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Clean Energy Has Highest Documented Rate of Return of Any Federal Program — When Will That Get Reported?

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"Clean Energy Has Highest Documented Rate of Return of Any Federal Program — When Will That Get Reported?"

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This excerpt from a 2011 post is relevant again today as advanced battery maker A-123 Systems files for bankruptcy protection. We will have a post on that shortly. You can read the Department of Energy response here.

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:

That article demonstrates the Post doesn’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 significant 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, as I’ll discuss in this post.

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 say this, it is the National Academy of Sciences, among others. And their findings invalidate the Post’s entire analysis and most critiques of the  will clean energy investment failure. 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 parts of 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 some $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 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 “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: “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“). So we should have an aggressive energy efficiency development and deployment program that is much 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?

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4 Responses to Clean Energy Has Highest Documented Rate of Return of Any Federal Program — When Will That Get Reported?

  1. Sasparilla says:

    Excellent article Joe.

    It would appear the media doesn’t really care about whether the story is right or not….its whether its hot or not and if the story is wrong (along the lines of the GOP misrepresentation) it makes it “hotter” (since it sounds like we’ve all been taken and gets better ratings). We may be getting to the point where the overall media / news orgs are following Fox News lead and aren’t worried about letting the truth constrain them.

    As an FYI, lithium battery maker A123 (receiver of DOE loans) just declared bankruptcy this morning….you can bet they will be lumped in with the Solyndra misstatements from ol’ Mitty tonight. The enemies of plug-ins will definitely be wanting their lackies to take advantage of this situation.

    • Leif says:

      Perhaps A123 was bought out by Koch et. al. and driven to bankruptcy or perhaps even Bain Capital and off shored with the technology. I would put nothing past the ecocide forces in pursuit of Profits from Pollution.

      • Sasparilla says:

        Yeah, for A123 I just think it was bad luck for the most part, they had a buyer (of their batts) or two that went belly up after A123 had invested in production facilities etc. if memory serves.

  2. Doug Bostrom says:

    Perhaps one of the worst lingering effects of the Bush Jr. presidency is Karl Rove’s discovery, mechanization and industrializing of how to deal with the strength of an opponent in an age of distraction and ignorance. All that’s necessary is to invert facts and then depend on the net gullibility of an ingenuous audience to do the rest of the job.

    The “Swift Boat” model is simple and effective: just lie and then allow the victims of untruth to finish to the job. Journalists and the rest of us really are not properly equipped (yet?) to deal with this. Unambiguously tagging a liar requires breaking a lot of social conventions; liars of Romney’s scale are social engineers who depend on and exploit the good will of others.