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1 Introduction
The policy imperative
At the time of the Organization of the Petroleum Exporting Countries (OPEC) oil embargo, the only U.S. government agency related to energy was the Atomic Energy Commission (AEC).1,2 In response to the OPEC oil embargo, President Nixon launched Project Independence on November 7, 1973; the goal of the project was to achieve energy independence by 1980. In his State of the Union Address on January 30, 1974, President Nixon remarked (Nixon, 1974):
Let it be our national goal: At the end of this decade, in the year 1980, the United States will not be dependent on any other country for the energy we need to provide our jobs, to heat our homes, and to keep our transportation moving.
Others at that time also editorialized about the importance of the oil embargo on the future direction of U.S. energy policy (Dooley 2008, p. 9):
The [OPEC] Oil Embargo which began on October 19, 1973 sparked a fundamental reassessment of the nation’s vulnerability to imported energy and also forced a reassessment of the role that energy R&D could play in helping secure the nation against hostile acts like the Oil Embargo.
The United States’ heightened interest in alternative energy sources led in 1975 to replacement of the AEC by the Energy Research and Development Administration (ERDA) in an effort to unify the federal government’s energy R&D activities. Congress charged ERDA to sponsor research and development (R&D) related to electric and hybrid vehicles through the passage of the Electric and Hybrid Vehicle Research, Development, and Demonstration Act of 1976, Public Law 94-413. Therein:3
The Congress finds and declares that:
1 the Nation’s dependence on foreign sources of petroleum must be reduced, as such dependence jeopardizes national security, inhibits foreign policy, and undermines economic well-being;
2 the Nation’s balance of payments is threatened by the need to import oil for the production of liquid fuel for gasoline-powered vehicles;
3 the single largest use of petroleum supplies is in the field of transportation, for gasoline- and diesel-powered motor vehicles;
4 the expeditious introduction of electric and hybrid vehicles into the Nation’s transportation fleet would substantially reduce such use and dependence.
On August 4, 1977, President Carter signed the Department of Energy Reorganization Act of 1977, Public Law 95-91, transferring the mission of ERDA to the newly formed Department of Energy (DOE). As stated in the Act, Congress finds that:
• the United States faces an increasing shortage of nonrenewable energy resources;
• this energy shortage and our increasing dependence on foreign energy supplies present a serious threat to the national security of the United States and to the health, safety and welfare of its citizens;
• a strong national energy program is needed to meet the present and future energy needs of the Nation consistent with overall national economic, environmental and social goals;
• responsibility for energy policy, regulation, and research, development and demonstration is fragmented in many departments and agencies and thus does not allow for the comprehensive, centralized focus necessary for effective coordination of energy supply and conservation programs; and
• formulation and implementation of a national energy program require the integration of major Federal energy functions into a single department in the executive branch.
By this act, Congress declared that the establishment of a Department of Energy in the Executive Branch is in the public interest and will promote the general welfare by assuring coordinated and effective administration of Federal energy policies and programs. DOE will:
carry out the planning, coordination, support, and management of a balanced and comprehensive energy research and development program, including – (A) assessing the requirements for energy research and development; (B) developing priorities necessary to meet those requirements; (C) undertaking programs for the optimal development of the various forms of energy production and conservation; and (D) disseminating information resulting from such programs.
Motivated by the Electric and Hybrid Vehicle Research, Development, and Demonstration Act of 1976, and the subsequent availability of public funding, Chrysler (now Chrysler Group LLC), Ford Motor Company, and General Motors (GM) established in early 1991 the U.S. Advanced Battery Consortium (USABC) to accelerate the development of batteries for electric drive vehicles (EDVs). The term ‘EDV’ refers to all types of electric drive vehicles including:4
• hybrid electric vehicles (HEVs), which use gasoline to charge the battery and part of the time to power the vehicle (e.g., the first-generation Prius);
• electric vehicles (EVs), which are powered exclusively by a battery and must be plugged into an electrical outlet to recharge (e.g., the Tesla Model S, Nissan Leaf); and
• plug-in hybrid electric vehicles (PHEV), which can either use gasoline to recharge the battery and power the vehicle or be plugged in to recharge the battery (e.g., the Chevrolet Volt).
The creation of the USABC was also motivated, in part, by the recent California Air Resources Board’s (CARB’s) 1990 regulations for low-emission vehicles and its clean fuel standards for emissions that were to be applied to new classes of vehicles not later than 1994. USABC’s purpose was to:
work with advanced battery developers and companies that will conduct research and development (R&D) on advanced batteries to provide increased range and improved performance for electric vehicles in the latter part of the 1990s.
(National Research Council (NRC) 1998, p. 12)
More specifically, the USABC had the following overarching objectives:
• to establish a capability for an advanced battery manufacturing industry in the United States;
• to accelerate the market potential of EVs through joint research on the most promising advanced battery alternatives;
• to develop electrical energy systems capable of providing EVs with ranges and performance levels competitive with petroleum-based vehicles;
• to leverage external funding for high-risk, high-cost R&D on advanced batteries for EVs.
(NRC 1998, p. 21)
DOE joined the consortium in late 1991 in response to its mandate through the Electric and Hybrid Vehicle Research, Development, and Demonstration Act of 1976. And, this mandate was reconfirmed through the Energy Policy Act of 1992 (EPAct).5 In addition, the Electric Power Research Institute (EPRI) joined the consortium in 1991.6
Related to the ongoing charge for DOE’s involvement in electric and hybrid vehicles and related battery research, President Clinton initiated the Partnership for a New Generation of Vehicles (PNGV) program in 1993. This was a cooperative R&D program between the federal government and the U.S. Council for Automotive Research (USCAR), which included Chrysler, Ford, GM, and relevant federal agencies and the national laboratories (Sissine 1996).7 Noteworthy was one of the original technology goals of PNGV (Sissine 1996, p.1):
Research and development goals for industry and government engineering teams have been launched in three categories: advanced manufacturing techniques that help get new product ideas more quickly into the marketplace; technologies that can lead to near-term improvements in automobile efficiency, safety, and emissions; and research that could lead to production prototypes of vehicles capable of up to 80 miles per gallon – three times greater fuel efficiency than the average car of today.
More specifically, the goals of the PNGV were (NRC 2001, p. 146):
(1) to improve national manufacturing competitiveness, (2) to implement commercially viable technologies that increase the fuel efficiency and reduce the emissions from conventional vehicles, and (3) to develop technologies for a new class of vehicles with up to three times the fuel efficiency of 1994 midsize family sedans (80 mpg) while meeting emission standards and without sacrificing performance, affordability, utility, safety, or comfort.
A more fuel-efficient car might achieve the stated goal of 80 miles per gallon (mpg). But, a 1995 Office of Technology Assessment (OTA) report stated that there was at that time (i.e., 1993) no battery technology capable of achieving the equivalent of 80 mpg. However, the report went on to state that: “Nickel metal-hydride batteries are seen as the only longer-term battery technology that could possibly be designed to reach the 80 mpg target” (OTA 1995, p. 17).8
Overview of EERE R&D support for battery technology
Within DOE, the Office of Energy Efficiency and Renewable Energy (EERE) “accelerates development and facilitates deployment of energy efficiency and renewable energy technologies and market-based solutions that strengthen U.S. energy security, environmental quality, and economic vitality.”9 EERE leads DOE’s “efforts to develop and deliver market-driven solutions for energy-saving homes, buildings, and manufacturing; sustainable transportation; and renewable electricity generation.”10
EERE consists of several offices and programs that support its mission.11 Related to energy efficiency are the Advanced Manufacturing Office, the Buildings Technology Office, the Federal Energy Management Program, the Weatherization and Intergovernmental Program, and the Sustainability Performance Office. Related to renewable power are the Geothermal Technologies Office, the Solar Energy Technologies Office, the Wind Program, and the Water Power Program. And regarding transportation are the Bioenergy Technologies Office, the Hydrogen and Fuel Cell Technologies Office, and the Vehicle Technologies Office (VTO).
The mission of VTO – the R&D program that is the focus in this book – is:12
to develop more energy efficient and environmentally friendly highway transportation technologies that enable America to use less petroleum. The long-term aim is to develop “leap frog” technologies that will provide Americans with greater freedom of mobility and energy security, with lower costs and lower impacts on the environment.
Energy storage technology development is an essential element of VTO’s mission:13
• Energy storage technologies, especially batteries, are critical enabling technologies for developing advanced, fuel-efficient, light- and heavy-duty vehicles, which are key components of DOE’s Energy Strategic Goal: “to protect our national and economic security by promoting a diverse supply and delivery of reliable, affordable, and environmentally sound energy.”
• VTO “supports the development of durable and affordable advanced batteries that cover the full range of vehicle applications, from start/stop to full-power hybrid electric, electric, and fuel cell vehicles.”14
• Energy storage research aims to overcome specific technical barriers that have been identified by the automotive industry together with VTO – cost, performance, life, and abuse tolerance. These barriers are being addressed collaboratively by DOE’s technical research teams and battery manufacturers.
DOE has invested in energy storage technologies since 1976. Figure 1.1 shows VTO’s R&D investments in energy storage technologies from 1976 through 2012 in nominal and in real 2012 dollars (2012$). The R&D data that underlie Figure 1.1 are in Table 1.1.
VTO’s funding toward advanced battery research in nickel metal hydride (NiMH) and lithium-ion (Li-ion) battery technology, in particular, began in 1992. More specifically, VTO’s R&D investments in energy storage technology totaled $1,168 million in 2012 dollars from 1976 through 2012 (see Figure 1.1). The $197 million invested prior to 1992 supported general energy storage technologies such as batteries other than NiMH and Li-ion, flywheels, and ultracapacitors; as well as testing methods and standards development. The $971 million invested from 1992 through 2012 included primarily VTO’s support for NiMH and Li-ion battery technologies.
Figure 1.1 | Cumulative VTO R&D investments in energy storage technologies, 1976 through 2012 |
Sources: Investment data provided by DOE. GDP chain-type price index from U.S. Department of Commerce, Bureau of Economic Analysis, downloaded from the St. Louis Federal Reserve, http://research.stlouisfed.org/fred2/series/GDPCTPI/downloaddata?cid=21.
Note: The data underlying Figure 1.1 are presented in Table 1.1.
The remainder of this book presents the results of an economic evaluation of the net social benefits attributable to VTOs R&D investments in battery technologies – NiMH and Li-ion battery technologies in particular. The premise of the evaluation is that these investments accelerated the development of battery technology relative to the timeline of development that would have unfolded in a counterfactual scenario without VTO investments. Central to this premise is the notion that public R&D investments may have positive social net present value although the same investments would not have been undertaken by the private sector alone. The economic arguments for why private underinvestment in R&D may be expected and how public-sector involvement may then improve efficiency are discussed in Chapter 2. The extent to which public investments did in fact accelerate technological development was ascertained through interviews with 54 experts in vehicle energy storage technologies, representing VTO-funded battery companies, car companies, research laboratories, and universities. With respect to NiMH technology, one interviewee noted that “without DOE, there would be essentially no U.S. [energy storage] industry. Technology would still have been developed abroad in, for example, Japan and Korea, and EDVs would still have made their way into the U.S. market, but it would have taken longer.” Another interviewee noted that VTO’s impact on Li-io...
