from Energy, Security, and Climate and Energy Security and Climate Change Program

Has Government Spending on Energy Research Been a Waste?

November 14, 2011

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Steve Mufson had a piece in the Washington Post Outlook section this past weekend suggesting that the $172 billion that the U.S. government has spent on early stage energy research since 1961 has largely been a waste. (I say “suggesting” rather than “arguing” because Steve doesn’t quite make the point explicitly; that said, it’s hard to read his essay without being nudged toward that conclusion.) There’s a lot of smart stuff in the piece, but in the end, it’s unconvincing.

The basic reason is simple: it doesn’t take much for $172 billion of spending on energy innovation to pay off. U.S. consumers spent roughly $30 trillion on primary fuels and electricity infrastructure between 1970 and 2009. (Data from here; I’ve adjusted everything to 2005 dollars.) That doesn’t include all the money spent on energy consuming technologies like automobiles and air conditioners. Even ignoring that, though, one can loosely conclude that if government spending lowered either energy prices or consumption by a mere 0.5 percent, it was worthwhile. (I say loosely because lower prices or consumption aren’t pure savings; part of them would be a decreased resource transfer within the United States. That said, the same is true of treating government spending as a pure cost.) If I had the data to include spending on cars, trucks, and other energy-using technologies, that threshold would be even lower. (Spending on cars, for example, is currently similar to spending on the gasoline they use.) It’s not hard to imagine ways that government spending could have paid off at least this much, whether through technologies that made cars more efficient, natural gas extraction more feasible, or nuclear power safer for a given cost. Indeed government would need to be spectacularly ineffective to not have generated a positive return on its investment.

The same argument can’t be made for private venture capitalists. Energy VCs can fail for two basic reasons: they can pursue technologies that are destined to be turkeys, or they can pursue good technologies but still fail to capitalize on them (e.g. by losing the relevant market to a competitor). Governments have a massive edge here: it’s a lot harder for them to fail in the second way. (Yes, manufacturing can migrate to other countries, but U.S. consumers still benefit from lower prices.) That’s a big part of why, despite a record marked with failures of the first kind, government investment in energy research is generally pretty wise.

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