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Expanded Energy R&D: How to Pay for It

Yesterday the President’s Council of Advisors on Science and Technology (PCAST) released a new report strongly recommending a substantial ramp-up in federal spending on energy research that would roughly triple current amounts to bring the total to $16 billion a year, with $12 billion of that going to  R&D and $4 billion to large-scale demonstration and deployment.  

This is all welcome and in line with multiple reports and blogs from the Metro Program as well as other recent exhortations, including a report released in June by a group of business leaders arrayed around Microsoft Corp. founder Bill Gates and another more recent one put together by myself and scholars from the American Enterprise Institute (AEI) and the Breakthrough Institute.

Yet what is noteworthy about the PCAST report--co-chaired by John Holdren, the director of the White House Office of Science and Eric Lander, director of the Harvard-MIT Broad Institute--is not so much the endorsement of the right sort of numbers for energy innovation but (for a change) the presence of a little harder thought about how to achieve them.

With the fiscal situation in Washington brutal and revenues from a cap-and-trade emissions pricing system nowhere in sight, paying for the needed R&D effort should be topics one, two, and three of Washington energy innovation discussion but it really hasn’t been.

Yet now the PCAST report weighs in with a page of serious suggestions for raising about $10 billion of the proposed $16 billion per year investment increase from “new revenue streams…outside the appropriations process.”

What might these revenue raisers consist of?  PCAST names three, including:

  • A “line charge” on coal-generated electricity to produce $1 billion per year for research, development, and deployment for advanced coal technologies such as carbon capture and sequestration
  • An “energy charge” of one mill / kilowatt-hour that could generate about $4 billion per year
  • A two cents per gallon transportation fuel charge that would generate another $4 billion a year

In addition, the PCAST agenda raises the matter of subsidy reform, albeit as a speculative matter of seeking first only to “understand the nature and extent” of provisions that may not be aligned with the Obama administration’s desire to move toward a lower-carbon energy system.

All of which ideas are extremely appropriate and dovetail very well with the sort of energy system revenue raisers I have been talking about based on my work with the AEI and Breakthrough folks.  In that work, we have been proposing such “pay-fors” as a small surcharge on electricity sales, increased oil and gas royalties, a small fee of imported oil, and the phase out of unproductive or counter-productive energy subsidies. It’s really good news, then, to see PCAST weighing in along similar lines and thereby helping to move the energy innovation debate beyond unproductive hand-wringing to serious considerations about how to pay for needed investments after the suspension of cap-and-trade discussions.