PROSPECTIVE EVALUATION OF APPLIED ENERGY RESEARCH AND DEVELOPMENT AT DOE (PHASE TWO)

Committee on Prospective Benefits of DOE’s Energy Efficiency and Fossil Energy R&D Programs (Phase Two)

Board on Energy and Environmental Systems

Division on Engineering and Physical Sciences

NATIONAL RESEARCH COUNCIL OF THE NATIONAL ACADEMIES

THE NATIONAL ACADEMIES PRESS

Washington, D.C.
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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) PROSPECTIVE EVALUATION OF APPLIED ENERGY RESEARCH AND DEVELOPMENT AT DOE (PHASE TWO) Committee on Prospective Benefits of DOE’s Energy Efficiency and Fossil Energy R&D Programs (Phase Two) Board on Energy and Environmental Systems Division on Engineering and Physical Sciences NATIONAL RESEARCH COUNCIL OF THE NATIONAL ACADEMIES THE NATIONAL ACADEMIES PRESS Washington, D.C. www.nap.edu

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) THE NATIONAL ACADEMIES PRESS 500 Fifth Street, N.W. Washington, DC 20001 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This report and the study on which it is based were supported by Contract No. DE-AT01-05EE13073. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the authors and do not necessarily reflect the views of the organizations or agencies that provided support for the project. International Standard Book Number-13: 978-0-309-10467-8 International Standard Book Number-10: 0-309-10467-X Available in limited supply from: Board on Energy and Environmental Systems National Research Council 500 Fifth Street, N.W. Keck W934 Washington, DC 20001 202-334-3344 Additional copies available for sale from: The National Academies Press 500 Fifth Street, N.W. Lockbox 285 Washington, DC 20055 800-624-6242 or 202-334-3313 (in the Washington metropolitan area) http://www.nap.edu Copyright 2007 by the National Academy of Sciences. All rights reserved. Printed in the United States of America

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) THE NATIONAL ACADEMIES Advisers to the Nation on Science, Engineering, and Medicine The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Charles M. Vest is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Charles M. Vest are chair and vice chair, respectively, of the National Research Council. www.national-academies.org

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) COMMITTEE ON PROSPECTIVE BENEFITS OF DOE’S ENERGY EFFICIENCY AND FOSSIL ENERGY R&D PROGRAMS (PHASE TWO) MAXINE L. SAVITZ, NAE,1 Chair, Honeywell, Inc. (retired), Los Angeles, California LINDA R. COHEN, University of California, Irvine JAMES CORMAN, Energy Alternatives Studies, Inc., Schenectady, New York PAUL A. DeCOTIS, New York State Energy Research and Development Authority, Albany RAMON L. ESPINO, University of Virginia, Charlottesville ROBERT W. FRI, Resources for the Future, Washington, D.C. W. MICHAEL HANEMANN, University of California, Berkeley WESLEY L. HARRIS, NAE, Massachusetts Institute of Technology, Cambridge MARTHA A. KREBS, California Energy Commission, Sacramento LESTER B. LAVE, IOM,2  Carnegie Mellon University, Pittsburgh, Pennsylvania RICHARD G. NEWELL, Resources for the Future, Washington, D.C. JACK S. SIEGEL, Energy Resources International, Inc., Washington, D.C. JAMES E. SMITH, Duke University, Durham, North Carolina TERRY SURLES, University of Hawaii, Manoa JAMES L. SWEENEY, Stanford University, California MICHAEL TELSON, University of California, Washington, D.C. Project Staff Board on Energy and Environmental Systems (BEES) MARTIN OFFUTT, Study Director ALAN CRANE, Senior Program Officer JAMES J. ZUCCHETTO, Director, BEES PANOLA GOLSON, Program Associate DANA CAINES, Financial Associate JENNIFER BUTLER, Financial Assistant Transportation Research Board JILL WILSON, Senior Program Officer Consultant KAREN JENNI, Insight Decisions 1 NAE, member, National Academy of Engineering. 2 IOM, member, Institute of Medicine.

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) BOARD ON ENERGY AND ENVIRONMENTAL SYSTEMS DOUGLAS M. CHAPIN, NAE,1 Chair, MPR Associates, Alexandria, Virginia ROBERT W. FRI, Vice Chair, Resources for the Future, Washington, D.C. RAKESH AGRAWAL, NAE, Purdue University, West Lafayette, Indiana ALLEN J. BARD, NAS,2  University of Texas, Austin MARILYN BROWN, Georgia Institute of Technology, Atlanta PHILIP R. CLARK, NAE, GPU Nuclear Corporation (retired), Boonton, New Jersey MICHAEL CORRADINI, NAE, University of Wisconsin, Madison E. LINN DRAPER, JR., NAE, American Electric Power, Inc., Austin, Texas CHARLES GOODMAN, Southern Company, Birmingham, Alabama DAVID G. HAWKINS, Natural Resources Defense Council, Washington, D.C. DAVID K. OWENS, Edison Electric Institute, Washington, D.C. WILLIAM F. POWERS, NAE, Ford Motor Company (retired), Ann Arbor, Michigan TONY PROPHET, Hewlett-Packard Company, Cupertino, California MICHAEL P. RAMAGE, NAE, ExxonMobil Research and Engineering Company (retired), Moorestown, New Jersey MAXINE L. SAVITZ, NAE, Honeywell, Inc. (retired), Los Angeles, California PHILIP R. SHARP, Resources for the Future, Washington, D.C. SCOTT W. TINKER, University of Texas, Austin Staff JAMES J. ZUCCHETTO, Director DUNCAN BROWN, Senior Program Officer (part time) ALAN CRANE, Senior Program Officer MARTIN OFFUTT, Senior Program Officer DANA CAINES, Financial Associate PANOLA GOLSON, Program Associate JENNIFER BUTLER, Financial Assistant 1 NAE, member, National Academy of Engineering. 2 NAS, member, National Academy of Sciences.

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) Acknowledgments The Committee on Prospective Benefits of DOE’s Energy Efficiency and Fossil Energy R&D Programs (Phase Two) wishes to acknowledge and thank the many individuals who contributed time and effort to this National Research Council (NRC) study. The presentations at committee meetings and ongoing dialogue with interested participants from within the administration and outside experts provided valuable information and insight. In particular, the Department of Energy’s Office of Energy Efficiency and Renewable Energy, the Office of Fossil Energy, and the Office of the Undersecretary for Energy and Environment supplied extensive data and analysis for the study. Their valuable information on and insight into advanced technologies and development initiatives assisted the committee in formulating the recommendations included in this report. Ongoing dialogue with the Office of Management and Budget, the Office of Science and Technology Policy, and congressional staff provided valuable guidance for the selection of case studies and presentation of results. The chair particularly wants to acknowledge the participation of the expert panels, who performed the analysis with professionalism and insight in a timely and informative way. The Phase Two panels exhibited the same high quality as those of Phase One. All of the committee members served as chairs or members of the expert panels and as members of the methodology and process subcommittees, displaying both expertise and leadership. The chair would like to thank William Fisher, University of Texas, Austin, who, although not a member of the full committee, chaired the panel for the Natural Gas Exploration and Production Program. In particular, the chair is very grateful for the work and support of the staff of the NRC. The staff included Martin Offutt, James Zucchetto, Alan Crane, and Jill Wilson. Martin Offutt did an excellent job in assembling six expert panels in a relatively short period of time, staffing the work of three of them, and helping to drive the production of this report. This study differs from many other NRC projects and has placed additional demands on the expertise of the staff. Panola Golson did an excellent job of supporting the six panels and the committee throughout. Karen Jenni, the consultant, assisted the panels in understanding the methodology and developing the decision trees in a manner consistent across all of the panels. Lastly, the chair would like to thank Robert Fri, who stepped in over the last few months to assist the chair in getting the report completed. This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the NRC’s Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making its published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the deliberative process. We wish to thank the following individuals for their review of this report: William Agnew, NAE, General Motors (retired), David Archer, NAE, Westinghouse (retired), William Banholzer, NAE, Dow Chemical, Joseph Cordes, George Washington University, Roland Horne, NAE, Stanford University, Trevor Jones, NAE, Biomec, Inc., James J. Markowsky, NAE, American Electric Power (retired), Dexter Peach, General Accounting Office (retired), Tim Pinkston, Southern Company Generation, Edward Rubin, Carnegie Mellon University, Rosalie Ruegg, Independent Consultant,

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) Robert Shaw, Arete Corporation, Jack Wise, NAE, Mobil Research and Development Corporation (retired), Jim Wolf, Independent Consultant, and Frankie Wood-Black, Philips Petroleum Company. Although the reviewers listed above have provided many constructive comments and suggestions, they were not asked to endorse the conclusions or recommendations nor did they see the final draft of the report before its release. The review of this report was overseen by John Ahearne, NAE, Sigma Xi, and Lawrence Papay, NAE, Science Applications International Corporation (retired). Appointed by the National Research Council, they were responsible for making certain that an independent examination of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of this report rests entirely with the authoring committee and the institution.

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) Contents     SUMMARY   1 1   INTRODUCTION   8      Background,   8      Applied Energy Research and Development at DOE,   9      Evaluating the Federal Investment in Energy Research and Development,   10      The Current Study,   13 2   RESULTS OF APPLYING THE METHODOLOGY   14      Case Study Selection and Execution,   14      Statement of Task,   14      Advice to Users,   15      Results of Case Studies,   16 3   METHODOLOGY FOR PROSPECTIVE EVALUATION OF DEPARTMENT OF ENERGY PROGRAMS   40      Valuation of Environmental and Security Benefits,   40      Methodological Considerations in Measuring Benefits,   47 4   EXPERT PANEL PROCESS   52      Introduction,   52      Expert Panel Composition,   52      Role of the Panel Chair, the Consultant(s), and the Oversight Committee,   53      Panel Activities and Process,   54      Interactions with DOE and Information Request,   56      Duration and Frequency of the Expert Panel Reviews,   57      Assessment of Activities by Non-DOE Entities,   57      General Issues,   57      Quality Assurance,   58      Full-Scale Implementation of the Methodology,   58 5   CONCLUSIONS AND RECOMMENDATIONS   60      Introduction,   60      Priorities Identified for Phase Three of This Project,   60      The Process for Obtaining Results,   61      Using the Results,   62      Estimating National Security and Environmental Benefits,   62      Continuity: Institutionalizing the Evaluation Process,   63

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two)     REFERENCES   64     APPENDIXES          A  PART Assessment Questions   69      B  Committee Biographies   71      C  Statement of Task   75      D  Letter Report   77      E  Committee and Panel Activities   92      F  Guidance on Prospective Benefits Evaluation   95      G  Information to Be Requested of the Department of Energy   107      H  Report of the Panel on DOE’s Integrated Gasification Combined Cycle Technology R&D Program   111      I  Report of the Panel on DOE’s Carbon Sequestration Program   132      J  Report of the Panel on DOE’s Natural Gas Exploration and Production R&D Program   152      K  Report of the Panel on DOE’s Distributed Energy Resources Program   171      L  Report of the Panel on DOE’s Light-Duty Vehicle Hybrid Technology R&D Program   187      M  Report of the Panel on DOE’s Chemical Industrial Technologies Program   208

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) Tables and Figures TABLES S-1   Benefits of Three EERE R&D Programs,   6 S-2   Benefits of Three FE R&D Programs,   7 1-1   Summary of Congressional Appropriations Oversight of EERE Programs,   10 1-2   Stated Goals of GPRA and PART,   11 3-1   Estimates of the Social Damage Costs of Air Emissions,   43 3-2   Estimates of Pollution Abatement Costs,   43 H-1   Baseline and 2010 Goals for Total IGCC System as Given in DOE’s Advanced IGCC Research,   112 H-2   Evolutionary Improvements Due to DOE Advanced IGCC Research,   113 H-3   Evolutionary Improvements Due to DOE Advanced Gasification Research,   113 H-4   Revolutionary or Long-Term Improvements Due to DOE Advanced Gasification Research,   113 H-5   Costs for 500-MW Power Plants Using a Range of Technologies Without Carbon Capture and Storage,   118 H-6   Annual Additions of IGCC Capacity Used to Calculate Program Benefits,   131 I-1   Top-Level Carbon Sequestration Roadmap,   134 J-1   DOE’s Performance Targets for Expanding Domestic ERR by 50 Tcf Through 2015,   153 J-2   Panel Assessments of Technical and Market Risks for Each Subprogram,   156 L-1   Panel Estimates of Fuel Economy Improvements Relative to Conventional Vehicles,   197 L-2   Panel Estimates of Fuel Economy Improvement for Vehicles with Specified Technical Improvements,   197

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) FIGURES S-1   Results matrix,   3 2-1   Findings for DOE’s gasification technologies R&D,   17 2-2   Findings for DOE’s carbon sequestration program,   20 2-3   Findings for DOE’s natural gas exploration and production program,   23 2-4   Findings for DOE’s distributed energy resources program,   29 2-5   Findings for DOE’s light-duty vehicle hybrid technology R&D,   32 2-6   Findings for DOE’s chemical industrial technologies program,   37 F-1   Results matrix for evaluating benefits and costs prospectively,   96 F-2   Decision tree,   99 F-3   Example of decision tree applied to advanced lighting program,   100 F-4   Template for presenting panel results,   104-105 G-1   Three-page program assessment summary (PAS) form, to be completed by DOE,   108-110 H-1   Decision tree representing the panel’s assessment of the likely technical outcomes of IGCC R&D,   120 H-2   Estimated COE for IGCC under different technical success assumptions for the AEO Reference Case global scenario,   121 H-3   Cumulative amount of IGCC built under three different technical success assumptions and two different global scenarios,   122 H-4   Cumulative distribution on the net present value of IGCC research under the AEO Reference Case scenario, assuming IGCC replaces PC,   124 H-5   Results matrix of the Panel on DOE’s Integrated Gasification Combined Cycle Technology R&D Program,   126 I-1   Funding requirements for DOE’s carbon sequestration program,   135 I-2   Decision tree used by carbon sequestration panel,   139 I-3   Summary of probability assessment results,   140 I-4   Panel assessment of sequestration risks,   141 I-5   Effect of carbon tax and incremental cost of CCS on COE for IGCC,   143 I-6   Comparison of COE with competing technologies,   145 I-7   Impact of DOE program funding on cumulative builds of IGCC with CCS, through 2025,   146 I-8   Cumulative distribution on the NPV of the economic benefits of carbon sequestration research, with and without the DOE program,   147 I-9   Results matrix of the Panel on DOE’s Carbon Sequestration Program,   148 J-1   Decision tree for the existing fields subprogram,   155 J-2   Decision tree for the drilling, completion, and stimulation subprogram,   158 J-3   Decision tree for the advanced diagnostics and imaging subprogram,   159 J-4   Decision tree for the Deep Trek subprogram,   161 J-5   Estimated increase in domestic natural gas attributed to the program by year,   163 J-6   Results matrix of the Panel on DOE’s Natural Gas Exploration and Production Program,   164 J-7   Demand curve and two supply curves for natural gas,   169 J-8   Change in total surplus from the change in the supply curve,   170

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Prospective Evaluation of Applied Energy Research and Development at DOE (Phase Two) K-1   Decision tree for combined heat and power program,   175 K-2   Assessment of technical success with DOE funding and high electricity prices,   176 K-3   Assessment of technical success for the AEO Reference Case scenario,   176 K-4   Assessment of technical success for the High Oil and Gas Prices scenario,   177 K-5   Assessment of technical success for the Carbon Constrained scenario,   177 K-6   Assessment of technical success for the Electricity Constrained scenario,   178 K-7   Assessment of market success,   179 K-8   Panel’s estimate of the amount of CHP added with and without the DOE program for each scenario,   180 K-9   Uncertainty around estimated CHP additions for the Electricity Constrained scenario,   181 K-10   Results matrix of the Panel on DOE’s Distributed Energy Resources Program,   182 L-1   Decision tree representing the panel’s evaluation of the batteries program,   194 L-2   Decision tree representing the panel’s evaluation of the lightweighting research program,   195 L-3   Decision tree representing the panel’s evaluation of the advanced combustion engines program,   196 L-4   Fraction of new vehicles purchased that are conventional and hybrid electric, for two HEV market scenarios,   199 L-5   Fraction of total vehicle miles driven by year by vehicle type, for two HEV market scenarios,   200 L-6   Range and likelihood of discounted total consumer expenditures for vehicles and gas between 2006 and 2050, assuming the Low HEV market scenario and Reference Case prices,   201 L-7   Results matrix of the Panel on DOE’s Light-Duty Vehicle Hybrid Technology R&D Program,   202 M-1   Probability of technical success, probability of market success, and value of benefits if the project is successful,   210 M-2   Uncertainty surrounding estimates of program benefits,   213 M-3   Implied decision tree representing the panel’s evaluation of the ITP– Chemicals portfolio,   214 M-4   Results matrix of the Panel on DOE’s Industrial Technologies Program–Chemicals,   215 M-5   Sample project information sheet,   217

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