Department of Energy: Proposed Budget in Support of the President's
Climate Change Technology Initiative (Letter Report, 04/10/1998,
GAO/RCED-98-147).

In his State of the Union address, the President noted that the United
States has agreed with other nations to reduce its greenhouse gas
emissions through market forces, new technologies, and energy
efficiency. The President has proposed spending $6.3 billion during the
next five years for the Climate Change Technology Initiative, which
would fund research and development and the deployment of new
technologies to reduce the amount of carbon dioxide emitted into the
atmosphere. The Energy Department (DOE) is expected to undertake most of
this initiative. This report provides (1) information on how DOE plans
to alter its climate change research and development spending from
fiscal year 1998 to fiscal year 1999 and (2) GAO's observations on
funding for research and development.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-98-147
     TITLE:  Department of Energy: Proposed Budget in Support of the
	     President's Climate Change Technology Initiative
      DATE:  04/10/1998
   SUBJECT:  Research program management
	     Budget outlays
	     Energy research
	     Air pollution control
	     Research and development
	     Funds management
	     Atmospheric research
	     Thermal pollution
	     Presidential budgets
IDENTIFIER:  DOE Climate Change Technology Initiative
	     DOE Vision 21 Program

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GAO/RCED-98-147

Cover
================================================================ COVER

Report to the Chairman, Committee on the Budget, House of
Representatives

April 1998

DEPARTMENT OF ENERGY - PROPOSED
BUDGET IN SUPPORT OF THE
PRESIDENT'S CLIMATE CHANGE
TECHNOLOGY INITIATIVE

GAO/RCED-98-147

DOE's Climate Change Technology Initiative

(141174)

Abbreviations
=============================================================== ABBREV

  R&D -
  DOE -
  NIST -

Letter
=============================================================== LETTER

B-279612

April 10, 1998

The Honorable John R.  Kasich
Chairman, Committee on the Budget
House of Representatives

Dear Mr.  Chairman:

Increasingly, emissions of carbon dioxide and other heat-trapping
"greenhouse gases" from energy production, industry, transportation,
agriculture, and other human activities are becoming concentrated in
the earth's atmosphere.  Many scientists believe that the buildup of
these gases is creating a greenhouse effect that will lead to global
warming.  Global climate changes could influence weather patterns,
including shifts in precipitation patterns that could lead to
flooding, changes in crop yields, and changes in ecosystems.  In his
State of the Union address, the President noted that the United
States has agreed with other nations to reduce its greenhouse gas
emissions through market forces, new technologies, and energy
efficiency.  In support of this agreement, the President proposed
$6.3 billion over the next 5 years for the Climate Change Technology
Initiative, which would fund research and development (R&D) and the
deployment of new technologies to encourage energy efficiency,
renewable energy, and technologies to reduce the amount of carbon
dioxide emitted into the atmosphere, as well as provides tax
incentives.  The Department of Energy (DOE) is expected to implement
the largest portion of this initiative through its programs and
activities.

As requested, we are providing you with (1) information on how DOE
plans to alter its climate change R&D spending from fiscal year 1998
to fiscal year 1999 and (2) our observations regarding funding for
R&D, based on our previous work in this area.  On March 12, 1998, we
briefed your staff on the results of our work and agreed to provide
you with this report summarizing our findings.  (App.  I provides our
briefing materials.)

   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

DOE is proposing to increase its spending to about $1.06 billion for
R&D in fiscal year 1999 to support the Climate Change Technology
Initiative, a $331 million increase from funding in fiscal year 1998
for programs related to climate change.  The $331 million increase as
well as the remaining $729 million will continue to support and
expand existing R&D programs in energy efficiency and renewable
energy as well as other programs related to climate change.  Total
funding, according to DOE, will address multiple energy and
environmental goals, including decreasing the United States'
dependence on foreign oil, improving air quality, decreasing energy
costs for consumers and businesses, increasing economic
competitiveness, and cutting greenhouse gas emissions.

From reviewing our previous reports on R&D, we have drawn five common
themes, stated here as questions, that the Congress may want to
consider as it deliberates DOE's budget proposal:  (1) Would the
private sector do the research without federal funding?; (2) Will
consumers buy the product?; (3) Do the benefits exceed the costs?;
(4) Have efforts been coordinated?; and, (5) Have implementation
concerns been addressed?

   DOE'S CLIMATE CHANGE R&D
   FUNDING
------------------------------------------------------------ Letter :2

Overall, DOE is proposing to increase its budgetary authority of $729
million in fiscal year 1998 to about $1.06 billion for R&D in fiscal
year 1999 in support of the Climate Change Technology Initiative.
The $331 million increase in R&D funding will, according to DOE,
expand the most promising R&D programs and accelerate the development
of energy technologies in six organizations of the Department:
Energy Efficiency, Renewable Energy, Fossil Energy, Nuclear Energy,
Energy Research, and the Energy Information Administration.  The
largest increase in DOE's climate change R&D funding would occur in
Energy Efficiency and Renewable Energy, where the combined fiscal
year 1999 funding would be increased by about $261 million over the
fiscal year 1998 level--from about $729 million to about $990
million.  Increased R&D funding in these areas will, according to
DOE, help to develop high-efficiency vehicles; alternative vehicle
fuels, such as "biofuels" from plants or waste; more energy-efficient
buildings; higher-efficiency industrial processes; and solar and wind
systems; among other projects.  DOE officials said that the use of
these technologies will help to reduce carbon dioxide emissions into
the atmosphere as well as satisfy other energy and environmental
goals.

The remaining $70 million will increase funding in the other four
organizations, with Fossil Energy and Energy Research receiving the
next largest shares of about $30 million and $27 million,
respectively.  A key effort in fossil energy R&D will be the
Department's Vision 21 Program, which will focus on combining several
energy technologies into a single ultra-high-efficient system that is
expected to reduce energy consumption and emissions.  The increase
for Energy Research will fund a broad range of basic scientific
research focused on long-term solutions to climate change.  Nuclear
Energy and the Energy Information Administration will receive the
remaining increase in funding.

   OBSERVATIONS REGARDING FEDERAL
   R&D
------------------------------------------------------------ Letter :3

According to DOE, it has historically supported a wide range of
energy R&D in eight program areas--with funding of about $61.8
billion from 1978 through 1995.\1 As we have reported previously,
while the amount of money spent on R&D is useful as a measure of how
much research is being performed, it is not a good indication of the
results of research.\2 From reviewing our previous reports, we have
drawn the following five common themes, stated as questions, that may
help the Congress consider DOE's proposed R&D budget:\3

Would the private sector do the research without federal funding?
Our work suggests federal R&D programs sometimes displace research
that private industry may have done without government funding.  For
example, in our 1996 report on the Department of Commerce's Advanced
Technology Program, we found that about 40 percent of the award
recipients said they would have conducted the research without
assistance from the program.\4

Will consumers buy the product?  One of the keys to successful
research is that the resulting technology will be competitive in the
marketplace.  In our 1995 report on the United States Advanced
Battery Consortium's development of batteries for electric vehicles,
we found that, although the consortium may reach its technological
midterm goals for the batteries, the vehicles that use them will be
too expensive and will not perform well enough to compete with
traditional automobiles.  Moreover, members of the consortium from
the automobile industry believed large subsidies would be needed to
sell cars with midterm batteries.  These members also doubted that
vehicles with midterm batteries would achieve any significant market
penetration.\5

Do the benefits exceed the costs?  Our previous work suggests the
federal government has a mixed record in estimating the costs and
benefits of federally funded R&D.  In our 1996 review of DOE's
Success Stories report, we noted that the Department had made valid
claims about the benefits of a few of the technologies.  Some of
these benefits may be substantial, but, in most cases, DOE did not
state how much it spent developing the technologies or had problems
with its analyses.\6

Have efforts been coordinated?  Ensuring that DOE's R&D is consistent
with other federal R&D efforts and with its mission statement and
strategic plan under the Government Performance and Results Act of
1993 is important in order for the Department to limit duplication
and focus its funding effectively.  Furthermore, because many of the
Department's activities, such as the Partnership for a New Generation
of Vehicles, cut across a number of other federal agencies,
coordination with these agencies is essential.\7

Have implementation concerns been addressed?  Our past work has shown
that agencies sometimes do not have the administrative structure
needed to implement R&D projects effectively.  In a 1995 report on
unobligated funds in the Advanced Technology Program, we observed
that, in fiscal year 1995, the funding and the planned number of
awards for the program about doubled.\8 However, the National
Institute of Standards and Technology (NIST), the agency that
administers the program, did not increase its administrative staff at
the same rate to make the awards.  At the end of fiscal year 1995,
NIST had not made all its planned awards and carried over a
unobligated balance of $136.4 million.\9

In response to our questions, DOE said that it carefully considers
each of these questions when it formulates budget proposals.
According to DOE, proposals that do not successfully answer these
questions are not included in its budget request.

--------------------
\1 This figure is in constant 1995 dollars.

\2 Measuring Performance:  Strengths and Limitations of Research
Indicators (GAO/RCED-97-91, Mar.  21, 1997).

\3 We do not intend our five questions as an assessment of DOE's
performance in these areas.

\4 Measuring Performance:  The Advanced Technology Program and
Private-Sector Funding (GAO/RCED-96-47, Jan.  11, 1996).

\5 Electric Vehicles:  Efforts to Complete Advanced Battery Will
Require More Time and Funding (GAO/RCED-95-234, Aug.  17, 1995).

\6 DOE's Success Stories Report (GAO/RCED-96-120R, Apr.  15, 1996).

\7 The Partnership for a New Generation of Vehicles is an
industry-government cooperative partnership between Chrysler, Ford,
and General Motors and 11 federal agencies or entities to (1) develop
manufacturing techniques to reduce the time and cost of automotive
development, (2) improve fuel efficiency and emissions performance,
and (3) develop a vehicle with triple the fuel efficiency of today's
midsize cars while maintaining or improving safety, performance,
emissions, and price.

\8 NIST's Unobligated Funds (GAO/RCED-95-166R, May 4, 1995).

\9 NIST Carryover Balances (GAO/RCED-97-144R, Apr.  30, 1997).

   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :4

We conducted our review from January 20, 1998, through March 1998 in
accordance with generally accepted government auditing standards.  We
reviewed DOE's fiscal year 1998 estimated discretionary budget
authority and compared it to the Department's proposed fiscal year
1999 budget for the Climate Change Technology Initiative.  We spoke
with DOE officials in each of the major program divisions involved in
the Initiative, including Energy Efficiency, Renewable Energy, Fossil
Energy, Nuclear Energy, Energy Research, and the Energy Information
Administration.  To develop our observations about R&D, we reviewed
and summarized GAO reports and testimonies on R&D since 1990.

   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :5

We provided a copy of our report to DOE for its review and comment.
We obtained comments on the results of our work from the Department,
including the Assistant Secretary, Energy Efficiency and Renewable
Energy and one of his directors.  DOE agreed with the funding
information presented in this report and provided two general
comments.

First, DOE said that the report should clearly state that both the
base programs and the increases associated with the Climate Change
Technology Initiative are designed to meet multiple objectives--not
exclusively reducing greenhouse gas emissions.  Furthermore, DOE said
that the increase is for an expansion of work on the most promising
technologies.  We modified the text to include DOE's multiple
objectives and to note that DOE's expanded funding will target the
most promising technologies.

Second, DOE agreed that the five questions we raised are appropriate
in the consideration of R&D funding.  However, DOE said that the
report attempts to provide or imply answers to each question that are
uniformly negative and are based on marginally relevant examples.  We
do not intend our five questions as an assessment of DOE's
performance in these areas.  Rather, we cite previous reports to
illustrate that these are areas that the Congress may want to
consider when funding any R&D.  Therefore, we provide examples from
reports concerning DOE and other agencies.  To address this comment,
we modified the text to better explain the intent of our questions
and the means by which DOE chooses its proposals.

---------------------------------------------------------- Letter :5.1

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 14 days
from the date of this letter.  At that time, we will make copies of
this report available to others upon request.

If you have any questions or need additional information, please
contact me on (202) 512-3841.  Major contributors to this report were
Daren Sweeney, John Johnson, and Daniel Haas.

Sincerely yours,

Victor S.  Rezendes
Director, Energy, Resources,
 and Science Issues

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