FY 1987 FOSSIL ENERGY BUDGET REQUEST Statement of Donald L. Bauer Acting Assistant Secretary for Fossil Energy U.S. Department of Energy Before the Committee on Energy and Natural Resources Subcommittee on Energy Research and Development U.S. Senate March 17, 1986 FY 1987 FOSSIL ENERGY BUDGET REQUEST On February 5, 1986, President Reagan sent to the U.S. Congress his proposed federal budget for fiscal year 1987 the first budget submitted in the Gramm-Rudman-Hollings era. Contained within the Administration's proposed budget is a request for $150.1 million in total budget authority to continue fossil energy research. The request part of approximately $1.82 billion proposed by the Energy Department in FY 1987 for energy research and development embodies many of the same fiscal principles and goals as the President's overall budget submission. It maintains adequate spending levels for those functions that would not otherwise be pursued by the private sector, i.e., generic, high-risk, long-term research. It ensures that adequate funds are available for research that truly benefits the general population, i.e., federal assistance for technologies that can economically manage the environmental impacts of fossil fuels. It continues to build a broad base of scientific data that will help shape the fossil fuel technologies of the 21st Century. But perhaps most importantly, by reflecting this Administration's commitment to fiscal constraint, the FY 1987 Fossil Energy budget request will do its fair share in helping to bring federal spending under control and removing the last remaining obstacle to a future of continued economic growth. -2 Specifically, the Administration's FY 1987 budget request for Fossil Energy Research and Development can be summarized as follows: As the above table shows, the Energy Department is proposing to conduct a fossil energy research program in FY 1987 at a total funding level of slightly more than $150 million. However, this budget figure can be significantly reduced in line with the Administration's funding priorities by applying currently unspent funds principally from those added in FY 1986 during the Congressional appropriations process. These proposed deferrals are associated with the following programs (FY86 proposed deferral amount is in parentheses): magnetohydrodynamics ($13.130 million), fuel cells ($22.056 illion), surface coal gasification ($ 8.008 million), coal liquefaction ($ 6.329 million), control technology and coal preparation ($ 4.875 million), advanced research and technology development ($ 2.096 million), combustion systems ($0.951 million), heat engines ($ 1.428 million), oil shale ($ 2.856 sillion), program direction and management support ($ 0.476 million). In addition to the proposed deferrals, the FY 1987 fossil energy budget can be further offset by applying appropriation transfers of $2.075 million in unspent funds from prior year construction projects and $0.437 million in fees previously deposited in the "Energy Security Reserve" for guarantees of obligations for the Great Plains Coal Gasification Project. COOPERATIVE R&D VENTURES POOL The FY 1987 budget request includes a new initiative for a cooperative R&D venture approach in fossil energy. This new approach would be used in the applied research area, focusing upon general categories of technologies that are sufficiently mature to attract significant industrial interest. In FY 1987, the Fossil Energy program proposes to make available $12.5 million for an initial phase-in effort that will help us to determine the best strategy for applying the cooperative venture mechanism, to stimulate interest within different parts of the energy industry, and to develop practices that will help us realize, as much as possible, the benefits of this approach. Initially, the Fossil Energy program will confine the cooperative R&D venture pool to extraction-related technologies, such as: unconventional gas recovery O enhanced petroleum recovery The program will also be open to other R&D concepts applied to U.S. deposits of oil, gas and shale that might be brought to the Department for consideration. We recognize that there may be some initial reluctance in the marketplace to shift toward a different funding approach for industrial performed energy R&D. But that should not argue against the increased economic efficiency, market penetration, and Bore effective technology transfer offered by an improved funding mechanism. The cooperative venture intended to give the private sector a greater role in is initiative It will help ensure that tax dollars that are most relevant to the trends are applied to those research efforts and objectives of the marketplace. It will assist in the transfer of taxpayer-supported technology from the government to industry. And it will provide greater leverage for federal funds by increasing private sector cost-sharing. The Department will not place tight constraints on the types of cooperative opportunities to be considered. As currently envisioned, however, the proposed program would solicit proposals with the following common characteristics: DOE will be a minority funding partner with at least two other industrial partners; the federal share will provide a maximum of 49 percent of the total funding for the venture; Assurance must be available that federal funds will not be displacing private sector funds; O The taxpayer must be able to share in royalties or other profits from the venture, consistent with the government's funding contribution; O Preference will be given to companies with a proven record of successfully obtaining and managing co-funding from private sources. We recognize that additional details must be developed before this new initiative can be implemented. Therefore, we intend to work closely with Congress in developing a viable, effective venture pool approach that results in an efficient expenditure of tax dollars. Further discussion of the FY 1987 Cooperative R&D Ventures Pool initiative can be found on pages 25-26 of this testimony. |