Reforming Government-Funded Applied Energy Research

Late last month, I wrote a Reuters Opinion column which argued that while the obstacles to carbon pricing are very high, energy innovation reform holds great promise. The federal government already invests a substantial amount in energy innovation programs, much of it clustered in the U.S. Department of Energy, yet a new report (“Putting Energy Innovation First“) argues that these programs are not as cost-effective as they ought to be. Among other things, the report recommends that DOE’s be energy innovation programs be restructured. Rather than organize applied research efforts around technology-specific “stovepipes,” the report calls for organizing them around end uses, e.g., power and grid technologies, transportation and fuel technologies, and energy efficiency technologies. The report also recommends that the DOE-sponsored national laboratories be granted a greater deal of autonomy. I asked one of the authors of the report, Samuel Thernstrom, executive director of the Energy Innovation Reform Project, to elaborate on why the approach outlined in the report is the best way to go, and he kindly agreed to do so.

How do we know reorganizing around energy innovation research around stages of distribution as opposed to energy source will create fewer coordination problems on net?

All policy innovations are, by definition, experiments. But as you say, the question is which institutional arrangement is least bad—or, conversely, what organizational structure is most likely to produce the desired outcomes.

Our recommendations aren’t based upon complex or abstract theories; they reflect insights into the agency that come from people who have had extensive experience with the department and its strengths and weaknesses. By identifying the obstacles to DOE’s success, we can begin to see logical avenues for improvement. There’s no rule that says these changes will produce the desired effect, but it is reasonable to expect bureaucracies to respond to their institutional incentives.

Today, with applied energy programs organized around individual technologies—different offices for nuclear, fossil, renewables, etc.—each office has a natural incentive to become a cheerleader for its own technology. If those offices were reorganized around functional needs—electric generation, for example, or transportation fuels—the new office would have a stronger incentive to take a technology-neutral perspective when analyzing different options for achieving its mission.

Simply reorganizing the offices in that fashion won’t get rid of the rent-seekers and political interests that exist around every technology, but it will deprive them of their own high-level institutional advocate within the DOE structure and force them to face an evaluation of how their technology compares to a competitor’s—whether, for example, the nation’s electric generation needs would be better served by new nuclear or solar (or any other options). Having one office evaluate all the options to meet our needs, rather than individual offices cheerleading for each technology, is no guarantee of a better outcome—but it can only improve the odds.

We also recommend that the planning, budget, analysis and congressional/public affairs functions be transferred from individual applied energy program offices to an Under Secretary for Energy and Science. This would create an analytical entity to evaluate programs that would be more insulated—albeit imperfectly—from political and policy pressures. Again, this is not a silver bullet but it would mean that those offices would no longer be able to conduct entirely self-serving self-evaluations, and would expose them to scrutiny from a supervisor with a less parochial perspective on these questions.

How do we know that “freeing” the national labs won’t result in more self-indulgent projects?

There are no guarantees when it comes to reorganizing government, and history teaches us that bureaucratic tendencies often reassert themselves despite institutional reforms. Nevertheless, the national labs are clearly hamstrung by the Department of Energy today, and it’s logical to think that they could be a lot more productive if we took a few simple steps to help them: We should give the labs clear missions that are written into their contracts; we should give their contractors the freedom to pursue that mission efficiently, and we should hold the contractors accountable for their performance.

The national labs were designed to be operated under a “Go-Co” (Government Owned, Contractor Operated) model that gives the contractor operational control and holds it accountable for performance. But over time that model has been degraded as DOE headquarters has increasingly micromanaged the labs. The result was that DOE focused more attention on reviewing and approving the labs’ activities and adherence to its directives, and less attention on the labs’ productivity. T

These problems have been documented for years, going back to the 1995 Galvin Commission and a 2003 DOE Blue Ribbon Commission, among others, but little has been done. Reforms that would provide the lab contractors with greater freedom to innovate while demanding greater accountability for performance are no guarantee of success—but they seem like a good bet.

At the same time, we also recommend that the labs be tasked with meeting clearly defined, strategic energy innovation challenges, which should be written into the labs’ mission statements and contract objectives. And we recommend steps to increase the public-private partnerships that help ensure that DOE’s basic and applied research programs are closely tied to real-world commercial markets.

Freeing the labs from DOE micromanagement, clarifying their mission, bridging the gaps between basic and applied energy research and between the public and private sectors—none of these measures is any guarantee of success, but each of them does seem likely to contribute to the department’s productivity over time.

The most attractive aspect of Thernstrom’s energy innovation reform agenda is that it doesn’t require a new infusion of funds, which is very important in light of long-term budget constraints. 

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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