Energy Innovation Harmed in Proposed Cuts: Industry and Lawmakers

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By Rebecca Kern

Tesla Inc., one of the most successful electric car companies in the world, was largely saved from bankruptcy by a $465 million loan from the Energy Department in 2010.

It’s a story Robert Edwards likes to tell. Edwards was the deputy general counsel for energy policy at the Department of Energy who negotiated the Tesla loan as well as a $5.9 billion loan to Ford Motor Co. in 2009, which he said helped keep the automaker on track with its clean vehicles program and saved or created 33,000 jobs.

“The DOE loan programs office is functioning like a clean development bank and has a track record of creating tens of thousands of jobs through successful loans,” Edwards, now a partner in the Washington offices of Kilpatrick Townsend & Stockton LLP, told Bloomberg BNA.

Under the Trump administration’s proposed fiscal year 2018 budget blueprint, however, the loan program would be scrapped, as would the Energy Department’s Advanced Research Projects Agency-Energy program. ARPA-E, created during the administration of President George W. Bush, invests in early-stage, high-risk energy technologies that have potential to transform the nation’s energy system.

If the proposed the Department of Energy cuts go through, the U.S. could lose its leadership role in clean energy technology and innovation, business leaders, former DOE officials and members of Congress say. The funds are used for industry and academic research in clean energy technologies, as well as research at DOE labs. Backers of DOE funding say this fills voids for early-stage research that may be too risky for private investment.

The Trump administration said in the budget blueprint that the federal government would focus on early-stage research and leave later-stage research to private sources. The White House and Energy Department declined to provide details in response to queries about how the early-stage work would be done if ARPA-E were cut.

“Zeroing ARPA-E would be a profound loss in terms of America’s competitiveness,” Norman Augustine, a member of the American Energy Innovation Council, told Bloomberg BNA. “APRA-E is one of the bright spots in terms of introducing new ideas in how the government can be more effective. This is really one thing that the government really does need to do because industry not only can’t but won’t.”

The council consists of corporate leaders, including Microsoft founder Bill Gates, who advocate for U.S. commitment to energy innovation. In an April 5 report the council, a part of the Bipartisan Policy Center, recommended funding $1 billion per year to ARPA-E.

“Innovation is big business. The United States is really one of the leaders in energy innovation, and DOE plays a really critical role in that,” Matt Roberts, executive director of the Energy Storage Association, which represents the battery storage technology industry, told Bloomberg BNA. All sectors, from fossil fuels to renewables, “are impacted by much of the holistic and science work that the Department of Energy has been a key player in.”

Lynn Orr, the former Undersecretary of Energy and Science from 2014 to 2017, said the cuts would reduce work at the DOE’s 17 national labs. “Those level of cuts would also impact our ability to compete internationally on the whole exascale computing area,” he told Bloomberg BNA.

Sen. Maria Cantwell (D-Wash.) and 18 other Democratic senators criticized the proposed Energy Department cuts in a March 29 letter to President Donald Trump, saying, “Your budget proposal would jeopardize the very science and technology programs that you value, undermining U.S. energy leadership and killing American jobs.”

The March 16 budget blueprint also proposes cutting $2 billion (an approximately 50 percent cut) from the four DOE applied science offices: Energy Efficiency and Renewable Energy, Nuclear Energy, Electricity Delivery and Energy Reliability, and Fossil Energy.

In total, the administration is proposing a nearly 18 percent funding cut to the department’s science and energy offices, while increasing the remainder of the budget, which goes to the National Nuclear Security Administration, a semi-autonomous sub-agency that oversees the country’s nuclear weapons stockpile, by approximately 11 percent.

The cuts haven’t been well received by members in both chambers of the energy and water appropriation subcommittees, which oversee DOE’s appropriations. The White House plans to submit its final and more detailed fiscal year 2018 budget proposal to Congress in mid-May. Then the appropriation subcommittees will hold hearings to develop the DOE budget, and Congress will vote on it.

Impact on Clean Energy Technology, Jobs

The energy industry says the proposed funding decreases, if approved, would slow U.S. energy technology development and cost jobs.

The cuts, especially energy efficiency programs in the Office of Energy Efficiency and Renewable Energy, are short-sighted, Ben Evans, vice president of communications at the Alliance to Save Energy, a nonprofit, bipartisan coalition of businesses, government and environmental leaders, told Bloomberg BNA.

“You are losing huge savings,” he said. He cited a DOE statistic that consumers could save up to $35 billion by 2030 due to energy efficiency standards put in place by the DOE. He said the energy efficiency sector employs 2.2 million people in the U.S., and those jobs would be at stake.

Likewise, the DOE wind energy program has been very helpful in driving down the cost of wind energy, dropping costs by two-thirds in seven years, Aaron Severn, senior director for federal legislative affairs at the American Wind Energy Association, a trade group, told Bloomberg BNA.

Mary Anne Sullivan, a former general counsel for the DOE under the Obama administration and a partner in the Washington office of Hogan Lovells, said that DOE research touches all sectors of the energy economy.

“There is scarcely an energy technology deployed today that did not get DOE money at some point in the past: oil and gas, nuclear, coal, solar, wind, hydro,” she told Bloomberg BNA.“Across the board, DOE has made major contributions to supporting the development of energy technologies that then get deployed to the private sector.”

Adam Ingols, a former chief of staff and energy adviser at DOE under the George W. Bush administration, said the proposed cuts would harm U.S. leadership.

“I agree with the administration that there’s plenty of fat to trim, particularly within the broader grants program, but as far as eliminating early-stage research, I think that could potentially come at the expense of our global competitiveness and certainly our energy technology development sector.” He said in an interview that even if ARPA-E is cut, more early-stage research can be done under the department’s Office of Science.

“I sincerely hope that they continue to protect the national laboratories,” he added. “It’s part of what really sets the U.S. apart from competitors globally. It’s work that cannot and will not be undertaken by the private sector.”

Opposition to Cuts in Congress

Sen. Dianne Feinstein (D-Calif.), the ranking member of the Senate Committee on Appropriations Energy and Water Subcommittee, said in a statement on the budget, “Slashing in half funding for energy research is disastrously short-sighted and contradictory.”

Sen. Lamar Alexander (R-Tenn.), chairman of the subcommittee, said in a statement that maintaining funding for the Department of Energy’s national labs is one of his priorities.

In the House, Rep. Dan Newhouse (R-Wash.), a member of the House Committee on Appropriations’ Energy and Water Subcommittee, said he worried about the effect of the proposed cuts on the Pacific Northwest National Laboratory, located in his district in Richland, Wash.

“Considering the Pacific Northwest National Laboratory’s importance to the Tri-Cities [Richland, Kennewick and Pasco] community, I am concerned with reductions that would undermine the Lab’s critical scientific and research and development work,” Newhouse told Bloomberg BNA in an email.

He said he plans to work with other members of Congress and the House Appropriations Committee “to ensure continuity for the countless innovative and groundbreaking scientific developments taking place at PNNL and across the national lab system.”

Requests for comment to Reps. Mike Simpson (R-Idaho) and Chuck Fleischmann (R-Tenn.), the chair and vice-chair of the subcommittee, were not returned. Both have national labs in their districts.

Influence of Heritage Foundation

The White House budget that Congress will consider has been influenced by the conservative Heritage Foundation.

Paul Winfree, formerly the director of the Thomas A. Roe Institute for Economic Policy Studies at Heritage, joined the White House in January as the director of budget policy and deputy director of the White House Domestic Policy Council.

Winfree was a lead author of the Heritage Foundation’s “ Blueprint for Balance” budget proposal for FY 2017 that proposed cutting ARPA-E, the energy loan program and all of the applied science offices, saying that this research and development was best left to the private sector.

Similarly, the White House budget blueprint says that private industry is “better positioned to finance disruptive energy research and development and to commercialize innovative technologies.”

“It boils down to what is a legitimate function of the federal government, and we believe that the market opportunity out there for innovative energy technology already exists,” Nicolas Loris, an economist at the Heritage Foundation, told Bloomberg BNA.

“When the federal government gets involved, not only does it pick winners and losers among technologies ... there’s an opportunity cost there in that even that basic research can’t be directed towards other things that may not get government funding,” he said.

William Yeatman, a senior fellow at the conservative Competitive Enterprise Institute, told Bloomberg BNA that his organization supports the proposed DOE cuts because they would be “diminishing the government’s capacity to subsidize industry.”

Ellen Williams, a former director of ARPA-E, however, disagreed that industry would take over all research.

“The very early-stage, high-risk technologies that ARPA-E is supporting, industry will not support,” she told Bloomberg BNA.

Since 2009, more than 70 projects developed under ARPA-E have gone on to raise $1.8 billion in private capital, Williams, now a professor at the University of Maryland, said.

“ARPA-E is not taking on any role that the private sector would do,” she said. “It’s really pushing these technologies forward to the point where they become ready for the private sector to assess them and decide whether to invest in them.”

To contact the reporter on this story: Rebecca Kern in Washington at rKern@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com

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