Impacts of Energy Research and Development (S.1766 Sections 1211-1245, and Corresponding Sections of H.R.4) With Analysis of Price-Anderson Act and Hydroelectric Relicensing

Introduction

On December 20, 2001 and February 6, 2002, Sen. Frank Murkowski, the Ranking Minority Member of the Senate Committee on Energy and Natural Resources, requested an analysis of selected portions of Senate Bill 1766 (S. 1766, the Energy Policy Act of 2002) and House Resolution 4 (H.R.4, the Securing America’s Future Energy Act of 2001)¹. In response, the Energy Information Administration (EIA) has prepared a series of analyses showing the impacts of each of the selected provisions of the bills on energy supply, demand, and prices, macroeconomic variables where feasible, import dependence, and emissions. The analysis provided is based on the Annual Energy Outlook 2002² (AEO2002) midterm forecasts of energy supply, demand and prices through 2020. This report deals primarily with the Research and Development provisions of S. 1766, organized across four areas: energy efficiency, renewable energy, fossil energy, and nuclear energy. The provisions are assessed using the results from AEO2002 and other side cases, rather than a direct quantitative analysis. Also included are qualitative discussions of the Price-Anderson Act and streamlined hydroelectric relicensing, both of which are contained in S. 1766.

Because of the rapid delivery requested by Sen. Murkowski, each requested component of the Senate and House bills was analyzed separately, that is, without analyzing the interactions among the various provisions. Because of the approach taken:

• The combined impact of the individual policies cannot be determined by simply adding the individual policy impacts together. For example, a provision establishing a renewable portfolio standard (RPS) for electricity production, and one that establishes a bio-diesel program for transportation fuels, each increases the use of biomass. The simultaneous enactment of the two provisions would be likely to increase biomass costs because of the competition for land and other needed resources. The estimated fossil energy displaced will therefore be lower than the sum of the two individual policy impacts because of the higher resource costs. Stated another way, the impacts of multiple simultaneous policies are non-linear.
• Some policies will interact to increase the overall response while others may interact to mitigate the impacts of each other. For example, when two separate policies increase demand and, consequently, production of an advanced technology, the reductions in manufacturing costs expected from increased production are likely to be accelerated, making the manufactured items even more attractive in later years. The total adoption of the advanced technology in this case could be greater than the sum of the parts.

In addition, some R&D provisions of S.1766 and H.R.4 indicate qualitative goals, or goals without specific quantitative targets. For example, the provisions pertaining to natural gas transportation research (Section 1235) seek greater reliability, efficiency, safety, and integrity for the gas infrastructure, R&D for railroads seeks greater fuel economy and reduced emissions but without specific targets (Section 1214), and a program for advanced coal mining safety requires prioritization of goals (Section 1233). Consequently, EIA has concentrated on those goals that lend themselves to measurement.

EIA’s projections are not statements of what will happen but rather what might happen, given known technologies and current demographic trends, laws, and regulations. Thus, the AEO2002 provides a policy-neutral Reference Case that can be used to analyze energy policy initiatives, as has been done for each of these studies. EIA does not propose, advocate or speculate on future legislative or regulatory changes. Laws and regulations are assumed to remain as currently enacted or in force in the Reference Case; however, the impacts of emerging regulatory changes, when clearly defined, are reflected.

Models are simplified representations of reality because reality is complex. Projections are highly dependent on the data, methodologies, model structure and assumptions used to develop them. Because many of the events that shape energy markets are random and cannot be anticipated (including severe weather, technological breakthroughs, and geo­political disruptions), energy market projections are subject to uncertainty. Further, future developments in technologies, demographics, and resources cannot be foreseen with any degree of certainty. These uncertainties are addressed through analysis of alternative cases in the AEO2002.

Provisions Covered in This Report

This paper addresses the provisions of S. 1766 and H.R. 4 that pertain to research, development, and deployment goals for a range of energy technologies (Table 1, p. 3). Specific draft language is taken from S. 1766. Quantitative description is offered for some of the goals and programs, while the remaining provisions are discussed qualitatively. Following the discussion of R&D, two separate topic areas specifically requested in the February 6 letter are analyzed: the Price-Anderson Act (S.1766, Sec. 501-508, H.R. 2983), and Hydro Relicensing (S.1766, Sec. 301-308, H.R. 4, Sec. 401­402).

Uncertainties Associated with R&D Cost-Benefit Analysis

S. 1766 contains numerous sections calling for increased research and development efforts, including programs aimed at improving the efficiency of energy consumption devices, the cost and performance of renewable, fossil and nuclear energy production technologies, together with safety, environmental and basic science research programs.

Some of these programs are new while others are extensions or expansions of existing programs.

Because it is difficult to relate levels of funding for research and development directly to specific improvements in the characteristics, benefits, and availability of energy technologies, the analysis in this report does not attempt to assess the overall impact of the proposed $6.2 billion R&D funding authorized by S.1766 in FY 2003. In general, increased research and development would be expected to lead to technological advances, but it is impossible to determine which programs would or would not be successful or how successful they might be.

It is also difficult to determine if the programs would lead to advances beyond those already incorporated in the AEO2002 Reference Case used in the quantitative analyses in this series of reports. The National Energy Modeling System (NEMS) incorporates improvements in technology cost and performance over time in all sectors of the US energy-economy. These improvements are meant to capture the impacts of technology improvement trends seen in historical data and those expected to occur because of current levels of research and development. For example, the residential and commercial submodules assume improvements in the cost and performance of new lighting, heating, air conditioning, and office equipment over the next 20 years. Similarly, the fuel supply and conversion submodules incorporate improvements in drilling, mining, refining, and electricity generation technologies. It is possible that the programs called for in S. 1766 could lead to greater improvements than are projected in the AEO2002 Reference Case, but their impact is unknown because the exact relationship between Federal R&D expenditures and technological improvements is not clear.

In addition to the difficulty in quantifying the potential impact of any individual research and development program, estimating the combined impact of a wide array of programs is even more difficult. Though it is possible that several programs may produce synergistic results, the opposite conclusion seems more likely because, when analyzed together some programs may have smaller combined impacts than analysis of each individual program might suggest.³The R&D provisions of S. 1766 are broadly distributed across sectors and fuels so that if all technologies supported by S. 1766 were to improve their cost and performance at a similar rate, the market penetration of those technologies would likely remain similar.

Finally, public sector R&D programs may mitigate certain market failures, and yet remain ineffective against other market barriers. Market failures addressed directly by R&D investment include less emphasis on basic research in the private sector, and consumers’ lack of information. However, market barriers also pose a secondary and equally large challenge to the penetration of new technologies. Consumers may be fully aware of potential cost savings from a more efficient technology but still prefer other characteristics of the less efficient technology. The current trend for larger, more powerful personal vehicles is just one example of consumers’ apparent preference for product attributes that compete with energy efficiency.⁴ Other barriers to the penetration of new technologies include uncertainty as to the reliability, performance, and costs of new equipment; uncertainty about the availability of next generation technology which may be of much higher quality; and apprehension concerning the infrastructure for support and maintenance of the technology. R&D expenditures are generally not effective against these market barriers.

Table 2. Key Results from Integrated Technology Cases, 2000 and 2020 Printer Friendly Version   2000 2020     Frozen Technology Reference High Technology Consumption (quadrillion Btu) 99.3 136.9 130.9 123.5 Energy Intensity, Total (thous. Btu per 1996 dollar of output) 10.8 8.3 7.9 7.5 Carbon Dioxide Emissions (million metric tons carbon equivalent) 1,562 2,221 2,099 1,950

The following is a review of the various R&D provisions of S. 1766, grouped in four main headings: energy efficiency, renewable energy, fossil energy, and nuclear energy. Each section includes a description of the program goals, and a discussion on progress in meeting those goals including assessments of feasibility. Where appropriate, AEO2002 projections are compared with sensitivity cases, notably the Frozen and High Technology Cases, the High Renewables Case, and the High Fossil Case. The Frozen Technology Case assumes that all future equipment purchases are based only on the range of equipment available in 2002. In the residential and commercial sectors, building shell efficiencies are assumed to be fixed at 2002 levels. In the industrial sector, the Frozen Technology Case holds the energy efficiency of plant and equipment constant at the 2002 level over the forecast. For the transportation section, the Frozen Technology Case assumes efficiencies for new equipment in all modes of travel are fixed at 2002 levels. In the generation sector, new advanced technologies are assumed not to improve over time. In contrast, the High Technology assumptions in these sectors generally assume earlier availability of technology, reduced costs, higher efficiencies, and in some sectors, more rapid improvement of efficiencies, thereby modeling the expected results of increased R&D expenditure relative to the reference case.⁵ The Integrated Technology Cases⁶ combine these assumptions. Key results of these cases are presented in Table 2. Without any technological improvement, the Frozen Technology Case projects consumption which is 4.6 percent higher, energy intensity which is 5.1 percent higher, and carbon dioxide emissions 6.4 percent higher than Reference Case levels (Figure 1, p. 6). In contrast, the High Technology Case, incorporating improvements that might follow R&D investments at higher than Reference Case levels, projects consumption 5.7 percent lower, energy intensity 5.1 percent lower, and carbon dioxide emissions 6.6 percent lower than reference levels by 2020.

In the electricity generation sector, the High Renewables Case assumes greater improvements for central-station nonhydroelectric generating technologies using renewable resources than in the Reference Case, while other technology costs remain the same as the Reference Case.⁷ In the High Fossil case, capital costs and/or heat rates for coal gasification combined-cycle units and natural gas-fired advanced combustion turbine and combined-cycle units are assumed to be lower and decline faster than in the Reference Case. These values are based on the Vision 21 program for new generating technologies developed by the Department of Energy’s Office of Fossil Energy.⁸

Notes and Sources

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