Since its inception in 1977 from an amalgam of federal authorities, the U.S. Department of Energy (DOE) has administered numerous programs aimed at developing applied energy technologies. In recent years, federal oversight of public expenditures has emphasized the integration of performance and budgeting. Notably, the Government Performance and Results Act (GPRA) was passed in 1993 in response to questions about the value and effectiveness of federal programs. GPRA and other mandates have led agencies to develop indicators of program performance and program outcomes. The development of indicators has been watched with keen interest by Congress, which has requested of the National Research Council (NRC) a series of reports using quantitative indicators to evaluate the effectiveness of applied energy research and development (R&D). The first such report took a retrospective view of the first 3 years of DOE R&D programs on fossil energy and energy efficiency. The report found that DOE-sponsored research had netted large commercial successes, such as advanced refrigerator compressors, electronic lighting ballasts, and emission control technology for flue gas desulfurization. However, some programs were judged to be costly failures in which large R&D expenditures did not result in a commercial energy technology. A follow-up NRC committee was assigned the task of adapting the methodology to the assessment of the future payoff of continuing programs. Evaluating the outcome of R&D expenditures requires an analysis of program costs and benefits. Doing so is not a trivial matter. First, the analysis of costs and benefits must reflect the full range of public benefits that are envisioned, accounting for environmental and energy security impacts as well as economic effects. Second, the analysis must consider how likely the research is to succeed and how valuable the research will be if successful. Finally, the analysis must consider what might happen if the government did not support the project: Would some non-DOE entity undertake it or an equivalent activity that would produce some or all of the benefits of government involvement? This second report continues to investigate the development and use of R&D outcome indicators and applies the benefits evaluation methodology to six DOE R&D activities. It provides further definition for the development of indicators for environmental and security benefits and refines the evaluation process based on its experience with the six DOE R&D case studies.

In 2001, the National Research Council (NRC) completed a congressionally mandated assessment of the benefits and costs of DOE's fossil energy and energy efficiency R&D programs, Energy Research at DOE: Was It Worth It? The Congress followed this retrospective study by directing DOE to request the NRC to develop a methodology for assessing prospective benefits. The first phase of this projectâ€"development of the methodologyâ€"began in December 2003. Phase two will make the methodology more robust and explore related issues, and subsequent phases will apply the methodology to review the prospective benefits of different DOE fossil energy and energy efficiency R&D programs. In developing this project, three considerations were particularly important. First, the study should adapt the work of the retrospective study. Second, the project should develop a methodology that provides a rigorous calculation of benefits and risks, and a practical and consistent process for its application. Third, the methodology should be transparent, should not require extensive resources for implementation, and should produce easily understood results. This report presents the results of phase one. It focuses on adaptation of the retrospective methodology to a prospective context.

In legislation appropriating funds for DOE's fiscal year (FY) 2000 energy R&D budget, the House Interior Appropriations Subcommittee directed an evaluation of the benefits that have accrued to the nation from the R&D conducted since 1978 in DOE's energy efficiency and fossil energy programs. In response to the congressional charge, the National Research Council formed the Committee on Benefits of DOE R&D on Energy Efficiency and Fossil Energy. From its inception, DOE's energy R&D program has been the subject of many outside evaluations. The present evaluation asks whether the benefits of the program have justified the considerable expenditure of public funds since DOE's formation in 1977, and, unlike earlier evaluations, it takes a comprehensive look at the actual outcomes of DOE's research over two decades.

Despite the many benefits of energy, most of which are reflected in energy market prices, the production, distribution, and use of energy causes negative effects. Many of these negative effects are not reflected in energy market prices. When market failures like this occur, there may be a case for government interventions in the form of regulations, taxes, fees, tradable permits, or other instruments that will motivate recognition of these external or hidden costs. The Hidden Costs of Energy defines and evaluates key external costs and benefits that are associated with the production, distribution, and use of energy, but are not reflected in market prices. The damage estimates presented are substantial and reflect damages from air pollution associated with electricity generation, motor vehicle transportation, and heat generation. The book also considers other effects not quantified in dollar amounts, such as damages from climate change, effects of some air pollutants such as mercury, and risks to national security. While not a comprehensive guide to policy, this analysis indicates that major initiatives to further reduce other emissions, improve energy efficiency, or shift to a cleaner electricity generating mix could substantially reduce the damages of external effects. A first step in minimizing the adverse consequences of new energy technologies is to better understand these external effects and damages. The Hidden Costs of Energy will therefore be a vital informational tool for government policy makers, scientists, and economists in even the earliest stages of research and development on energy technologies.