Table ES.2: Relation of Applied Energy Technology R&D to "Total Energy R&D"
In millions of as-spent dollars.

DOE's Office of Energy Research includes the Department's R&D on fusion energy, as well as Basic
Energy Sciences and some other science and technology programs including biomedical and environmental
research, research in computing, and science education. "Other Conservation R&D" includes the State and
Local Partnership Programs and the Federal Energy Management Program (which are not really R&D at
all), among other items. "Other Nuclear R&D" includes radioisotope power sources for spacecraft and
isotopes for medical applications, among other items. The Panel included fusion in its analysis of applied
energy-technology R&D (although, as noted in that analysis, much fusion R&D is in fact basic science).

Further major increases in efficiency can be achieved in every energy end-use sector: in transportation, for example, through much more fuel-efficient cars and trucks; in industry through improved electric motors, materials-processing technologies, and manufacturing processes; in residential and commercial buildings through high-technology windows, superinsulation, more efficient lighting, and advanced heating and cooling systems.

The second largest of the Panel's proposed increases is for renewable energy technologies, in which annual spending in FY 2003 would reach $650 million, nearly $400 million more than in 1997 (as-spent dollars). This increase makes sense in light of the rapid rate of cost reduction achieved in recent years for a number of renewable energy technologies; the good prospects for further gains; and the substantial positive contributions these technologies could make to improving environmental quality, reducing the risk of climate change, controlling oil-import growth, and promoting sustainable economic development in Africa, Asia, and Latin America.

Opportunities exist for important advances in wind-electric systems, photovoltaics, solarthermal energy systems, biomass energy technologies for fuel and electricity, geothermal energy, and a range of hydrogen-producing and hydrogen-using technologies, including fuel cells. As in the case of the proposed increases in energy-efficiency R&D, the increased support for these renewable energy technologies would focus on areas where the expected short-term returns to industry are insufficient to stimulate as much R&D as the public benefits warrant.

Fusion R&D is proposed for the third largest increase; annual spending for it in FY 2003 would reach about $100 million more than the 1997 figure in as-spent dollars. In this scenario, fusion funding would reach by 2002 the $320 million figure recommended in the 1995 PCAST study of fusion energy R&D as a constant level of spending in as-spent dollars to be maintained

from FY 1996 onward. (This earlier PCAST recommendation did not prevail, and fusion funding fell instead from $369 million in FY 1995 to $232 million in FY 1997.)

The Panel judges this amount warranted for two reasons: (1) About $200 million per year of it would continue a very productive element of the country's basic science portfolio (comparing favorably in cutting-edge contributions and valuable spinoffs with other fields in that category); and (2) the rest is easily justified as the sort of investment the government should be making in a high-risk but potentially very-high-yield energy option for society, in which the size and time horizon of the program essentially rule out private funding.

DOE's R&D in nuclear-fission energy systems, which fell 12-fold in real terms between 1986 and 1997, would increase under our proposal from about $40 million per year in FY 1997 to about $120 million per year in 2003 (as-spent dollars), thereby returning in real level of effort to that of 1995. Nuclear fission currently generates about 17 percent of the world's electricity; if this electricity were generated instead by coal, world carbon dioxide emissions from fossil fuel consumption would be almost 10 percent larger than they currently are.

Fission's future expandability is in doubt in the United States and many other regions of the world because of concerns about high costs, reactor-accident risks, radioactive-waste management, and potential links to the spread of nuclear weapons. We believe that the potential benefits of an expanded contribution from fission in helping address the carbon dioxide challenge warrant the modest research initiative proposed here, in order to find out whether and how improved technology could alleviate the concerns that cloud this energy option's future. To write off fission now as some have suggested, instead of trying to fix it where it is impaired, would be imprudent in energy terms and would risk losing much U.S. influence over the safety and proliferation resistance of nuclear energy activities in other countries. Fission belongs in the R&D portfolio.

Energy from fossil fuels currently contributes 85 percent of U.S. annual energy use and 75 percent of the world's. These fuels will continue to provide immense amounts of energy through the middle of the next century and beyond, under any plausible scenario. We judge that DOE's current fossil-energy R&D program is about the appropriate size in relation to the array of relevant needs, opportunities, and likely continuing private sector fossil-energy R&D activities. Our proposed budget for DOE's fossil-energy R&D, which increases funding in as-spent dollars by about $70 million per year between 1997 and 2003, actually holds the real level of effort approximately level near its FY 1997 value of $365 million per year.

We do, however, recommend some changes in emphasis within this program. Specifically, we propose phasing out DOE's R&D on near-term coal-power technologies and promptly ending the funding for direct coal liquefaction, while increasing the Department's R&D on advanced coalpower programs, carbon capture and sequestration, fuel cells and other hydrogen technology, and advanced oil and gas production and processing. These changes are designed to increase the responsiveness of DOE's fossil energy R&D to the carbon dioxide and oil-import challenges (including technology-export opportunities that could favorably affect other countries' carbon emissions and oil imports while improving the U.S. balance of payments), and to improve the program's complementarity with (or help to stimulate) R&D efforts in the private sector.

Our recommendations for R&D initiatives in the efficiency, renewables, fusion, fission, and fossil fuel components of DOE's applied energy-technology portfolio are described in more detail later in this Executive Summary and are summarized, together with the budgets we propose for these efforts, in Table ES.3.

Recommendations on Crosscutting Issues

The Panel recommends that coordination between the Basic Energy Sciences program and the applied energy-technology programs be improved using mechanisms such as comanagement and cofunding.

We recommend that the Department make a much more systematic effort in R&D portfolio analysis: portraying the diverse characteristics of different energy options in a way that facilitates comparisons and the development of appropriate portfolio balance, in light of the challenges facing energy R&D and in light of the nature of private sector and international efforts and the interaction of U.S. government R&D with them.

After consideration of the market circumstances and public benefits associated with the energy-technology options for which we have recommended increased R&D, the Panel recommends that the nation adopt a commercialization strategy in specific areas complementing its public investments in R&D. This strategy should be designed to reduce the prices of the targeted technologies to competitive levels, and it should be limited in cost and duration.

The Panel recommends that the government and government/national-laboratory/industry /university consortia should engage strongly in international energy technology R&D and, where appropriate, development and commercialization efforts to regain and/or maintain the scientific, technical, and market leadership of the United States in energy technology.

We recommend that overall responsibility for the DOE energy R&D portfolio should be assigned to a single person reporting directly to the Secretary of Energy, and that, similarly, a single individual should be given the responsibility and authority for coordination of crosscutting programs between the applied-technology programs, reporting to the single person responsible for the overall R&D portfolio.

The Panel recommends that industry/national-laboratory/university oversight committees should work with DOE to provide overall direction to energy R&D programs, with DOE facilitating and administering the process; and we recommend that all DOE energy R&D programs undergo outside technical peer review every 1-2 years, while interim internal processoriented reviews are reduced to a minimum.

Additional recommendations and discussion on crosscutting issues appear later in this Executive Summary.

RATIONALE FOR THE RECOMMENDATIONS

The rationale for the recommendations summarized above-and for others to be found in the more detailed treatment later in this Executive Summary is presented in what follows in terms of the importance of energy to our national well-being, the evolution of U.S. and world energy supply and demand, the challenges this evolution poses to energy R&D, recent trends in public and private funding for energy R&D, and the implications of those trends (and the energy R&D status quo) for the prospects of meeting the energy and environmental challenges of the next century.

The Importance of Energy

The characteristics of the technologies available to this nation and others for energy supply and energy end-use are critical to our country's economic well-being, environmental quality, and national security:

Economically, expenditures on energy account for 7 to 8 percent of gross economic product in the United States and worldwide and a similar fraction of the value of U.S. and world trade. Experience has shown that periods of excessive energy costs are associated with inflation, recession, and frustrated economic aspirations. Sales of new energy-supply technologies globally run in the multi-hundreds of billions of dollars per year.

• Environmentally, energy supply accounts for a large share of the most worrisome environmental problems at every geographic scale-from woodsmoke in Third World village huts, to regional smogs and acid precipitation in industrialized and developing countries alike, to the risk of widespread radioactive contamination from accidents at nuclear energy facilities, to the build-up of carbon dioxide and other heat-trapping gases in the global atmosphere.

National security is linked to energy through the increasing dependence of this country and many others on imported oil, much of it from the politically troubled Middle East; through the danger that nuclear-weapons-relevant knowledge and materials will be transferred from civilian nuclear energy programs into national nuclear arsenals or terrorist bombs; and through the potential for large-scale failures of energy strategy with economic or environmental consequences serious enough to generate or aggravate social and political instability.

Scientific and technological progress, achieved through R&D, is crucial to minimizing current and future difficulties associated with these interactions between energy and well-being, and crucial to maximizing the opportunities. If the pace of such progress is not sufficient, the future will be less prosperous economically, more afflicted environmentally, and more burdened with conflict than most people expect. And if the pace of progress is sufficient elsewhere but not in the United States, this country's position of scientific and technological leadership—and with it

much of the basis of our economic competitiveness, our military security, and our leadership in world affairs-will be compromised.

Past, Present, and Projected Patterns of Energy Supply

The challenges and opportunities associated with the economic, environmental, and national security dimensions of energy have become what they are primarily as a consequence of the tremendous increase in energy use, and especially fossil fuel use, over the past century and a half. This increase, in which world energy use grew 20-fold between 1850 and 1995 and fossil fuel use increased more than 100-fold, arose principally from the combination of population growth and rapid economic development in the industrialized countries.

In contrast, by far the largest part of the future growth of world energy use is expected to take place in the currently less developed countries of Asia, Africa, and Latin America. Today, with nearly 80 percent of the world's population, these countries still account for only a third of the energy use. But if recent trends continue (the "business as usual" energy future), they will pass the industrialized countries in total energy use (and in carbon dioxide emissions) between 2020 and 2030, and their growth will be the primary driver of a doubling in global energy use between 1995 and 2030 and a quadrupling between 1995 and 2100.

Energy use in industrialized countries would continue to increase in a business-as-usual future, but not as rapidly as in the less developed countries and not as rapidly as in the past. A business-as-usual energy trajectory for the United States would entail increases in energy use, above the 1995 level, of about 40 percent by 2030 and nearly 75 percent by 2100.

The fossil fuels-oil, natural gas, and coal-accounted for 75 percent of energy supply worldwide in 1995. The remainder was nuclear energy (6 percent), hydropower (6 percent), and biomass fuels (13 percent, mostly fuelwood in developing countries), with wind, solar, and geothermal energy together contributing less than half a percent. The dominance of the fossil fuels would decline only slowly in a business-as-usual future: the world as a whole would still be obtaining perhaps two-thirds of all its energy needs from fossil fuels in 2030 and half or more in 2100. Fossil fuel resources are adequate to support such an outcome, albeit perhaps with higher dependence on coal than today, relative to oil and gas.

The United States obtained 85 percent of its energy from fossil fuels in 1995, nearly 40 percent from oil alone (of which half was imported). U.S. fossil fuel dependence, like that of the rest of the world, would decline only slowly in a business-as-usual future. U.S. oil imports, according to the "reference" forecast of the Department of Energy, would grow from 9 million barrels per day in 1995 to 14 million barrels per day in 2015 and continue to increase for some time thereafter.