President Obama's Budget Would Invest in Energy Innovation

President Obama released his fiscal year 2012 budget proposal this morning, a solid endorsement of the necessity to increase public investment in energy innovation amidst proposals to indiscriminately cut discretionary spending across all federal programs. The President's budget proposal builds off of the innovation-centered economic growth strategy presented in the State of the Union Address last month and the White House Innovation Report released two weeks ago.

On the energy investment front, the budget proposal aims to increase the DOE's budget by 11.8 percent over FY2010's current appropriation levels, or $3.1 billion dollars, a comparatively small increase in an overall budget proposal of $3.7 trillion that proposes reducing the projected deficit by roughly $110 billion per year for the next ten years.

This budget increase is a vital step towards meeting the scale of the energy innovation challenge long-underlined by the Breakthrough Institute and by a general consensus of leading energy innovation experts, think tanks, and policymakers.

However, not all of these increases lie with funding for energy innovation. Using the Energy Innovation Tracker, a tool that compiles federal energy-innovation funding across nine federal agencies for the years 2009-2011, inclusive of ARRA, we've broken out investments in energy innovation (defined in the tracker as Basic Science, RD&D, and Education investments) from general energy investments in measures such as deployment, facility construction, and program management.

To do so, we've calculated the share of total budgets for each of these programs in FY2010 dedicated to energy innovation spending, and have assumed, for discussion's sake, that an equal proportion of each proposed FY2012 program budget is intended for energy innovation spending. The FY2010 budget is used rather than FY2011 budget request, as federal agencies are currently operating with a continuing resolution under FY2010 budget levels. The summary table for a selection of these energy innovation measures is presented below. Please note that these are ballpark figures. For a more extensive discussion of the methodology behind these assumptions, see the bullets at the end of this post.

Selected DOE Program Energy Innovation Budgets, FY2010 and Estimated Proposed FY2012 ($ millions)

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In addition to these budgetary increases:

• The Administration is proposing an additional $5 billion investment for the Section 48C Advanced Energy Manufacturing Tax Credit program, which provides a 30% tax credit for energy manufacturing facilities to encourage advanced manufacturing processes.

• The budget also proposes increasing funding for several of the DOE's loan guarantee programs, aiming to scale-up loan guarantees for the development and deployment of innovative renewable energy and energy efficiency technologies, nuclear power projects, and advanced technology vehicle manufacturing.

• Budget increases will be funded through the proposed reform of fossil fuel energy spending, through the elimination of tax subsidies for the oil and gas industry and a 45% cut to DOE fossil energy research programs. Hydrogen research and a few other programs also receive targeted reductions in the budget request.

These elements of President Obama's proposed budget are key moves towards the larger energy innovation system reform advocated for by several leading innovation scholars in "Post-Partisan Power", and in "Jumpstarting a Clean Energy Revolution with a National Institutes of Energy" a 2009 report published by the Breakthrough Institute and Third Way.

With these proposed investments across the energy innovation cycle, from research in breakthrough technologies to investments in advanced manufacturing and demonstration of later-stage technologies, the proposal recognizes that public investments in energy innovation are not just critical to the nation's energy future, but also to securing the country's economic prosperity. The proposal adds to a growing chorus of voices on both sides of the political spectrum that recognize that smart, targeted investments, rather than sweeping spending cuts, can be used to spark innovation and overcome the fiscal deficit.

The President's proposed budget is an important first step towards meeting this country's energy innovation imperative. Now, it remains to be seen if the budget proposal is largely symbolic, or if the President is fully committed to making this case to the American public and to winning over conservative policymakers and fiscal hawks who have been reluctant to embrace an innovation-focused strategy for fiscal responsibility and economic renewal.

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*Calculations for share of proposed FY12 budget devoted to energy innovation for the Office of Fossil Energy differed from calculations used for other offices, as the Administration stated throughout the proposed budget its goal of phasing out inefficient fossil fuel subsidies. Thus, it was assumed that the proportion of budget devoted to energy innovation would have increased in the FY12 proposed budget, and this share was calculated by summing: the changes listed in the FY12 proposed budget for the Carbon Capture & Power Systems Programs, the Advanced Energy Systems Programs, and a portion of the FY10 energy innovation budget that was assumed to be unchanged from lack of indication otherwise.

• The DOE's Office of Science (OS)'s budget is proposed to increase by 9.2 percent from FY2010 appropriation levels to $5.4 billion, mostly to continue funding basic energy research and to fund workforce development programs. However, not all of the Office of Science's funding goes towards energy science research, as the office also is a major funder of the nation's fundamental physical science research. With approximately $1 billion, or 20%, of the Office of Science's FY2010 budget devoted to basic energy science research, $1.1 billion, an increase of $100 million over FY10, of the OS' budget will be devoted to basic energy science through this proposed budget.

• The Administration is requesting a $550 million for the Advanced Research Projects Agency-Energy (ARPA-E) to continue funding early-stage transformational energy research projects, an increase of $350 million from ARPA-E's original funding of $400 million over two years through the ARRA stimulus package. 88% of ARPA-E's funding through ARRA was apportioned to energy-innovation RD&D, thus about $487 million of this $550 million can be expected to be spent on energy-innovation RD&D through the FY12 proposed budget.

• The budget proposes an increase in funding for the DOE's Office of Energy Efficiency and Renewable Energy (EERE)'s budget, from $2.2 billion in FY10 to $3.2 billion, to continue funding research, development, demonstration and deployment on renewable energy and energy efficiency technologies. Of EERE's FY10 budget, 48% was spent on energy innovation-related RD&D and training programs, thus we can assume roughly $1.5 billion will be spent to energy-innovation related programs through the FY12 proposed budget.

o In the vehicle technology realm, the Administration proposes an 93% increase in the DOE EERE's Vehicle Technologies budget to $588 million to advance R&D for innovative transportation technologies. With an 80% dedicated to energy innovation funding in FY2010, we can assume that almost $486 million will be spent on energy innovation related projects in the Vehicle Technologies program through the proposed budget.

• The Administration is proposing a decrease of 0.6% in the Office of Nuclear Energy's (NE) budget, from $858 million to $853 million. 40% of NE's FY10's budget went towards energy-innovation spending, and resultantly we would expect about $349 million of Obama's proposed Office of Nuclear Energy budget to go towards nuclear energy innovation projects.

o Amidst growing interest in the Small Modular Reactor (SMR) technology, the FY 2011 DOE budget request was the first to propose a project specifically geared towards supporting RD&D of SMR technologies, a $39 million project through the Reactor Concepts RD&D program. Obama's budget proposes a $125 million budget for the Reactor Concepts R&D program, which will reportedly include R&D on advanced SMR designs.

• The proposal includes funding to launch three additional Energy Innovation Hubs, to bring the total number of DOE Energy Innovation Hubs to six, two shy of the eight hubs advocated for by the Breakthrough Institute and a coalition of think tanks in a policy report on the reauthorization of the America COMPETES Act. These three new hubs would focus on batteries and energy storage, smart grid technologies and systems, and critical advanced materials. The three original Energy Innovation Hubs received funding of approximately $22 million each in FY2010, and are conducting research in the areas of Energy Efficient Buildings, Fuels from Sunlight, and Modeling and Simulation for Nuclear Reactors.