Fossil Fuel R&D: Lessons Learned in the Clean Coal Technology	 
Program (12-JUN-01, GAO-01-854T).				 
								 
The Department of Energy's (DOE) Clean Coal Technology program	 
provides cost-sharing assistance or partnerships with industry in
demonstrating the commercial applications of emerging		 
technologies, referred to as "clean coal." This testimony	 
discusses the successes DOE has reported, some weaknesses GAO	 
identified, and lessons learned in cost-sharing. GAO found that  
DOE has many examples of successes in the program, including	 
commercialization of some technologies--the primary way DOE	 
measures success. From a management perspective, many projects	 
had experienced delays, cost overruns, bankruptcies, and	 
performance problems. This program serves as an example to other 
cost-share programs in demonstrating how the government and the  
private sector can work effectively together to develop and	 
demonstrate new technologies.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-854T					        
    ACCNO:   A01174						        
    TITLE:   Fossil Fuel R&D: Lessons Learned in the Clean Coal       
             Technology Program                                               
     DATE:   06/12/2001 
  SUBJECT:   Coal						 
	     Cost sharing (finance)				 
	     Electric energy					 
	     Energy research					 
	     Fossil fuels					 
	     Interagency relations				 
	     Research and development				 
	     Research programs					 
	     DOE Clean Coal Technology Program			 

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GAO-01-854T
     
Testimony Before the Subcommittee on Energy, Committee on Science, House of
Representatives

United States General Accounting Office

GAO For Release on Delivery Expected at 10: 00 a. m., Tuesday, June 12, 2001
FOSSIL FUEL R& D

Lessons Learned in the Clean Coal Technology Program

Statement of Jim Wells Director, Natural Resources and Environment

GAO- 01- 854T

Page 1 GAO- 01- 854T Clean Coal Technology Program

Mr. Chairman and Members of the Subcommittee: We are pleased to be here
today to discuss our past work on the Department of Energy?s (DOE) Clean
Coal Technology program. As you know, the program was established in 1984 to
provide cost- sharing assistance or partnerships with industry in
demonstrating the commercial applications of emerging technologies, referred
to as ?clean coal.? The success of the demonstration program was tied to
creating technological innovations to help clean the environment, fuel an
expanding economy with more coal energy and new jobs, make the U. S. more
competitive, achieve commercial sales, and create new government- industry
partnerships.

DOE funded a variety of projects under the program. DOE was authorized to
fund up to 50 percent of an individual project?s cost, with nonfederal
participants funding the balance. DOE reported to us that the actual cost-
sharing was about 34 percent from DOE and 66 percent from industrial
participants. Overall, DOE has contributed about $1.8 billion, while the
private sector and other nonfederal participants have contributed about $3.
4 billion, for a combined commitment of about $5.2 billion.

In reporting on the status of the program last year, we noted that 24
projects had been completed, 16 were currently active, and 10 had terminated
or withdrawn. 1 No new projects have been started in the last 5 years. As of
October 1999, about $784 million of the available appropriations had not
been spent. Of that amount, DOE expected to use $589 million to complete the
projects and $66 million for program administration through fiscal year
2004. The Congress rescinded $441 million (from April 1995 through October
1998) in unobligated funds associated with terminated or restructured
projects. About $129 million remained unobligated.

The just- completed report of the White House National Energy Policy
Development Group is recommending that the Administration invest $2 billion
in a new restructured clean coal program over the next 10 years. In this
context, our testimony today focuses on the findings of our reviews of the
Clean Coal Technology program conducted over the last decade and

1 Budget Issues: Budgetary Implications of Selected GAO Work for Fiscal Year
2001

(GAO/ OCG- 00- 8, Mar. 31, 2000).

Page 2 GAO- 01- 854T Clean Coal Technology Program

the lessons that can be learned from past efforts on this front. In
particular, we want to discuss (1) the successes DOE has reported, (2) some
weaknesses we identified, and (3) lessons learned in cost- sharing.

In summary, the Clean Coal Technology program has had its ups and downs. DOE
has numerous examples of successes in the program, including
commercialization of some technologies- the primary way DOE measures
success. From a management perspective, we found that many projects had
experienced delays, cost overruns, bankruptcies, and performance problems.
We also expressed concerns about some of the projects DOE had selected.
Nevertheless, this program serves as an example to other cost- share
programs in demonstrating how the government and the private sector can work
effectively together to develop and demonstrate new technologies.

Although the Nation is heavily reliant on coal as a fuel source for
electricity generation, burning coal has well recognized environmental
consequences. Coal accounts for over 90 percent of the proven U. S. energy
reserves and supplies about half of the nation?s electricity. According to
the Environmental Protection Agency, coal- fired power plants produced about
63 percent of U. S. emissions of sulfur dioxide and about 19 percent of the
nitrogen oxides. When emitted into the air, these two gasses may be
transformed into tiny sulfate and nitrate particles, both of which may be
transported hundreds of miles away. These gases and substances can harm
human health and the environment in various ways. For example,

?acid rain?- formed when sulfate and nitrate particles are deposited by
precipitation- harms human health and damages forests, lakes, and streams.
In addition, global climate change has been linked, in part, to carbon
dioxide emissions from burning coal. To help address this problem, DOE began
exploring technologies to get the benefits of the nation?s huge coal
resources without the adverse environmental consequences. In fact, the Clean
Coal Technology program has been one of the largest environmental technology
development efforts the federal government has ever conducted.

The program has been implemented in a series of five solicitations for
project proposals (rounds of nationwide competitions) spread over 9 years.
Industry sponsors proposed demonstration projects in response to each
competitive solicitation, and DOE evaluated and selected projects on the
basis of evaluation criteria. The criteria include (1) the project?s
adequacy and technology?s readiness for the proposed demonstration,
Background

Page 3 GAO- 01- 854T Clean Coal Technology Program

(2) the sponsor?s commercialization plan and the technology?s potential
contribution to emission reductions, and (3) the sponsor?s plan for
financing the project. Each project was carried out and funded under a
cooperative agreement between DOE and the project?s sponsor. The sponsors
directed the design, construction, and operation of their projects, and DOE
oversaw project activities and assessed progress.

DOE has reported numerous successes in the program. 2 DOE noted that the
program has been highly successful in bringing a broad suite of clean,
efficient power technologies and control systems into the marketplace, which
is the program?s primary goal and which will provide the primary benefits to
the nation. DOE has completed 24 projects at a cost of about $400 million.
Of these, 15 had sales of a demonstrated clean coal technology- 3 in the
domestic market, 3 in the international market, and 9 in both. These 15
projects cost DOE $282 million and DOE reported that they are returning
billions in commercial sales in addition to numerous U. S and international
patents for technology. A specific example of the program?s success is a
total of 162 commercial units of two clean- coal technologies (the
atmospheric circulating fluidized- bed and the pressurized fluidized bed
combustion) either in operation or soon to be commissioned. These units are
distributed in Europe, Asia, and North America. Valued at $9 billion, they
represent a commercial return of over $9 for every $1 of DOE?s investment,
according to DOE. In addition, the technologies present an opportunity to
use low- quality coal. DOE also counts as a success the over 700 U. S. and
international patents awarded to domestic technology suppliers of advanced
electric power generation, environmental control, coal processing, and
industrial application technologies. These patents position U. S. industry
to compete for an estimated $480 billion export market over the next 30
years that will support more than 600,000 jobs in the U. S. power equipment
industry.

2 Clean Coal Technology: Status of Projects and Sales of Demonstrated
Technology

(GAO/ RCED- 00- 86R, Mar. 9, 2000). DOE- Reported

Successes in the Clean Coal Technology Program

Page 4 GAO- 01- 854T Clean Coal Technology Program

Over the years we identified numerous management weaknesses in the program.
In particular, we reported that multiple clean coal technology demonstration
projects experienced problems and difficulties in meeting cost, schedule,
and performance goals. As we reported last year, of 13 projects we examined,
8 had serious delays or financial problems- 6 were behind their original
schedules by 2 to 7 years, and 2 projects were bankrupt and will not be
completed. 3 The delays and cost overruns occurred, in part, because of
changes in a project?s site as well as a project?s participants. DOE
extended deadlines several times on some projects to allow their sponsors to
restructure the projects, find suitable alternative project sites, and
obtain financing commitments to make the projects economically viable.

On another front, in 1991, we questioned whether DOE had adequately
protected federal investments in the projects it funded. 4 For example, DOE
did not always comprehensively consider whether projects were likely to be
successfully completed when it provided additional funding to cover cost
increases. Some projects were withdrawn from the program after receiving
additional funds. Furthermore, DOE requires that project sponsors eventually
repay the federal investment from revenues resulting from the subsequent use
of the technologies. However, DOE reduced the likelihood of recouping its
investment by reducing the percent of sales revenues subject to repayment.

In addition, we reported on problems with DOE?s project selection process.
For example, we identified some projects demonstrating technologies that
might have been commercialized without federal assistance. We also
identified projects that might have limited potential for widespread use as
well as projects that have proven not to be economically viable. DOE
selected such projects to achieve a diversity of technologies. Although
these projects met DOE?s selection criteria, they may not be the most
effective use of federal funds.

3 Clean Coal Technology: Status of Projects and Sales of Demonstrated
Technology

(GAO/ RCED- 00- 86R, Mar. 9, 2000). 4 Fossil Fuels: Improvements Needed in
DOE?s Clean Coal Technology Program

(GAO/ RCED- 92- 17, Oct. 30, 1991). GAO- Reported

Weaknesses in the Clean Coal Technology Program

Page 5 GAO- 01- 854T Clean Coal Technology Program

In 1990, we also questioned the pace and focus of the program. 5 We noted
that many of the technologies selected for demonstration may have limited
potential for achieving nationwide emission reductions when used at existing
coal- burning facilities. Also, some of the selected projects may have
difficulty in successfully demonstrating, and ultimately commercializing,
their technologies. Given the selections that DOE made in its second round,
we were concerned that it may have problems in identifying and funding
additional promising projects in future rounds. Delaying subsequent rounds
until DOE obtained additional demonstration results from projects already in
the program would allow DOE to make more informed decisions regarding the
identification, selection, and funding of the more promising technologies.
It would also help ensure that the funds allocated to this program were
effectively and efficiently spent.

In a 1994 report, we noted that the Clean Coal Technology program offered an
example of the government and the private sector working together
effectively to develop and demonstrate new technologies. 6 We identified
lessons learned from the program that could be applied to other cost- share
programs. They included:

 Full funding (through advanced appropriations) to cover the total federal
share of project costs increases participant confidence that federal funds
will be available for multiyear projects.

 Cooperative agreements between the federal government and participants
allow participants more flexibility in managing their projects, providing
clear instructions on the roles and responsibilities of the government and
the nonfederal participants.

 Federal cost- sharing limits help to ensure the industry?s commitment.

 Early industry participation in developing solicitation documents helps
the industry to structure responsive proposals.

 A comprehensive process for evaluating and selecting projects and keeping
it free of political influence helps ensure the program?s integrity.

 Multiple, sequential solicitations for project proposals enable an agency
to modify the program?s objectives to meet changing needs and to benefit
from lessons learned.

5 Fossil Fuels: Pace and Focus of the Clean Coal Technology Program Need to
Be Assessed

(GAO/ RCED- 90- 67, Mar. 19, 1990). 6 Fossil Fuels: Lessons Learned in DOE?s
Clean Coal Technology Program

(GAO/ RCED- 94- 174, May 26, 1994). Cost- Sharing Lessons

Learned

Page 6 GAO- 01- 854T Clean Coal Technology Program

In conclusion, to address today?s energy challenges, the lessons learned
from the Clean Coal Technology program should be considered as the Congress
decides how to use future research dollars.

Mr. Chairman, this completes my prepared statement. I would be happy to
answer any questions you or Members of the Subcommittee may have.

(360106)
*** End of document. ***