CHAPTER 1 ENERGY CHALLENGES AND OPPORTUNITIES Research and development is our Nation's investment in its own future. America's science and Final Report of the Task Force on Strategic Energy Research and Adequate, affordable energy supply and efficient energy use are indispensable ingredients of the economic well-being of individuals and nations. In the United States and worldwide, energy accounts for 7 to 8 percent of GDP and a similar share of international trade; global investments in energy-supply technology (oil refineries and pipelines, electric power plants and transmission lines, and so on) total hundreds of billions of dollars per year; and annual global expenditures on items whose energy-using characteristics are potentially important to their marketability (automobiles, aircraft, buildings, appliances, industrial machinery, and more) run into the trillions. When and where energy becomes scarce or expensive, recession, inflation, unemployment, and the frustration of aspirations for economic betterment are the usual results. Energy is no less crucial to the environmental dimensions of human well-being than to the economic ones. It accounts for a striking share of the most troublesome environmental problems at every geographic scale-from wood smoke in Third World village huts, to regional smogs and acid precipitation, to the risk of widespread radioactive contamination from accidents at nuclear-energy facilities, to the buildup of carbon dioxide and other greenhouse gases (GHG) in the global atmosphere. The growth of energy use, driven by the combination of population increase and economic development, has pushed some of these problems to levels variously disruptive of human health, property, economic output, food production, peace of mind, and enjoyment of nature in many regions. And all of these aspects of human well-being could eventually be impacted over substantial areas of the planet by the kinds of global climatic changes widely predicted to result from continued buildup in the atmosphere of GHGs, most importantly carbon dioxide from fossil fuel combustion. 'SEAB (1995). This is the first paragraph of the final report of the Task Force. We agree wholeheartedly with this view-and with much else in that report—and we hope readers of our study will read that one, too. The importance of energy to national economies and the circumstance that more than a quarter of total world energy supply (including more than half of the oil) is traded internationally make energy a national security issue as well as an economic and environmental one. Gaining or protecting access to foreign energy resources has been a contributing motivation in a number of major conflicts during the twentieth century and could be again in the twenty-first. Another national security dimension of energy is the danger that nuclear-weapons-relevant knowledge and materials will be transferred from civilian nuclear energy programs into national nuclear arsenals or terrorist bombs. Still another is the potential for largescale failures of energy strategy with economic or environmental consequences serious enough to generate or aggravate social and political instability (this a concern not only in developing countries but also in industrialized ones that fall on hard times). Improvements in energy technology and the widespread penetration of these improvements in the marketplace in the twenty-first century are badly needed to enhance the positive connections between energy and economic well-being and to ameliorate the negative connections between energy and environment and between energy and international security. Such improvements in technology can lower the monetary and environmental costs of supplying energy, lower its effective costs by increasing the efficiency of its end uses, reduce overdependence on oil imports, slow the buildup of heat-trapping gases in the atmosphere, and enhance the prospects for environmentally sustainable and politically stabilizing economic development in the many of the world's potential trouble spots. Research and development (R&D) is the only systematic means for creating the needed technical improvements and, therefore, is a necessary (although not always sufficient) condition for improving the energy systems that are actually deployed. What is deployable today is the result of the energy R&D that was done in the past; what will be deployable in the future depends on the R&D that is being done now and that will be done tomorrow. It is important to understand, moreover, that while some kinds of energy R&D can bring quite rapid returns (such as research on finding oil and gas, or on improving the efficiency of electric lightbulbs), the time scales on which most kinds of energy R&D exert a significant influence on deployed energy systems are longer. This is related not only to the time required to complete the R&D but also to the long turnover times of most energy-supply and energy-end-use equipment: on the supply side, for example, three to five decades for electric power plants and oil refineries; on the end-use side, five decades or more for residential and commercial buildings, and a decade or more even for automobiles and household appliances. These long time scales are one of the reasons that energy R&D is not and should not be left entirely to the private sector, even in a free-enterprise-based economic system such as that of the United States: It is in society's interest to investigate-as part of its strategy for preparing for an uncertain future—some high-potential-payoff energy alternatives for which the combination of a long time horizon for potential economic returns, uncertainty of success, and cost of the R&D makes this pursuit unattractive to private firms. Another rationale for a government role in R&D is that some of the most badly needed improvements in energy technologies relate to "externalities" (such as environmental impacts) and "public goods" (such as national security) that are not valued in the marketplace and hence do not generate the market signals to which firms respond. Still another is that the fruits of some kinds of R&D are difficult for any one firm or small group of firms to appropriate, even though these innovations may be highly beneficial to society as a whole. Finally, the structure of particular energy industries and markets may mask or dilute incentives for firms to conduct R&D from which they, their customers, and society as a whole would all greatly benefit. The charge to the Panel from President Clinton, spelled out in a letter of January 14, 1997, from the President to his Science and Technology Advisor John H. Gibbons, was to review the current national energy R&D portfolio and make recommendations to me...on Accordingly, the primary aim of this report is to review and recommend improvements in the program of energy R&D supported and coordinated by the United States Federal government, in relation to the energy challenges of the next century and in relation to the energy R&D roles likely to be played by the U.S. private sector, by the states, and by other countries. Within the Federal government, our principal focus is on the energy-technology R&D and fundamental energy-related science and technology programs2 of the U.S. Department of Energy (DOE), which embody the great bulk of the Federal government's efforts toward development of improved energy technologies. In the remainder of this chapter, the Panel's findings are presented, beginning with a description of the economic, environmental, and national security challenges likely to be posed by U.S. and world energy supply and demand in the decades ahead, together with a discussion, in general terms, of the leverage that energy R&D could offer against these challenges. Chapter 2 presents current and historical patterns of energy R&D funding by the Federal government, by state governments, by U.S. firms, and by other countries; it also treats the rationales and evolving circumstances affecting the role of government in energy R&D vis-à-vis that of the private sector-including lessons learned from the past few decades of experience with government energy R&D and the implications of recent trends in energy-industry restructuring. Chapters 3 through 6 provide a closer look at DOE's energy R&D strategy and portfolio, based on the findings of Task Forces formed by the Panel to address the Department's R&D on energy-end-use technologies, fossil fuel technologies, nuclear energy technologies (fission and fusion), and renewableenergy technologies. This material reviews the major program elements within these four compartments of the Department's portfolio, evaluates their effectiveness and prospective leverage (and that of possible additional program elements) against the impending challenges and in the context of government's appropriate role, and makes recommendations about the content and budget of these programs for FY 1999 through FY 2003. Chapter 7 then addresses issues that cut across the four compartments, including coordination among them, coordination between each of them and the Department's fundamental energy-related science and technology programs, methods for evaluating the entire portfolio in a comprehensive comparative framework, and other issues in the Department's management of its energy R&D. Fundamental energy-related science and technology programs are found primarily within the Office of Energy Research at the Department of Energy and include portions of Basic Energy Sciences, Computational and Technology Research, Biological and Environmental Research, and other programs. Although Fusion Energy is also within the Office of Energy Research and is primarily focused on fundamental science, it is examined separately here. The short-hand nomenclature "Basic Energy Sciences" (BES) and "Energy Research" are used interchangeably in this report to refer more formally to the range of fundamental energy-related science and technology programs at the Department of Energy, understanding that the bulk of these activities are within the Office of Energy Research and its Basic Energy Sciences Program. U.S. AND WORLD ENERGY SUPPLY AND DEMAND Understanding the challenges to energy R&D requires, first of all, an appreciation of recent and possible future trajectories of U.S. and world energy supply and demand. In 1995, the 5.7 billion people then on the planet were using inanimate energy forms at a rate of about 420 quadrillion Btus (quads) per year, 75 percent of which was derived from fossil fuels. (See Table 1.1.) About two-thirds of the total supply went to the 1.2 billion people living in industrialized countries, and about one-third went to the 4.5 billion people living in developing countries. The United States, with 4.6 percent of the world's population in 1995, accounted for about 22 percent of the energy demand. As indicated in Table 1.1, the dependence of U.S. energy supply on fossil fuels almost 85 percent-was even greater than that of the world as a whole. Nearly 40 percent of U.S. energy supply in 1995 came from oil, half of it imported. Data from British Petroleum (1996), EIA (1996,1997a) and extrapolation of world biomass fuel b One quad = 1 quadrillion Btus = 1.055 billion gigajoules (1.055 exajoules). Approximately 30 percent of the 1995 global primary-energy supply was used to make some 12.5 trillion kilowatt-hours of electricity, almost 80 percent of it used in the industrialized countries. As indicated in Table 1.2, the share of the United States alone in world electricity use is about 28 percent. As in overall energy supply, moreover, the United States is even more fossil fuel dependent for electricity generation than is the world as a whole. Coal alone accounts for half of U.S. electricity supply. 'TWh - terawatt-hours = billion kilowatt-hours. Figures include nonutility generation. The pattern of energy end uses in the United States in the mid-1990s is shown in Table 1.3. The patterns are broadly similar in other industrialized countries (although nearly all use substantially less energy per person than the United States) and in the urban/industrial sectors of developing countries. These figures serve to underline the pervasive roles of energy in everyday life and economic activity, the widely distributed responsibility for the environmental impacts of energy supply, and the distribution of opportunities for energy savings through improved end-use efficiency. The emergence, over the past century and a half, of the fossil fuel era in which we still live is chronicled for the world as a whole in Figure 1.1. Total energy use in 1995 was 20 times larger than in 1850, 4.5 times larger than in 1950. These tremendous increases arose principally from the combination of population growth and rapid economic development in the parts of the world now classified as "industrialized". In the United States, for example, energy use in 1995 was 40 times larger than in 1850 and 2.6 times larger than in 1950; and population growth and growth in energy use per person shared equally in producing the increases, both over the whole period and in the last half century. Table 1.3: Energy End-Uses in the United States, Mid-1990s From EIA (1997a) and IEA (1997). The figures include both electric and nonelectric energy "Fossil fuels, which provided only 12 percent of world energy supply in 1850, accounted in 1995 for 75 percent of the 20-fold larger total supply. In the United States, fossil fuels were providing 85 percent of all energy use in 1995, having increased their energy contribution 350-fold since 1850. It was these tremendous increases in fossil fuel use that brought the absolute magnitude of world combustion to a level capable of materially affecting the composition of the atmosphere not only locally and regionally but globally. And it was the sixfold increase in oil use between 1950 and 1979 that put such immense |