Energy Security Trust Fund an Important Policy Pilot for Supporting Innovation

Last Friday, President Obama reiterated his support for the creation of an Energy Security Trust Fund during a speech at the Argonne National Laboratory, something he first proposed in his 2013 State of the Union address.  Specifically, according to a fact sheet released by the White House, the fund would provide $2 billion over ten years for research on cleaner transportation alternatives such as advanced biofuels and advanced batteries for electric vehicles, derived from royalty revenues from federal oil and gas development. The Energy Collective’s Jesse Jenkins and Brookings Institution senior fellow Mark Muro have already provided thoughtful commentary on the proposal (here and here, respectively), but here are a few important takeaways.

Tying next-generation transportation energy R&D to a dedicated revenue source is a welcome step towards consistently funding energy R&D overall. Federal energy research and development is severely underfunded. For years, energy policy experts and stakeholders have advocated for an annual federal energy R&D budget of $15 billion or more. Yet according to the Energy Innovation Tracker, federal funding for energy R&D totaled just $3.6 billion in fiscal year 2012. In comparison, the Defense Department’s R&D budget that year was $72.3 billion, or more than 20 times as much. Furthermore, energy R&D has long been hampered by inconsistent, start-stop funding from Congress. Thus, increasing funding for R&D – even by just $200 million a year – and dedicating it to a critical endeavor like decarbonizing transportation, is a welcome move.

From a political perspective, the progression of the Fund proposal could also prove to be an indicator of whether bipartisan energy policy is possible in the current dysfunctional political climate. In his speech at Argonne, President Obama attributed inspiration for the Energy Security Trust Fund to a December 2012 Securing America’s Future Energy (SAFE) report. But the idea of investing oil and gas drilling revenue in clean technology R&D is not a new one. The Breakthrough Institute discussed the idea in 2010 and it was the subject of an ITIF report, Lemons to Lemonade, in 2011. More importantly, as Jesse Jenkins notes, the idea has been championed by Republican Congressman Devin Nunes of California and was recently featured in Republican Senator Lisa Murkowski’s Energy 20/20 policy blueprint. And as Mark Muro points out, a similar proposal can be found in the 2009 energy plan introduced by House Republicans; thus, as he writes, the fund ”remains a meaningful test of whether there is any room at all for significant energy legislation in Congress.”

Of course, as White House energy and climate advisor Heather Zichal said at a SAFE event on the subject this morning, “this being Washington, DC, the devil is in the details.” Two details are particularly important: (1) is the revenue tied to expanding oil and gas drilling and (2) will this reinforce existing transportation R&D programs or support new programs altogether?

On the first note, it’s unclear if the Obama administration is willing to open new areas for oil and gas development, having already done so in 2010. But as Jenkins observes, the only other option for ensuring that the Fund is revenue neutral would be to increase royalties, which he estimates would amount to “15.8 cents per barrel of oil and 2.7 cents per million British thermal units (MMBtus) of natural gas (assuming the necessary revenues were spread across oil and gas on an equal energy-content basis)…an increase of less than 0.2 percent over current WTI crude oil prices and 0.7 percent over current NYMEX natural gas prices” – something which could prove difficult for anti-tax Republicans to support.

On the second note, the choice between reinforcing existing programs and creating new, competing programs (potentially in a bid to win political support) could determine the Fund’s impact on the overall efficacy of research efforts.

Ultimately, the Fund could prove not only to be a boon for clean transportation technology development, but also serve as a model for dedicated revenue streams for other areas of clean energy innovation – a “wires fee” to fund grid infrastructure R&D, for example, as proposed in the report Post-Partisan Power. For now, the ball is in Congress’ court.