In 1996, the Department of Energy (DOE) will spend $812 million for research and development (R&D) projects to develop new technologies for energy conservation and for solar and other renewable energy resources. Phasing out that R&D over the next three years would save $66 million in 1997 and $2.7 billion over the 1997-2002 period relative to the 1996 spending level. Relative to the 1996 level adjusted for inflation, the option would save $73 million in 1997 and $3.0 billion over the 1997-2002 period. (Funds for energy conservation R&D are distinct from technical and financial assistance programs, which would not be included in this option.)

Opponents of these programs make several arguments. Generally, they contend that the federal government should stop working to develop applied energy technologies and instead concentrate on basic research in the sciences that underlie them. Specifically, they note that many of the projects funded through these programs are small and discrete enough--and, in many cases, have a clear enough market--to warrant private investment. In such instances, DOE may be crowding out or preempting private-sector firms. In other instances, the programs conduct R&D that the intended recipients are likely to ignore--in many cases because it is too expensive or esoteric to implement.

Opponents of these programs also note that spending for energy conservation and solar and other

renewable energy R&D has almost tripled since 1990, although funds for 1996 were cut by 28 percent relative to funding levels for 1995. Yet despite the reduction, spending for energy conservation R&D in inflation-adjusted terms is still at the levels of the late 1970s, when all parties agreed that DOE was overly committed to expensive technology demonstration projects. By contrast, DOE's solar and other renewable energy programs are roughly only one-third of their peak size in inflation-adjusted terms. (As a whole, applied energy R&D at DOE has fallen by roughly three-quarters since its peak.)

Critics of these programs also contend that the federal government supports the introduction of some of these technologies in other ways. Federal regulations require utilities to buy electricity produced by solar and alternative technologies, often at premium rates. Utilities are also encouraged to subsidize the purchase of conservation technologies by consumers. The tax code favors investments in conservation and solar energy technology and also provides incentives for the development of liquid fuels technologies derived from renewable resources (such as biomass). Ethanol fuels receive special treatment under the federal highway tax (see REV-36). In addition, federal regulations authorized by many different statutes favor alcohol fuels.

DOE's largest single solar energy program-photovoltaics--can claim to have achieved substantial

success, and opponents might argue that an orderly withdrawal of support by federal agencies is now appropriate. For one thing, several large factories for producing photovoltaic cells are either in operation or under construction, mainly for the export market. Moreover, critics point out that foreign firms are likely to dominate the photovoltaics market because of their higher domestic energy prices and hence their higher likely demand for alternative sources of energy. U.S. consumers can let those foreign companies and governments bear the costs of developing the energy sources and then buy the technologies later, when they are cheaper and have been perfected.

Defenders of these programs argue that major market failures continue to exist in energy markets, and thus federal R&D is needed to mitigate the longterm consequences of those failures. Energy consumers do not see the environmental damage done by excess reliance on fossil fuels, including the potential for global warming, in the energy prices they confront in the marketplace. Nor do those prices reflect the military and economic risks posed by reliance on Middle East oil. Advocates admit that these DOE R&D programs cannot correct those market failures in the short term but argue that over the long term, such programs can help.

Funding for energy R&D is below the national average for all industries; specifically, energy-related R&D funded by private parties is stagnant or declining, despite the risks posed by the market failures discussed above. Most notably, electric utilities and other large corporate performers of and investors in energy R&D are cutting down such investments. (The usual explanations for that decline are corporate restructuring and the changing nature of competition in those markets.) R&D spending, both federal and

private, is equal to roughly 1.8 percent of the economy as a whole. By contrast, all spending on energy R&D, again both federal and private, is equal to 1.1 percent of total spending on energy.

Advocates of continued federal spending for this R&D note that energy conservation and solar and other renewable energy technologies developed at DOE laboratories have moved successfully into commercial markets. The solar and other renewable resources R&D programs have also had a history of requiring private financial participation in development projects to reduce the risk of sponsoring irrelevant research. Furthermore, advocates contend that even in instances in which the technologies have not yet been brought to market, applied federal research has brought down their costs substantially. That situation, they maintain, is different from R&D sponsored by DOE in the late 1970s, when the technology development that resulted would have been economic only if the price of oil was at a very high level.

One advantage these programs have over other R&D efforts in the energy technology area is that many of them are quite small. The small scale of the projects gives the Congress great flexibility in tailoring these programs to the size it wants without fear of losing all of their benefits, as is often the case with reductions in "big science" R&D programs. Over the years, many of the best outcomes of these research efforts have come from very small investments. Those successes include the development of films that make windows more energy efficient and are now found on roughly a third of new and replacement windows. More recently, R&D sponsored by DOE helped develop a sulfur lamp, which promises to provide an efficient alternative to the mercury vapor lamp.

The Clean Coal Technology Program (CCTP) was created in 1984 to assist private industry in developing commercial technologies that would use coal in environmentally sound ways. After five rounds of bid solicitations, the Department of Energy (DOE) will spend over $2.5 billion to fund and administer selected CCTP projects. The government's spending on those demonstration projects is limited to 50 percent of total costs. This option would complete projects already selected in rounds one through five of CCTP bid solicitations but eliminate any future funding for new projects. Savings would total about $100 million in projected outlays over the 1997-2002 period measured from both the 1996 funding level and the 1996 level adjusted for inflation.

An initial goal of the CCTP was to reduce acid rain by supporting technologies that could lower the emissions of sulfur dioxide (SO2) and nitrogen oxides (NO) that result from coal combustion. President Reagan declared that his Administration would honor an agreement with Canada to spend $2.5 billion on clean coal technologies aimed at helping to curb acid rain in Canada. Other important goals of the program have been to promote the use of coal to replace imports of crude oil and to bolster the economies of coal-producing regions. Concerns about global warming and emissions of carbon dioxide have recently whetted policymakers' interest in increasing the efficiency of coal use.

controls could force industry to invest in current, high-cost abatement technologies when new, lowcost ones might be just around the corner. Since the passage of the Clean Air Act Amendments of 1990, however, the private sector has faced a clear legislative mandate for lowering coal emissions. Electric utilities and large industrial users of coal now have a clear economic motive for selecting from among current practices and new technologies the lowest-cost options for reducing emissions. DOE efforts may also be redundant in the light of independent research efforts by utilities themselves and by states that produce high-sulfur coal and want to maintain the prod

uct's sales. Moreover, the energy security benefit of increased coal use would be negligible, because coal today substitutes for oil in very few applications.

Alternatively, continued CCTP funding could hasten deployment of control and abatement technologies that would provide social benefits beyond what electric utilities would be willing to pay for under the Clean Air Act Amendments. Those benefits could come in the form of cleaner air and economic support for electricity consumers in general and for coal-producing regions in particular.

This proposal would halt new appropriations for three block grant programs that support energy conservation activities by the states. In 1996, the biggest of those appropriations is for weatherization assistance ($112 million), followed by institutional conservation and state energy conservation ($26 million). This option would halt new appropriations for those grant programs, saving $34 million in 1997 outlays and $689 million in outlays from 1997 through 2002 measured against the 1996 funding level. The option would save $35 million in 1997 outlays and $753 million in outlays from 1997 through 2002 measured against the 1996 level adjusted for inflation.

The Weatherization Assistance Program helps low-income households reduce their energy bills by funding such activities as installing weather stripping, storm windows, and insulation. The states have reported to the Department of Energy (DOE) that about 4 million homes have been weatherized since 1977, when the program began. The Institutional Grant Program helps reduce the use of energy in educational and health care facilities by adding federal funds to private and local public spending to encourage local investment in building improvements. And the State Energy Conservation Program funds projects that, for example, establish energy-efficiency standards for buildings and promote public transportation and carpooling. Those three DOE programs are independent of a similar block grant activity, the Low Income Home Energy Assistance Program, ad

ministered by the Department of Housing and Urban Development.

Federal grants to promote less consumption of energy are in many respects an artifact of the mid1970s and the widespread concerns about energy security--for all sources, including oil, natural gas, and coal--prevalent at that time. Today, those concerns are more correctly focused on imported oil supplies. Little benefit to the cause of oil-supply security can come from state grant programs that help reduce residential and institutional demand for natural gas and coal-generated electricity. And although the government has attached some urgency to the need to reduce energy use for environmental reasons, federal support for reducing the use of gas and coal through conservation grants for security or environmental needs is clearly at odds with other federal policies that simultaneously promote the production and use of those fuels.

In any case, the large savings of energy that states claim for these conservation programs may be overstated. Those claims have never been subjected to critical analysis by DOE or by any of the Congressional support agencies. According to DOE, total annual savings are on the order of 4.7 quadrillion Btus (British thermal units), a questionable result given that the figure represents over 15 percent of current energy use in the residential and commercial sectors. In contrast, the 4 million homes that DOE reports have benefited from energy conservation