Executive Summary

Introduction

Innovation Is Essential to Address Climate Change and Boost U.S. Competitiveness

The Key Role of the Federal Government in the U.S. Energy Innovation System

The Department of Energy—And Lots of Other Stuff

DOE RD&D: Generating Environmental and Economic Benefits

2022: Maintaining the Momentum for Energy Innovation

2023: Taking the Next Step

Other Legislative Opportunities

What Happens Next

Conclusion

Endnotes

Executive Summary

The Biden administration’s FY 2023 budget request for the Department of Energy (DOE) calls for a 25 percent increase in investment in clean energy RD&D over FY 2021 enacted levels. Along with the passage of the Energy Act of 2020 and the Infrastructure Investment and Jobs Act (IIJA), this proposal is an encouraging sign for the progress of climate-tech innovation and would sustain the momentum of federal clean energy research, development, and demonstration (RD&D) programs. Continuing along this trajectory is vital to develop the climate solutions the world needs while strengthening the competitiveness of U.S. technology developers and manufacturers.

The context for federal clean energy innovation investments is daunting. Unabated fossil fuels still dominate global consumption. New technologies that would drastically reduce greenhouse gas (GHG) emissions from many major sources cost too much, perform too poorly, or are simply unavailable. Although the global energy innovation system still has major gaps, many countries have advanced assertive programs targeting specific sectors that collectively threaten U.S. leadership, including in public funding for energy RD&D, where the United States has long been the top investor.

Such funding has proven its value in the past. Yet, had it kept pace with the growth of the U.S. economy since DOE’s founding in 1978, the department’s RD&D budget today would be about $30 billion, more than three times its level in fiscal year 2022. The bipartisan consensus that led to recent legislation and funding increases must be sustained in order to approach that level again, as numerous expert studies have advocated. The administration’s budget would raise it to over $10 billion in fiscal year 2023. Congress should seize the opportunity to sustain the momentum, accelerate domestic clean energy industries, and shape the U.S. response to climate change.

This report describes DOE’s RD&D programs, assesses significant updates to them, and discusses notable gaps that still remain. It is supported by an interactive that will be updated throughout the FY 2023 budget cycle at itif.org/rdd-fy23.

Introduction

The fiscal year (FY) 2023 budget is an important opportunity for Congress and the administration to keep up the momentum of U.S. investment in energy innovation. The Energy Act of 2020 and the recently passed IIJA, both of which won bipartisan support, have paved the way for a major expansion in federal RD&D funding to combat climate change and strengthen U.S. competitiveness. Many members of Congress have joined President Biden in calling for a reinvigoration of the national energy innovation system to reverse decades of declining investment and position the United States to thrive in the global clean energy transition.

Many U.S. competitors have been investing heavily in RD&D to develop low-carbon technologies and capture growing global clean energy markets. Most notably, China nearly doubled its investment between 2015 and 2019. It now invests more than the United States does in key technologies, including solar energy, lithium-ion batteries, advanced nuclear, carbon capture, and electric vehicles (EVs).[1] Meanwhile, Europe is outperforming the United States in offshore wind and has set aggressive targets in hydrogen and low-carbon steel.

The U.S. government has begun to respond to the global and international challenges of the low-carbon economy of the future by boosting its investment in energy RD&D by 39 percent between fiscal years 2017 and 2022. Yet, as a share of the U.S. economy, federal investment has grown little, hovering around 0.04 percent of gross domestic product (GDP), far behind leading European countries such as Norway and Finland.[2] With the legislative foundation provided by the Energy Act and IIJA in place, Congress and the administration have an opportunity to forge a path in fiscal year 2023 that will break through this barrier.

This report builds on Energizing America, the Information Technology and Innovation Foundation’s (ITIF’s) 2020 book-length collaboration with Columbia University’s Center on Global Energy Policy, as well as more recent ITIF annual reports on the energy RD&D budget and related analyses. It provides an overview of federal energy innovation programs, including the key role of DOE in advancing energy technologies, and highlights the department’s impact on national energy systems. It assesses the significant updates to DOE’s program authorizations made in the Energy Act and the prospects for greater investment in the FY 2023 budget and appropriations cycle.

Twenty-two infographics accompany this report online. Each includes a description of a DOE RD&D program and its technology goals, including renewable energy, transportation, energy efficiency, grid modernization, nuclear energy, fossil energy and carbon management, and basic sciences. The infographics also highlight what’s at stake in each program, along with its potential impacts, historic and authorized funding levels, and targeted recommendations for Congress and DOE to accelerate innovation. They form the core of the that will be updated throughout the FY 2023 budget cycle at itif.org/rdd-fy23.

Innovation Is Essential to Address Climate Change and Boost U.S. Competitiveness

The transition from a global energy system dominated by unabated fossil fuels to one with net-zero emissions is vital to mitigate climate change, protect human health, and help revitalize the U.S. economy. However, clean energy alternatives have not yet been commercialized for certain sectors that produce large amounts of GHG emissions, including aviation, shipping, steel, cement, and chemicals manufacturing. Meanwhile, many of the clean technologies that already have been commercialized—such as EVs—are still more expensive than are the high-emitting technologies they would replace and face other barriers to scaling up. Costs and barriers must continue to fall for these clean technologies to cut emissions drastically.

The energy transition also brings with it risks and opportunities for U.S. industry. Investment in key technologies—from hydrogen to EVs to batteries to carbon capture and storage (CCS)—is rapidly increasing around the world. Global investment in clean energy marched to its highest level last year despite the ongoing pandemic, even as many traditional-energy industries suffered from delayed or declining investment.[3] The Russian invasion of Ukraine has added even more uncertainty to the global picture.

The passage of the IIJA signaled the United States’ ambition to reclaim its position as a leader in clean energy innovation. Furthermore, in response to the ongoing supply chain challenges, the United States has recently initiated a strategy on manufacturing competitiveness, and President Biden has invoked the Defense Production Act to boost production of critical minerals used in EV batteries. A key question for policymakers is whether the United States can weather today’s supply chain challenges and continue to champion investments in tomorrow’s clean technologies.

Fundamentally, the solution to both the supply chain and energy transition challenges is to boost U.S. investment in innovation. But accelerating innovation requires assertive federal policy that involves more than basic research funding. Innovation requires both proactive public investment in development and demonstration, along with the creation of markets to hasten early adoption and ignite private sector innovation and competition.[4]

The Global Context for Federal Energy RD&D Investment

Global investment in energy was $1.9 trillion in 2021, rebounding nearly 10 percent from 2020 levels—putting it almost back to pre-pandemic levels.[5] But the share going to clean energy fell 1 percent from 2020. Investment in renewable power grew 2 percent in 2021 to $367 billion (in 2019 dollars). Global investment in EVs and charging infrastructure surged by 77 percent to $273 billion in 2021 and is on course to overtake investment in renewables in 2022.[6]

Figure 1. Government energy RD&D investment as a percentage of GDP, 2020[7]