Across the board, the FY2014 request boosts key energy innovation offices at DOE by about 15 percent compared to the FY2013 Continuing Resolution and seven percent higher than the President’s FY2013 request. The lion’s share of budget gains are aimed at the Office of Energy Efficiency and Renewable Energy (EERE), which would see a budget increase of 54 percent from FY2013 CR levels, and at the Advanced Research Projects Agency-Energy (ARPA-E),  which would see a budget increase of 46 percent.

Expanding Research Capabilities in Advanced Energy Manufacturing

The largest budget increase target at EERE – 22 percent to be exact – is for the department’s Advanced Manufacturing Office, which invests in transformational research and development of integral clean energy manufacturing technologies and practices. This investment would support and complement EERE’s recently announced Clean Energy Manufacturing Initiative, which aims to aggressively increase the international competitiveness of emerging energy manufacturing. The program is designed to begin reversing a decade’s long decline in U.S. manufacturing – immediate goals include transferring new research, technologies, and industrial education and training to industry through a new research institute under the banner of the President’s National Network of Manufacturing Innovation as well as EERE’s Better Plants Challenge.

Continued Focus on Getting U.S. Transportation Off of Oil

The President’s request also emphasizes the administration’s goal of cutting oil imports in half by 2020. To this end, the budget increases funding for EERE’s Vehicle Technologies Program by 69 percent from FY2013 CR levels, and also specifies that the additional funding requested for ARPA-E would be directed, in part, at developing projects associated with new transportation technologies that will enable the U.S. transportation system to be less reliant on conventional fuels. The budget increase also accentuates the now one year old EV Everywhere Grand Challenge initiative, which coordinates cross-cutting research important to vehicle technology and batteries among DOE office stovepipes and sets performance and cost goalposts for research.

Expanding Basic Energy Science Capabilities

The President’s proposal also pegs the Office of Science for a sizable budget increase, largely to increase research capabilities within the Basic Energy Science Office (BES). The BES invests in fundamental research to understand and control matter and energy, such as studying next-generation materials that can store energy. The budget proposal looks to continue and expand the vital Energy Frontier Research Centers that are working to solve the most perplexing, but potential disruptive research problems in energy today. The increase would also go towards ongoing construction of upgraded Synchotron Light Source II and Advanced Photon Source facilities that will offer world-leading laboratory environments for scientists across numerous disciplines studying anything from crystallography and genetics to drug research and semiconductor analysis.

Budget Proposal Still Miles Away from Fully Funding Energy Innovation

ITIF’s recent report Breaking Down the Federal Clean Energy Budget show that the U.S. clean energy innovation ecosystem is not receiving the amount of support from the federal government it needs to develop, demonstrate, and manufacture clean energy technologies. While the President’s budget does offer significant increases to some programs and boosts R&D overall, it is still far below experts’ average estimates of necessary funding, which are closer to $15 to $20 billion per year.

Correspondingly, the proposal continues to skew the energy innovation budget towards the deployment of existing energy technologies through tax breaks and incentives. While government support for early deployment is important and has been critical, most recently, for the successful emergence of cheap shale natural gas, many current renewable energy deployment policies offer little support for emerging technologies. As a result, the energy innovation budget is divided into two pieces, with only weak linkages between technologies working through the development process that will be competitive in the long-term, and uncompetitive, existing technologies supported by subsidies.

Although the energy innovation budget would remain underfunded compared to other national missions like defense and health R&D even if this budget were passed as it, the President deserves to be lauded for proposing modestly larger energy research budgets in this time of fiscal austerity. Policymakers must continue to recognize the importance of public support for energy innovation – and R&D funding throughout the federal government – as a means to rebuilding the post-recession American economy.

Originally posted on Energy Trends Insider.

The expert consensus suggests that the federal government should be spending between $8 and $30 billion per year – between two and six times FY2012 investment in basic science and R&D. This recommendation is in line with Energy Secretary Ernie Moniz’ statement at his Senate confirmation hearing, in which he claimed the United States is underinvesting in energy innovation “by a factor of three.”

For more information on federal R&D spending, search the EIT database – you can also sort R&D projects by technology and agency.

As shown in the figure, the new CR is not very different from the old CR in terms of investments in energy innovation. The previous CR was based on FY2012 funding levels, and the new CR lowers investments in energy R&D by than one percent from FY2012 levels.

The table below shows the recent appropriations legislative history in relationship to FY2012 funding levels. The new Continuing Resolution (CR) does not reflect the additional sequestration cuts mandated under the Budget Control Act of 2011, which are expected to cut key energy innovation programs at DOE by five percent and instigate significant losses to long-term U.S. GDP growth. Under sequestration and with Congress’s cuts, funding for ARPA-E declines by nine percent from FY2012 levels, and funding for EERE declines by six percent.

According to AAAS, the new CR plus the impacts of sequestration put federal R&D investment, “at its lowest point since FY2002, and more than $25 billion in constant dollars below the all-time peak in 2010.” The sequester cuts, combined with the new CR reductions, prolong the trend of underfunding research and development of clean energy at the federal level. As discussed in our report Breaking Down Federal Investments in Clean Energy, perpetually underfunding clean energy innovation – whether it is R&D, demonstration, or manufacturing – restricts the development of a strong and functional energy innovation ecosystem capable of producing the breakthrough technologies necessary to meet the nation’s energy challenges in the future.

This report analyzes these investments by innovation stage and technology to inform policymakers and advocates of the state of the energy innovation ecosystem. Constructing a successful and enduring energy innovation ecosystem requires significant public investment, substantial policy commitment to the development of clean energy technologies, and considerable, smart policy options that can continue to drive energy innovation forward. A comprehensive strategy for meeting these challenges in the future is incomplete without a thorough understanding of current policy.

A version of this analysis was originally posted over several weeks on Matthew Stepp’s ‘Fueling Innovation’ column of Energy Trends Insider.

The tool allows users to allocate $50 billion across five innovation phases (R&D, demonstration, manufacturing, deployment, and procurement), and then scales down those allocations to the actual FY2012 energy innovation investment total of $15 billion. The user can then readjust the allocation across the innovation phase categories and compare their budget to the actual FY2012 distribution. Users can (and are encouraged to) share their budgets on Facebook and Twitter!

The new tool would not be possible without the addition of the new data on demonstration projects, deployment incentives, and procurement spending recently added to the Tracker. We’re hoping the Budget Builder will spark conversation on what the ‘ideal’ energy innovation budget looks like – in total and by innovation phase categories. As always, feedback is welcome!

A November 2012 report prepared by Environmental Entrepreneurs and High Road Strategies titled, The Economic Benefits of Military Biofuels, finds that meeting the Department of Defense’s biofuel utilization targets will generate significant economic activity — between $9.6 and $19.8 billion — and create between 14,000 and 17,000 new jobs by 2020. The report calculates the economic impact of DOD’s scale-up of biofuel usage by starting with the commitments made by both the Navy and the Air Force to replace half of their consumption of petroleum-based fuels with drop-in alternatives within the next four to eight years, outlined in DOD’s 2012 Operational Energy Strategy Implementation Plan. To meet these fuel requirements, the Air Force must add 387 million gallons per year of advanced biofuel capacity by 2016, and the Navy must add 300 million gallons per year of capacity by 2020.

The report’s model assumes that developing a dependable and cost-effective biofuel industry to reach these targets will require investment in four key areas of the value chain: construction of processing facilities, increased and diverse feedstock production, operation costs of additional production capacity, and enhanced distribution networks. Of these areas, facilities construction requires the highest average annual expenditure, with operating costs following closely behind, however facilities construction does not generate long-term economic activity or employment, while operational activities assumingly will.

There is considerable flexibility in designing the production system of advanced biofuels, considering multiple plant, conversion, feedstock, and facilities options. The study considers both high- and low-cost operational estimates for each variable, demonstrating that the economic impacts of scaling up the advanced biofuels industry to meet DOD’s needs are far from trivial. These outcomes are further magnified by spillover effects to the broader economy in what the report refers to as both ‘indirect’ and ‘induced’ impacts from spending by both industry and workers affected by additional production and DOD’s purchases.

ITIF’s recent report Lean, Mean, and Clean II: Assessing Energy Innovation at the Department of Defense states, “DOD has embarked on a multi-year effort to develop and procure low-carbon energy technologies and fuels to increase national energy security and improve safe energy access for the Armed Services.” The report, which tracks DOD’s investments in energy innovation since FY2009 and analyzes the portfolio by military branch, technology, and innovation phase in a first-of-its-kind study, concludes that despite DOD’s particularly narrow emphasis on energy innovation as serving to advance mission security and success, there is significant potential for DOD’s accomplishments in advanced biofuels innovation to impact commercial markets.

DOD’s mature innovation ecosystem – unparalleled in capacity and experience within the U.S. government – coupled with its unmatched consumer power – which acquired 117 million barrels of oil in FY2011 – puts the department in a unique position of influence when it comes to the development and procurement of alternative fuels, as well as the growth of an advanced biofuel industry in the United States.

In the piece, Stepp used the Tracker to compare total investment in energy innovation in 2009 to investment in 2012. When considering the boost in investment in 2009 from the American Recovery and Reinvestment Act (ARRA) investments in clean energy innovation, investment levels in 2012 are about $1 billion lower than 4 years ago.

A summary of the report is available here.

According to the report, DOD has upped its energy innovation investments at a rate of about ten percent per year on average since FY2009, growing its total energy innovation budget to nearly $1.5 billion for FY2012. Using EIT’s data collection methodology, the report analysis is based on project-level investment documented in the department’s Research, Development, Testing, and Evaluation (RDT&E) budget justification books, and the Procurement budget justification books for each military branch and for the Defense Wide offices DARPA, Office of Secretary of Defense (OSD), and the Defense Logistics Agency (DLA).

DOD is recognized as contributing to some of the most significant technological breakthroughs of the last century, credited in part to its comprehensive and unparalleled innovation ecosystem, which enables technologies to cross both “valleys of death”: the “technology valley of death” (when new technologies are unable to compete with conventional, cheap technologies) and the “commercialization valley of death” (when new technologies are unable to make the transition from prototype to full-scale production.) DOD’s innovation ecosystem has successfully advanced communication and transportation technologies to market, and this report details the system’s application to energy technologies. While DOD’s energy RDT&E investments have remained relatively consistent around $860 million since 2009, its procurement of new energy technologies has more than tripled, verifying DOD’s energy projects are beginning to move through the pipeline towards maturity.

The main driver of energy innovation within DOD, however, is a consistent focus on mission operability, maintaining that all technological improvements to the Armed Forces provide both security and capability improvements. Pursuit of mission-oriented innovation is evident in DOD’s technology portfolio. Lean, Mean and Clean II suggests that across military departments, DOD energy innovation investments emphasize improvements to electricity and transportation technologies. These investments include advanced power electronics for more efficient and lighter-weight batteries and portable electricity grid systems, as well as advanced alternative fuels for flight and marine operations. Additionally, between 2009 and 2013, DOD’s investments in smart grid technologies more than doubled, and due in part to the Army’s Green Warrior Convoy program, investments in electric motor research, development, and demonstration increased to $20.6 million in 2012.

Energy innovation at DOD is supporting projects across technologies and innovation stages, and as the report states, “…DOD’s investments are important not only because they accelerate innovation, but also because these investments offer a path to rapid cost declines that preclude commercial market entrance.” As clean energy innovation continues to progress and DOD, further opportunities will arise to comprehensively integrate the department’s innovation ecosystems into a broader, coordinated national energy innovation strategy. Ensuring the transparency of DOD investments in energy innovation is the first step in the process of identifying DOD’s potential for instigating commercial spillovers into energy markets.

Under the Budget Control Act of 2011, the sequester calls for the reduction of the federal debt by $2.4 trillion over a ten year period; $1.2 trillion of the savings are slated to come from discretionary spending, which funds the federal government’s education, science, technology and research programs, among others.  A report recently released by ITIF, Eroding our Foundation: Sequestration, R&D, Innovation and U.S. Economic Growth, verifies concerns over the future of U.S. competitiveness if Congress fails to come up with a viable debt reduction alternative. The report concludes that because R&D is a critical input to economic growth, reduction in R&D investments – which under sequestration would be cut by roughly 8 percent from FY2011 levels and held at this level until 2021 – would result in losses to GDP between $203 billion and $860 billion between 2013 and 2021. The report states, “We agree that deficit reduction is clearly a necessary task. However, as growth is a key component to achieving that task, the evidence presented clearly shows that cutting R&D expenditures will in fact negate efforts to reduce the deficit.”

Using ITIF’s analysis in coordination with the Energy Innovation Tracker budget database, we can assess how these cuts would specifically impact clean energy innovation programs across the federal budget. To estimate future trends under sequestration, ITIF’s report assumes R&D intensity remains constant in the future – meaning the proportion of R&D investments to total investments remains constant through 2021.

Keeping with this assumption, our analysis holds energy innovation intensity, the ratio of energy innovation investment to total expenditures from the nine federal agencies with energy innovation expenditures, constant to 2021. Our analysis also captures two supplementary scenarios for the future of energy innovation as points of reference.

Energy Innovation Under Sequestration. Scenario 1 captures one possible outlook for energy innovation investments under the sequester – a predictably disappointing scenario. Clean energy innovation investments were bolstered by the American Recovery and Reinvestment Act (ARRA) – captured here divided equally over FY2009 and FY2010 – and FY2012 spending levels are estimated to be only slightly lower than this peak. ITIF’s analysis assumes that FY2013 spending will be 8 percent below FY2011 levels (FY2012 investments are not used as a benchmark because they are only estimates, as opposed to actualized spending.) The reduction puts investment $1 billion lower in FY2013 than is estimated for FY2012. Under this scenario, investment remains consistent at $5.5 billion per year from FY2014-FY2021.

Steady Growth: 8 Percent Increase Per Year. The second scenario assumes that investments in energy innovation are unaffected by the sequester, and rise at an average annual rate of about 8 percent per year, which is the actual average annual rate of increase between FY2009 and FY2012. Under this assumption, investments for clean energy innovation would rise to just over $12.5 billion by 2021, nearly $7 billion higher than under sequestration, and the growth in clean energy innovation investment experienced in the last few years could be sustained in the long term. The effects of the sequester on the steady growth scenario would result in total funding losses over the nine year period of $35 billion, reducing GDP by an estimated $56 billion.

Policy Experts’ Recommendation: Tripled by 2015. Scenario 3 assumes an ideal situation, recommended by policy experts, in which clean energy innovation investment s are doubled from FY2012 levels by FY2014 to $12.6 billion, and tripled by FY2015 to $19 billion. Under this scenario, clean energy innovation is funded at a satisfactory level for providing support to the country’s energy innovation ecosystem to induce breakthroughs in technology that can provide energy at cost-competitive rates to current fossil energy. The effects of the sequester on the recommended scenario would generate funding losses of $102 billion, creating a $184 billion GDP loss.

The sequester, if applied evenly across the board to all discretionary programs, will dramatically restrict the growth of the clean energy industry by withdrawing support for innovation, which is necessary to achieve breakthrough improvements in cost-competitiveness and performance of new energy technologies. To see advancements in the clean energy industry, to qualify past and current investments in energy innovation worthwhile, and to prevent significant losses to GDP, government support for energy innovation must not be retracted.