The New Geopolitics of Energy
The federal budget that U.S. President Donald Trump unveiled in March has attracted intense and diverse criticism. If enacted, it would slash funding for environmental protection, the arts, and public broadcasting while boosting military spending. But one category of proposed cuts has mostly flown under the radar. The budget would strip the United States of its position as the world’s leading funder of innovative energy technologies by eliminating over a third of public spending in that field and cutting nearly 70 percent of the funding in targeted technology areas, such as renewable energy.
That would be a mistake. Without strong government support for energy innovation, the United States will fall further behind in the global race to command the industries of the future, from next-generation batteries to meltdown-proof nuclear reactors. China already dominates the production of existing clean energy technologies, and it is ramping up its investments in new ones in order to extend its lead for decades. The United States cannot afford to move in the opposite direction.
Nor is this all. Ending international collaboration on developing new energy technologies would cost the United States diplomatic leverage among the many countries that value such collaboration, such as Japan, China, and India. And as one of us (Varun Sivaram) argued in an article coauthored with Teryn Norris in Foreign Affairs last year, limiting global climate change will be “expensive, complicated, and unpopular” without new, low-carbon energy technologies. The United States will be the best-positioned country in the world to develop those technologies, unless it cuts its funding for them.
Although the budget is unlikely to pass, public funding for innovative energy technologies is still at risk. Congress should not only protect such funding—it should demand an increase in the government’s support for research, development, and demonstration (RD&D) in the field.
At first glance, the proposed budget appears to spare energy research from funding cuts. Whereas the Environmental Protection Agency’s budget is slated for a decrease of around 30 percent, the Department of Energy (DOE) would see a comparatively small trim of just over five percent.
This appearance is deceiving. Most of the DOE’s budget funds the maintenance of the U.S. nuclear weapons arsenal and the cleanup of nuclear test sites. The budget would modestly increase the funding for those activities, concentrating DOE cuts in the offices responsible for advancing new energy technologies. In fact, if DOE’s energy innovation portfolio were its own agency, its cuts would exceed those proposed for the EPA in proportional terms. Some $2 billion in cuts are proposed across the DOE’s applied energy programs, shrinking those programs’ cumulative budget nearly in half, from a little over $4 billion.
The administration has not yet fully explained how it would distribute such a dramatic reduction in funding (a more detailed budget blueprint is expected in the coming weeks.) But cuts so deep are sure to hit bone, and the details that have emerged so far suggest that some offices could lose most of their funding. The Office of Energy Efficiency and Renewable Energy, which funds the National Renewable Energy Laboratory, a global leader in cutting-edge research on a range of clean energy technologies, is slated for a budget cut of nearly 70 percent. The Office of Electricity is also likely to be hit hard. That office funds, among other priorities, technologies to modernize the power grid—an urgent need, given the grid’s vulnerability to physical and cyber attacks. And despite the Trump administration’s affinity for nuclear and fossil fuels, the Office of Nuclear Energy is targeted to lose nearly a third of its funding, while the budget of the Office of Fossil Energy would be cut by more than half.
The budget’s most startling proposal would entirely eliminate the DOE’s Advanced Research Projects Agency-Energy. ARPA-E funds potentially transformative energy technologies, much as the Pentagon’s DARPA makes long-shot bets on advanced military innovations, and it enjoys strong, bipartisan support in Congress. That is a result of the agency’s farsighted approach and the fact that its projects often attract private-sector investments that exceed the initial public funding they receive.
The Trump administration’s rationale for the proposed cuts is that betting on new technologies and funding their precommercial development should be left to the private sector. But there is no evidence for the argument that the market can compensate for a smaller public role in applied technology development. That theory was proved false in the 1980s, when U.S. President Ronald Reagan slashed public funding for energy RD&D. Between 1985 and 1995, private investment in developing new energy technologies fell by about 50 percent. (The Trump administration’s logic suggests that the government’s role should be limited to backing basic research—yet the proposed budget would prune the basic research budget of the DOE’s Office of Science, too, by 20 percent.)
Just as increased U.S. government support could help American entrepreneurs and companies compete for shares of existing sectors, so too could it help create entirely new markets.
There are a few reasons why private investment tends to falter without government support. Chief among these are the barriers that keep new energy technologies from entering the market and discourage investors and firms from backing RD&D. Fossil-fuel firms enjoy government subsidies and the advantages of long-standing market presences. Monopolies such as electric utilities are loath to change the sources of their power. And energy technologies require far more time and money to grow from inventions to commercially viable products than do, for example, smartphone applications.
Governments can step in to fill these gaps—and they should, by backing basic research, supporting the development of new technologies, and underwriting the commercial-scale demonstrations of new products that attract private-sector investment.
Chinese officials understand this. Beijing’s goal is to boost its yearly spending on energy RD&D from around $4 billion today to nearly $8 billion by 2021. If the United States were to slash its funding in that field by over a third, as has been proposed, it would allow China to reinforce its existing dominance in the clean energy sector and extend its advantages for years to come. China already leads in the production of solar panels, batteries, and wind turbines—technologies that the private sector spends nearly $300 billion a year deploying around the world. Without investing in innovation, the United States has no shot at competing. On the other hand, if the United States can develop much more efficient solar materials, energy-dense batteries, or cheaper offshore wind turbines, then American firms could cut into China’s lead. Doing so will require the United States to at least live up to its commitment, made at the 2015 Paris Climate Change Conference, to double public funding for energy RD&D to $13 billion annually.
Just as increased U.S. government support could help American entrepreneurs and companies compete for shares of existing sectors, so too could it help create entirely new markets. The United States could fund efforts to use the technologies of hydraulic fracturing, or fracking, to open underground geothermal reservoirs whose heat could be tapped to generate electricity. Washington could also lead the development of technologies that capture and store the carbon dioxide produced by fossil-fueled plants—a technology that would be wildly popular around the world if it were to become cost-effective. The proposed budget bets that the private sector could just as easily commercialize such technologies. It is more likely that China will produce and profit from them instead.
Although the details of the budget are still unclear, it is safe to bet that the DOE’s international programs would be among the first to be axed, given the Trump administration’s interest in cutting funding for diplomacy across the U.S. government. Those programs include the technical assistance that the U.S. National Laboratories provide to other countries to build their own capacities to pursue energy RD&D, and the collaborative initiatives that aim to unite Americans and researchers from such countries as China and India to develop new technologies. (Such programs are often equipped with safeguards to prevent the theft of intellectual property.)
These initiatives cost little and help Washington gain the goodwill of other governments. Consider the case of Japan’s efforts to develop technology to harvest undersea deposits of methane hydrate, a frozen form of natural gas. Tokyo has eagerly sought the United States’ help in that push. (That is partly because tapping undersea methane hydrates would reduce Japan’s reliance on fuel imports.) In this case, a small amount of American assistance—a tiny fraction of one percent of the U.S. energy RD&D budget—could go a long way toward aiding a close U.S. ally while also helping to develop new energy resources along the United States’ own shores.
Cooperation with China is another example. The U.S.-China Clean Energy Research Center was a consistent area of collaboration between former U.S. President Barack Obama and Chinese President Xi Jinping, even as the two leaders disagreed over security, economic, and human-rights issues. The Trump administration would do well to advocate funding the initiative, since it is a bright spot in an otherwise difficult relationship—especially if Washington intends to solicit Beijing’s cooperation over North Korea.
More broadly, the United States accrued a great deal of goodwill around the world when it spearheaded an international pact to double global funding for energy research and development in 2015. By reneging on its own commitment, Washington would damage its diplomatic credibility.
The good news is that Congress, not the administration, will decide whether to prioritize energy innovation, and a number of Republican lawmakers have already criticized the proposed budget. (Senator Lindsey Graham has called it “dead on arrival.”) In particular, it is unlikely that ARPA-E will be completely eliminated, given the broad and bipartisan support it enjoys. And the continuing resolution that Congress passed last month to temporarily fund the government actually increased funding for ARPA-E and energy RD&D in general.
But there is still cause for concern. If history is any guide, presidents do not always get everything they propose in their budgets, but Congress tends to meet them halfway. In the case of the Department of Energy, that could still lead to a reduction in the funding available for innovative energy research and development projects—a reduction that the United States cannot afford.
Replacing deep cuts with shallower ones would be the wrong choice. It is time to increase the country’s investments in energy innovation—and that means expanding ARPA-E, funding more basic research, and growing the Department of Energy’s applied energy portfolio.