 858.12 362.15

Table 4Percentage change in R&D expenditures in specific research areas over the previous year.

Year Carbon capture and sequestration (%) Gasification (%) Biomass (%) Fuel cells (%) Wind power (%) Nuclear safety (%) Nuclear waste and reprocessing (%)

2012 �14.3 �34.4 5.1 52.7 �37.0 �22.2 �82.12011 �92.8 �76.0 �67.0 �89.8 �79.5 2.3 28.72010 1051.1 149.8 14.4 372.4 311.3 15.8 �54.62009 120.0 �45.4 139.1 97.4 318.4 �23.6 �44.62008 �5.7 �31.2 61.8 �88.0 542.7 �35.0 �9.92007 74.4 14.5 62.4 120.8 �89.0 244.6 97.12006 50.6 8.4 4.4 �9.1 16.7 57.2 12.72005 �22.7 �23.3 18.6 79.7 70.3 169.3 72.62004 48.5 �21.8 26.9 8.9 53.5 �27.7 848.12003 39.1 11.2 20.5 20.7 �13.6 89.3 �77.92002 124.9 20.8 29.2 195.3 125.6 �13.9 40.62001 �28.8 215.5 �15.6 64.3 461.6 �13.4 �91.4

B.-A. Schuelke-Leech / Energy Policy 67 (2014) 943–950 947

million in 2012. With a couple of exceptions, expenditures onbiomass R&D have increased each year over the previous year.Sometimes the changes have been relatively modest, as it was in2012 at 5.1%. In other years, the growth has been dramatic, as itwas in 2009 at 139.1%. Interestingly, the change in 2010 wascomparatively small at only 14.4%. Unlike other energy researchareas, biomass has generally not seen significant funding declines.

5.4. Fuel cells

Fuel cells can be used for both stationary and mobile applica-tions. Hydrogen fuel cells have been employed on vehicles as aclean transportation option. However, the availability of hydrogenis a problem for the widespread adoption of fuel cells (Sorensen,2012). Hydrogen is not naturally available. Therefore, any hydro-gen used for energy applications must be produced. This can becostly in both economic and energy terms (Rifkin, 2003).

Fuel cells R&D has experienced extremely volatile funding since2000. Overall, expenditures have increased from approximately $3million to $13 million in 2012. However, funding ranges from ahigh of 83.57 in 2010 to a low of $3.25 million in 2000. Most yearshave seen double digit changes in funding levels, often by 80% ormore. In the past decade, fuel cells for transportation have facedsubstantial competition from electric batteries (Van Mierlo et al.,2006; Campanari et al., 2009; Thomas, 2009; Thomas and Sandy,2009; Offer et al., 2010). With the increased availability of naturalgas because of horizontal drilling and hydraulic fracturing, fuelcells are now facing competition from natural gas as a transporta-tion fuel (Schuelke-Leech et al., 2013).

5.5. Wind power

Wind power is an important source of renewable energy.Installed wind power capacity has grown significantly in the pastdecade (Patel, 2006; U.S. DOE, 2013b), partially driven by theassociated federal tax credit (DSIRE, 2013; U.S. DOE, 2013c).

Wind Power received relatively little R&D funding during theearly Bush administration. During the first four years that Pre-sident Bush was in office, Wind power received less than $5million in funding annually. With the election of President Obama,R&D expenditures for wind power increased substantially to $18.3million in 2012. Year-over-year changes have been considerable inthe past decade. Though in absolute terms, many of the changes inexpenditures have been relatively small, numerous years have alsoseen triple digit growth.

5.6. Nuclear safety R&D

Safety is an area of concern in nuclear power. Research in the areaincludes work on reactor core and containment strategies andtechnologies; sensors, instrumentation, automation, and control tech-nologies; radiation shielding; modeling and simulation; improvementsin reactor designs; and nuclear detection technologies.

On average, 19.6% of all nuclear R&D funding goes to safety.After the Fukushima Daiichi accident on March 11, 2011, there wasa substantial focus on the topic of safety. Nevertheless, the R&Dexpenditures in the area of nuclear safety show little changeduring this period. Safety-related R&D expenditures in FY 2011are $110.2 million, a 2.3% increase over FY 2010. FY 2012 expen-ditures actually decreased by 22.2%, or by approximately $25million.

The accident at the Fukushima-Daiichi power plant was a majorsetback to the nuclear renaissance. Reports have shown that theoperators at the plant were completely overwhelmed and that humanerror and communication problems played a large part in the acci-dent. Cultural and political issues affected design modifications and

response capabilities. Many of the new technologies being developedare designed to have passive safety systems that do not require short-term active human intervention. However, the Fukushima-Daiichiaccident and corresponding public concerns over the safety of nuclearenergy did not result in significant increase in R&D expenditures inthis area.

5.7. Waste management

The safety concerns over nuclear power are intimately con-nected to the issue of the long-term radioactivity of the spent fuelfrom nuclear reactors (i.e., the waste problem).2 Currently, there isapproximately 70,150 metric tons of heavy metal (MTHM) of U.S.discharged used nuclear fuel (UNF) (i.e., nuclear waste) beingstored around the United States (Nuclear Energy Institute, 2013).There are numerous potential solutions for dealing with nuclearwaste, from long-term storage of the waste to reprocessing. Nosolution has gained sufficient political and public support to beimplemented. Thus, R&D expenditures continue for numerouspotential alternatives.

Waste management and reprocessing research includes workon understanding, modeling, and controlling the fuel cycle;remediation; storage containers and systems; advanced fuels;and research support for repository design and siting. Between2000 and 2012, waste management received 9.8% of the fundingfor all nuclear energy R&D. In 2000, it received almost 40% of thenuclear R&D funding at $68.47 million dollars (in constant 2012dollars). In contrast, in 2001, 2002, and 2003, R&D expendituresdropped below $10 million. By 2007, R&D expenditures hadincreased to over $60 million. Five years later, expenditures fellbelow $3.5 million. Volatility in R&D expenditures is particularlypronounced in this area. When the controversy around YuccaMountain3 came to a head in 2007–2008 (Walker, 2009), therewas an increase in funding for both nuclear safety and NuclearWaste Management and Reprocessing. Once President Obamacame into office, the budget for Yucca Mountain was eliminatedand funding for this area of research was decreased significantly.

6. Conclusions

Energy innovation, like all industrial innovation, is dependenton R&D. And R&D, in turn, is dependent on funding. All organiza-tions must decide how to allocate resources in order to accomplishdiverse goals. Government entities must also make these decisionsin the face of competing priorities from various stakeholders whosometimes hold diametrically opposing viewpoints. Though it canbe difficult to discern a consistent national energy strategy in theUnited States, looking at budget allocations and R&D expendituresprovides insights into government priorities and strategies.

Increased R&D expenditures may lead to more innovation andtechnological advancement, but there is no guarantee that this willbe true. Significant volatility and inconsistency in funding can haveimportant adverse effects as well.

The results of this study show that energy funding for bothlarge research fields (e.g., coal, nuclear power) and smallerresearch areas (e.g., carbon capture and sequestration, nuclear

2 The government is actually responsible for both low level nuclear waste fromreactors and high-level waste from nuclear weapons. Though the government mustfind solutions for both types of waste, the focus of this paper is on nuclear wastefrom civilian power reactors.

3 For many years, Yucca Mountain in Nevada was slated to be the long-termrepository for nuclear waste. However, the site was the source of significantpolitical and technological debate (see Walker, 2009). In 2011, President Obamaeliminated funding for Yucca Mountain, eliminating it as a nuclear was repository(World Nuclear News, 2009; Northey, 2011).

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safety) can change significantly from year to year. This can make itdifficult for researchers in these areas to pursue long-terminvestigations that support significant technological changes.Instead, researchers are limited by what can be learned andtransferred over a relatively short period of time.

In addition, much effort and knowledge is wasted as resources andgraduate students are shifted in response to changing fundingopportunities. This limits the advances that can be made and thecommitments that researchers make to any particular field of research.Alternative transportation fuels provides an excellent example ofchanging energy priorities. During the Bush Administration, thefederal government emphasized and funded the development ofhydrogen fuel cells as a mechanism for storing excess energy andcreating a mobile, clean fuel for transportation (U.S. DOT, 2006). As theBush administration ended and the Obama administration began,there was a shift towards electrical vehicles (U.S. DOE, 2011) and awayfrom fuel cells (Biello, 2009). In the past few years, there has beenanother shift towards natural gas as a transportation fuel (Schuelke-Leech et al., 2013). For researchers who developed expertise inhydrogen fuel cells, there is comparatively less funding for thisresearch and they must look to the areas where funding is moreand readily available. Unfortunately, this also means that importantresearch and knowledge foundations are lost. In addition, expensivecapital equipment is either left unused, shifted to new applications ifpossible, or else discarded. In other words, lower benefits and returnsare realized from the energy investments that have been made inparticular areas of research when funding is volatile. If fuel cells returnas a funding priority, for instance, many of the previous investmentswill need to be made again.

Investments in R&D have been justified on the basis thatcompanies would under-invest in technological R&D because theyare not able to capture the full value of their investments (Arrow,1962; Mansfield, 1977). With the exception of oil and gas explora-tion, energy companies have been less inclined to invest in R&Dthan companies in other sectors (Chazan, 2013). This has madegovernment investments in energy R&D extremely important.However, inconsistencies and instability in funding may actuallybe leading to stagnation in technological innovation.

Unlike information and communication technologies, energy tech-nologies and systems change slowly. The large capital investmentsrequired for energy production translate into long payback periods. Torealize financial returns, energy companies must often commit to thelong-term use of a given technology, with only the possibility of smallincremental changes. In addition, energy companies are often heavilyregulated and incorporating new technologies may require regulatory(and costly) approvals. Thus, the volatility of R&D funding may beespecially detrimental to the advancement of energy R&D. Withoutconsistent funding for particular areas of research, advancements inenergy technologies are slower. Researchers may have to seek employ-ment outside of their primary field, where they can no longer use theknowledge gained during their training and research.

Research and Development, demonstration, and marketization areimportant components of innovation. Innovation is, in turn, thefoundation of continued economic prosperity and competitive advan-tage in the marketplace. Though more energy research would seemto be desirable, substantially increasing federal energy R&D expendi-tures would likely have unintended consequences, just as doublingthe NIH budget did. However, these effects may already exist at amore local level as funding shifts in response to different politicalpriorities and policy agendas. Rather than simply petitioning for morefunding, researchers, administrators, policymakers, and companiesneed to ensure that we are all getting the maximum benefit from thecurrent R&D funding. While it is impossible to remove the politicsfrom government funding, ensuring that researchers have somerelative stability in funding for their projects will help to reduce thecostly losses that occur due to policy and budget volatility.

Acknowledgments

The author gratefully acknowledges that this research wasfunded by a grant from the Ohio State University Office of Energyand Environment. The author would also like to thank the threeanonymous reviewers for their helpful suggestions and comments.

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