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Energy efficiency, Part 5: The highest documented rate of return of any federal program

By Joe Romm

"Energy efficiency, Part 5: The highest documented rate of return of any federal program"

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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, 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 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.]

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 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 “Is 450 ppm (or less) politically possible? Part 3: The breakthrough technology illusion“). 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 (see “Do we need a massive government program to generate breakthroughs to make solar energy cost-competitive?“) — 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 in because the biggest barriers to employment are not better technology but flawed regulations, as I have discussed many times (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.

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 US 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 (see “In seeming flipflop, Bush drops mismanaged ‘NeverGen’ clean coal project“).

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19 Responses to Energy efficiency, Part 5: The highest documented rate of return of any federal program

  1. David B. Benson says:

    Good for you and keep plugging it!

    What is/was IGCC?

  2. Mark Shapiro says:

    IGCC is short for ICGCC – integrated coal gasification combined cycle (actually Joe defined it above). It gets more kWh out of each ton of coal (or other material and allows capture of the pollutants.

    It’s expensive.

    So stay with efficiency and renewables (and conservation).

  3. Earl Killian says:

    To add to Mark’s comment on IGCC, it also causes us to burn a 25% more coal to generate the same power. That means 25% more mountain tops removed, 25% more radiation (coal power plants emit more radiation than nuclear plants), 25% more toxic fly ash in our communities. And the price of coal is skyrocketing in recent years, and it will soon be hitting our electric bills (it takes a while because most plants buy on long-term contracts). 25% more coal burning will cause even higher prices for coal.

  4. David B. Benson says:

    I suspect that the price of coal is already so high that it will pay woodlot and tree farm owners quite well to have the production torrified and sent off to the utilites where it substitutes for (some of the) coal.

    Less SO2 and NOx. No mercury, uranium, arsenic, etc. Ought to command a premium price, even just by reducing the sulfur scrubbing costs.

  5. Ronald says:

    It’s about the politics. And economics.

    What is it that a company that sells electricity and electricity generation want? More sales and efficiency will cut into that. If your only measure is GNP, it only matters that the numbers are bigger, not if the product or service delivered was done efficiency. But GNP and per capita income are easy to measure and the rest not so much. If all efficiency doubles, alot of people in those industries that supply that are out of work even though people will have money to spend for something else.

  6. Brian Merson says:

    Off topic, have you seen the latest from EIA’s Energy In Brief? The article, related to energy subsidies is at http://tonto.eia.doe.gov/energy_in_brief/energy_subsidies.cfm. The article makes it look like energy-related subsidies are huge, especially solar (much larger than fossil fuel-related subsidies). It does this by, at first glance, cherry picking the subsidies and ignoring anything not directly related to electricity production. In this way, they can ignore the $15-30B annually gifted to big oil. Who pays these guys?! Oh yeah, that would be us. :-(

  7. David B. Benson says:

    Here is a more thorough story on CCS progress in Europe:

    http://www.theaustralian.news.com.au/story/0,25197,24317781-11949,00.html

  8. EricG says:

    Ummmm….

    Mark – “It gets more kWh out of each ton of coal…”

    Earl – “…it also causes us to burn a 25% more coal to generate the same power.”

    Those statements strike me as mutually exclusive.

    Hey Earl, check out Tendril for an interesting efficiency technology: http://www.tendrilinc.com/.

  9. Earl Killian says:

    EricG, sorry, I was talking about IGCC+CCS, not IGCC alone. CCS is Carbon Capture and Sequestration, which Mark referred to when he wrote “and allows capture of the pollutants.” IGCC does not always get more kWh out of coal. Consider the coal feed kg/h estimate from MIT’s The Future of Coal for 500 MWe of output (lower is better):
    Subcritical Pulverized Coal 208,000
    Supercritical Pulverized Coal 185,000
    Ultra-supercritical Pulverized Coal 164,000
    Subcritical Circulating Fluid Bed 297,000
    Supercritical Pulverized Coal 184,894
    IGCC 185,376
    Note that IGCC is third on this list. Of course these are estimates.

  10. EricG says:

    Thanks Earl, this makes perfect sense. Interesting stats from the MIT study.

  11. hapa says:

    these from the australian

    Adding CCS technology to power plants is widely agreed to be the only realistic hope of making the necessary inroads into carbon dioxide emissions without resorting to the politically unacceptable option of turning the lights out.

    “we use ‘widely’ and ‘realistic’ here in a private sense, measurable only by standards controlled by our office and whose actual numerical values are a trade secret.”

    Fossil fuels are the biggest source of carbon dioxide emissions yet 80 per cent of the world’s energy depends on them.

    oh? so we’re talking about putting CCS on the backs of cargo ships and home heating systems? or capturable coal is 80% of energy? i’m confused.

    still. the times. gotta love a newspaper that tells it like it should be.

  12. Pradeep says:

    The article illustrates the importance of having a well-defined energy policy.

    This might be off-topic, but I found a presentation by Mark Fowler at the Clean Air Task Force comparing IGCC with pulverized coal technologies:
    http://www.gasification.org/Docs/Workshops/2008/Tampa/07Fowler.pdf
    Slide 12:
    The pulverized coal technologies have higher SOx (no precombustion sulfur capture), NOx and particulate matter (PM) emissions compared to the IGCC designs.

    The main conclusions of the above discussion might still be valid:
    Slide 16:
    “Implications:
    Using the EPA methodology, in the CATF reference case the average cost effectiveness of IGCC is less than that for SCPC

    The incremental cost effectiveness of IGCC, compared to SCPC, is not unacceptable”

  13. Rod Adams says:

    Joe:

    The three efficiency investments that you mentioned did indeed pay good dividends and were appropriate types of programs for DOE support. They were relatively small, focused, and aimed at solving well defined problems.

    Unfortunately, there were also a lot of apparently failed investments that could have overwhelmed the ROI computation if those three had not been included. Take out your three programs and their investment of $400 million (your number) and you have a government investment of more than $12 billion and a return of $10 billion – ie a loss of $2 billion.

    From what I know of the programs that failed, most are those “high efficiency” power systems that look fine on paper but have huge technical challenges associated with eeking out the last little increment of efficiency or providing some technical solution to an intractable problem like handling the enormous volume of waste generated by burning dirty, cheap fuels.

    IGCC, Intercooled-recuperated turbines, batteries for electric vehicles, H2, large fuel cells, and CCS all fall into the category of investments that will never be made without continuing and growing government support. Of course, there will be plenty of people who disagree, partially because they make a living while accepting that government support.

    Just out of curiosity, have you ever come across a similar analysis of the ROI for federal investments in nuclear fission power? I am trying to find one that separates programs so that it is possible to see which investments provided results and which did not.

    My guess is that pure nuclear fission reactor research has provided at least reasonable rates of return – based on the fact that we are generating tens of billions of dollars worth of electricity from that technology every year – while science projects like fusion will never, ever make a dime during the lifetime of anyone living today.

  14. Cyril R. says:

    CCS is widely believed to be the only hope for carbon dioxide sequestration for coal plants? That just shows how limited ‘wide beliefs’ are. There is still a wide belief that hydrogen will power a substantial part of transportation in the not too distant future, while it is so obvious to see it can’t happen it’s almost shameful.

    Mineral sequestration (such as olivine sequestration) is more proven, safe, and permanent than CCS from fossil fuel plants. And we know that there alre less risks in economics since the price for pulverized olivine is known and the processes involved are comparatively simple.

    But the status quo is not interested in the best solutions. It just wants to make money on compressor equipment, membranes etc. for CCS. Pretty sad stereotypical situation.

    Oh, and it’s true that ultracritical coal plants are more efficient than IGCC so far. IGCC could be cleaner, at least in theory, as practice has ben unimpressive in this regard IMHO. There could be less mining impact, because the coal deposit can be gassified underground, no need for strip mining and mountain top removal.

    But the question remains what it’ll cost. Even wind with lots of storage should be cheaper the way things are right now. But perhaps there is more to IGCC than we’ve previously thought.

  15. David B. Benson says:

    Cyril R. — olivine sequestration?

  16. Cyril R. says:

    Olivine sequestration, as proposed by Olaf Schuiling.

    See, for example, this short PDF.

  17. Cyril R. says:

    Another benefit is that olivine sequestration is not restricted to coal plants, but can sequester emissions of any kind (such as land-use related and other non-energy emissions, which are huge). This means carbon negative is certainly possible. Of course, this shouldn’t be seen as an excuse to continue to burn polluting fossil fuels, but it’s could be a great help in transitioning to a low carbon future (even carbon negative future if that’s needed). It’s got everything in it’s favour technically: simple, effective, cheap, no shortage of olivine, relatively low energy input, benign products and co-products (in fact it solves the problems with ocean alkalinity reduction) no catastrophic risks (like CO2 resevoirs leaking) and it’s proven by good ol’ Mother Nature.

    Since it works well in tropical countries, think about the potential for economic development of poor countries with low wages. It’s a win-win-win situation.

  18. shop says:

    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 5 years.