What Peaks and Dips in US Funding of Energy R&D Mean for Innovation

Biden’s budget request includes nearly $10 billion for energy research and development, which would rival the highest funding levels from the 1970s.

(Bloomberg) —

President Joe Biden submitted his budget request on March 9. Although the numbers are bound to change before Congress approves it, federal funding of research and development — a small but significant corner of the US budget — could top $200 billion for the first time. That’s in today’s dollars, but adjusted for inflation it would also be an all-time high. And 2023 could be a very notable year for one sliver of that corner of the budget: energy R&D. 

Federal research dollars follow a long wave pattern, rising in the 1960s, the 2000s and now the 2020s as well. Peaks in total R&D have generally corresponded with peaks in defense outlays, although that has changed in the past five years — both defense and non-defense spending have been increasing, and non-defense outlays have taken a sustained lead for the first time. 

There have been two stretches since the 1950s when R&D was flat in constant dollar terms, first in the 1970s and again in the 1990s. The former of these seemingly quiet intervals hides something important and provides us with lessons for today. 

During the 1970s, the R&D outlays for space and general science declined, as did defense R&D. Health R&D increased by nearly $5 billion. But the big winner was energy. Energy R&D was only $1.72 billion in 1972, before the first oil price shock; by 1979, it was nearly $11 billion, bigger than the health outlay, nearly the spending on space and a quarter of defense. 

In fact, energy R&D hit its all-time peak in the late 1970s and still has not recovered. The ask in Biden’s budget request this year, for nearly twice the funding given last year, is getting close (if it survives political wrangling). 

This category of spending is tied to major macroeconomic events. The 1970s oil crises gave us the historic high, but the peak in the late 2000s, and the current upturn, both stemmed from legislative responses to macroeconomics (the 2008 financial crisis then, inflation now). 

That’s the hidden finding, and these are the lessons. 

The first is about sustaining research and development, or rather, not sustaining it. It is not hard to miss the fact that when oil prices collapsed in the 1980s, so too did energy R&D. The funding spike in the late 2000s was not enduring either, despite an oil price that was regularly above $100 a barrel from 2011 to 2014. 

Ideally, the government would maintain R&D funding during periods of lower energy prices and supply stress. That enables longer-running projects to continue, and it encourages research that addresses potentially systemic challenges in a holistic way, rather than just solving for the latest pain point. 

The second lesson is subtler, but equally important. Research and development is a series of experiments which can happen at the scale of hundreds of millions or billions of dollars. Sometimes those experiments fail. That does not mean, though, that a failed experiment is a loss — it’s rather a significant finding about technical difficulty, or technological readiness, or otherwise unanticipated headwinds against doing something at a given moment. 

One of the feature projects of the Carter-era peak in energy R&D, the Synthetic Fuels Corporation, vanished with hardly a ripple. But the findings from the experiment (namely, that making synthetic fuels didn’t work very well) could only have been reached through research at scale and over the course of years. 

The final lesson is about imagination. That is the word that Evelyn Wang, director of the Advanced Research Projects Agency-Energy (ARPA-E), used this week to describe the projects it is working on. Federal research requires imagination regarding what is possible with concerted effort, but also imagination regarding the value that might be created if research can be sustained. 

The US had its first super-peak in energy research and development four decades ago, at a moment of profound crisis in the national energy system. Today it may be on its way to another super-peak, in a world where many more energy technologies are commercially viable but also where pressures from climate change — and not just energy security — are inescapable. 

Hopefully recent growth isn’t a blip but the start of an imaginative cycle of remaking today’s energy system. 

Nat Bullard is a senior contributor to BloombergNEF and writes the Sparklines column for Bloomberg Green. He advises early-stage climate technology companies and climate investors.

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