MARCH 2010

CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

CBO

Federal 

Climate Change 

Programs:

Funding History and

Policy Issues

© JupiterImages
Pub. No. 4025
The Congress of the United States O Congressional Budget Office

A

STUDY

CBO

Federal Climate Change Programs: 

Funding History and Policy Issues 

March 2010
CBO

Notes

Unless otherwise noted, all budget authority and estimates of revenue losses attributable to 

tax preferences have been converted to 2009 dollars using the gross domestic product 

chain-weighted producer price index. 

Unless otherwise noted, all years are federal fiscal years, which run from October 1 to 

September 30.

Numbers in the text and tables might not add up to totals because of rounding.

On the cover: wind turbines, Tehachapi Pass, California, Department of Energy photo; 

window caulking, JupiterImages; photovoltaic panels near Alamosa, Colorado, National 

Renewable Energy Laboratory photo by Steve Wilcox.
Preface

CBO

As awareness of global climate change has expanded over the past decade, successive 

Congresses and Administrations have committed resources to studying climate change and 

reducing emissions of greenhouse gases, most notably carbon dioxide. The effort has included 

funding science and technology, creating tax preferences, and assisting other countries in their 

attempts to curtail greenhouse-gas emissions. At the direction of the Congress, successive 

Administrations have produced annual tabulations of the costs of the federal government’s 

climate change programs.

This Congressional Budget Office (CBO) study examines the government’s commitment of 

resources to those purposes. It presents information on current spending and analyzes recent 

patterns and trends in spending. In keeping with CBO’s mandate to provide objective, 

impartial analysis, this study makes no recommendations.

The study was written by Philip Webre of CBO’s Microeconomic Studies Division under 

the supervision of Joseph Kile and David Moore. Mark Booth and Grant Driessen provided 

data on excise taxes and tax preferences. Mark Booth, Kim Cawley, Terry Dinan, Ron Gecan, 

Daniel Hoople, Deborah Lucas, John Peterson, Robert Shackleton, and Julie Somers commented on various drafts. Jane Leggett of the Congressional Research Service and 

Gilbert Metcalf of Tufts University also provided useful comments. (The assistance of external 

reviewers implies no responsibility for the final product, which rests solely with CBO.)

Kate Kelly edited the study and Chris Howlett, Loretta Lettner, and Sherry Snyder proofread it. 

Jeanine Rees prepared the study for publication and Maureen Costantino designed the cover. 

Monte Ruffin produced the printed copies, Linda Schimmel coordinated the print distribution, 

and Simone Thomas and Annette Kalicki produced the electronic version for CBO’s Web site 

(www.cbo.gov).

Douglas W. Elmendorf

Director

March 2010

Contents

CBO

Summary and Introduction 1

Funding for Federal Climate Change Programs 4

Regular Appropriations from 1998 Through 2009 5

American Recovery and Reinvestment Act of 2009 7

Tax Preferences to Encourage Reductions in Emissions of Greenhouse Gases 10

Related Federal Actions 10

Rationales for Funding Federal Climate Change Programs 12

Social Benefits of Knowledge Exceed Private Benefits 14

Social Costs of Burning Fossil Fuels Are Not Fully Reflected in Market Prices 14

Consumers Have Muted Responses to Price Signals 15

Industry Structure and Regulation Weaken Incentives for Investment 15

Assessing Federal Climate Change Programs 16

Federal Research and Development in Climate Change 16

Technology Demonstration Projects 18

Programs to Foster Energy Efficiency 20

Financing for Electricity Infrastructure 21

Climate-Related Tax Preferences 22
VI 1

CBO

Tables

1. Budget Authority for Federal Climate Change Programs 5

2. Budget Authority for Climate Change Technology Programs 7

3. Budget Authority for Climate Science Programs 8

4. ARRA’s Climate Technology Programs 9

5. Estimated Revenue Losses Attributable to Climate-Related 

Tax Preferences, 2003 to 2009 11

Figures

1. Federal Climate Change Funding, by Category 2

2. New Wind Energy Generating Capacity 23

Box

1. Other Federal Actions That Can Affect Emissions of Greenhouse Gases 12
CBO

Federal Climate Change Programs: 

Funding History and Policy Issues 

Summary and Introduction

In recent years, the federal government has allocated several billion dollars annually for projects to expand the 

understanding of climate change or to reduce carbon 

dioxide and other greenhouse-gas (GHG) emissions. 

Most of that spending is done by the Department of 

Energy (DOE) and by the National Aeronautics and 

Space Administration (NASA), although a dozen other 

federal agencies also participate. The work is coordinated 

by committees in the Executive Office of the President. 

Successive Administrations have tracked the funding of 

climate change programs and the cost of tax incentives 

related to climate change through what is sometimes 

called the “climate change budget.” That budget typically 

has included federal efforts in several categories: 

B Technology programs that develop, demonstrate, and 

deploy new products or processes to reduce GHG 

emissions; 

B Scientific research directed toward explaining the 

processes of climate change and monitoring the global 

climate;

B Assistance to other countries as they work to reduce 

GHG emissions; and 

B Tax incentives that encourage businesses and households to adopt technologies that curtail the use of 

fossil fuels and reduce GHG emissions. 

Funding for Federal Climate Change Programs 

From 1998 to 2009, appropriations for agencies’ work 

related to climate change totaled about $99 billion 

(in 2009 dollars); more than a third of that sum was 

provided in fiscal year 2009. In addition, climate-related 

tax preferences reduced tax revenues, by a much smaller 

amount, from what would have been collected in their 

absence. For most of that period, federal resources 

devoted to examining and mitigating climate change 

grew slowly and unevenly when adjusted for inflation. 

Regular annual appropriations rose from $4.0 billion in 

1998 (measured in 2009 dollars) to $7.5 billion in 2009. 

During that period, the nation’s commitment to climaterelated technology development increased significantly, as 

has the forgone revenue attributable to tax preferences. 

Funding for climate science and international assistance, 

by contrast, stayed roughly constant. 

Growth in reported funding for climate programs 

occurred in three ways over the past decade. First, funding increased for some programs that were already in the 

tabulation of the climate change budget. Second, as different Administrations reconsidered what constituted a 

climate change program, some programs, most notably 

those in DOE for the development of nuclear power, 

were included in the tabulation without a change in mission. Third, the focus of some programs has shifted to 

emphasize climate change, and they were added to the 

climate change budget. DOE’s program for research and 

development (R&D) on energy supplied from fossil fuels, 

for example, evolved from research on converting coal 

into liquid fuels to finding ways to cut GHG emissions 

from coal-fired power plants. 

A dramatic increase in funding came with the enactment 

in February 2009 of the American Recovery and Reinvestment Act of 2009 (ARRA, Public Law 111-5), 

known as the economic stimulus legislation. Funding 

available under ARRA totals $35.7 billion for activities 

that the Congressional Budget Office (CBO) judges are
2 FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES

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Figure 1.

Federal Climate Change Funding, by Category

(Budget authority in billions of 2009 dollars)

Sources: Congressional Budget Office based on Office of Management and Budget, Federal Climate Change Expenditures: Report to Congress

(various years); and Government Accountability Office, Climate Change: Federal Reports on Climate Change Funding Should Be 

Clearer and More Complete, GAO-05-461 (August 2005), www.gao.gov/new.items/d05461.pdf.

Notes: Budget authority is the authority provided by law to incur financial obligations that will result in immediate or future outlays of federal 

government funds. This figure presents ARRA appropriations and regular 2009 appropriations separately.

ARRA = American Recovery and Reinvestment Act of 2009.

related to climate change (see Figure 1).1 Even though 

ARRA substantially increased R&D funding, the largest 

commitments of resources in that bill were for weatherization and other conservation efforts and for subsidies 

for new energy generation and electrical transmission 

facilities in the technology portion of the climate change 

budget. By contrast, the science programs received very 

little new funding and international assistance efforts 

received none. 

However, spending ARRA’s funds may prove challenging. Federal agencies face a statutory deadline of 

September 30, 2010, for obligating most of those 

funds—that is, for issuing contracts, ordering goods and 

services, or otherwise committing the agency to pay out 

the funds. Some analysts have raised questions about the 

ability of the responsible federal and state agencies to 

meet the deadline while maintaining program quality. 

Among other factors, the states are facing severe budget 

constraints, shortages of trained personnel, and the need 

to comply with federal regulatory requirements, 

including those that govern pay rates.

Rationales for Funding Federal Climate Change 

Programs

Global climate change poses one of the nation’s most significant long-term policy challenges. Human activities are 

producing increasingly large quantities of greenhouse 

gases, especially carbon dioxide. A strong consensus has 

developed in the expert community that, if allowed to 

continue unabated, the accumulation of greenhouse gases 

in the atmosphere will have extensive, highly uncertain, 

but potentially serious and costly consequences for 

regional climates around the world.2

A leading argument in favor of federal support for climate 

science and R&D programs holds that because private 

developers of scientific and technical innovations do not 

capture all of the benefits from their discoveries and 

inventions, private investment is lower than would be 

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 ARRA

0

5

10

15

20

25

30

35

40

Technology

Climate Science

International Assistance

1. ARRA provided appropriations for 2009 beyond amounts in the 

year’s regular appropriation acts. This study considers ARRA and 

the regular appropriations for 2009 separately to illustrate the 

developments in climate change policy that occurred in that year.

2. See Congressional Budget Office, Potential Impacts of Climate 

Change in the United States (May 2009). 
FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES 3

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justified by the magnitude of its benefit to society, and 

the federal government can step in to fill the gap. In particular, once scientific and technical innovations are produced, it is difficult or costly to deny the benefits of those 

innovations to any possible user. Therefore, private markets tend to supply too few such innovations, but the 

government is in a better position to consider all the benefits that consumers receive and to publicly support the 

R&D that makes them possible.

A different rationale for federal action arises from fossil 

fuel prices. As long as the price households and businesses 

pay for fossil fuels does not reflect the full cost to the 

environment or the economy of the fuels’ consumption, 

some activities included in the climate change budget 

(such as subsidies for technology that produces electricity 

without carbon emissions) can be viewed as compensating for energy prices that do not reflect those costs. 

Another justification for some programs in the climate 

change budget is that consumers or producers could be 

unwilling or unable to respond appropriately to market 

signals. Federal support for the development of energyefficient appliances, for example, could be appropriate if 

consumers reacted in a muted way to economic incentives to reduce energy consumption. 

Finally, funding for investment in new electrical grids 

and transmission lines could be viewed as a response to 

the difficulty private investors face in making large coordinated investments in a regulated marketplace.

Although some or all of those conceptual justifications 

could apply to many types of policies, they do not indicate that any particular federal program should be undertaken. The benefits of specific programs might not justify 

their costs, even if there is a justification for federal funding in that general area. Furthermore, some analysts question the ability of federal agencies to implement programs 

in a timely and cost-effective manner.

Assessing Federal Climate Change Programs

The climate change budget is normally classified in the 

categories of technology, science, international assistance, 

and tax preferences. In its policy assessments, this CBO 

study focuses on the technology programs and tax preferences, organized into functional categories—R&D, technology demonstration, energy efficiency, infrastructure 

investment, and tax preferences—that correspond to 

areas in which there has been a significant recent commitment of resources. 

Previous analyses have shown that some programs in the 

climate change budget, although not all, have provided 

economic benefits to society that exceed the federal government’s investment. In particular:

B Research and Development. According to an analysis 

by the National Research Council, federally sponsored 

R&D in energy efficiency has generally provided benefits in excess of its costs and has effectively promoted 

development of technology. Federal funding for R&D 

also continues to help reduce the costs of renewable 

sources of energy. But federal support for R&D 

cannot fully compensate for the fact that energy prices 

do not reflect the full cost to the environment and the 

economy of producing and using fossil fuels. Because 

prices for fossil fuels do not reflect those costs, and 

their prices are lower than the prices of renewable 

alternatives, those alternatives still supply only a small 

portion of the energy consumed in the United States. 

B Technology Demonstration Projects. The Government Accountability Office (GAO) has raised concerns about DOE’s execution of large-scale technology 

demonstrations, including DOE-funded projects to 

produce liquid fuels from coal, noting that the department’s project managers have failed in the past to hold 

contractors to goals for cost and performance. GAO 

points to a long history of cost overruns and unmet 

schedules for DOE projects. More generally, other 

analysts question whether government subsidies are 

appropriate for technology demonstration because 

investors—rather than society at large—often capture 

most of the benefits from investments at that stage of 

technology development. However, advocates of such 

DOE programs assert that there are still gaps in funding sources at the point of technology development, 

despite the existence of a vibrant venture capital 

industry.

B Energy Efficiency. The Department of Energy’s programs for energy audits and weatherization administered through local, state, and tribal governments and 

efforts by the General Services Administration (GSA) 

to develop energy-efficient federal office buildings 

constitute the government’s largest non-R&D effort in 

the arena of energy efficiency. Reviews of weatherization projects suggest that the economic benefits, 
4 FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES

CBO

including energy savings, that accrue from federally 

sponsored investments in energy efficiency surpass the 

programs’ costs. Although DOE and GSA have obligated a substantial share of their ARRA funds in anticipation of the statutory deadline of September 30, 

2010, new regulatory requirements imposed by ARRA 

and state budget constraints have slowed spending for 

some DOE weatherization projects.

B Electrical Infrastructure. The federal government 

subsidizes both the development of technology and 

the investment in facilities that reduce the amount of 

greenhouse gases emitted in meeting the nation’s 

demand for electricity. DOE’s programs have contributed to the development of wind and solar technologies, and tax preferences provide incentives for their 

deployment. ARRA included funding to DOE for 

matching grants for smart-grid upgrades and for loan 

guarantees for innovative technology projects. Those 

programs are subject to two different deadlines. The 

department is required to obligate smart-grid funds by 

September 30, 2010; as of February 2010, it had obligated 65 percent of the funds for that purpose. The 

law also specifies that funding for loan guarantees is 

to be used for projects that begin construction by 

September 30, 2011; as of February 2010, just 

1 percent of those funds had been obligated.

Although the subsidies provided in the climate change 

budget address a policy objective that was adopted relatively recently, subsidies for investment in electrical 

facilities are not new. Several federal credit programs, 

notably those that support rural electrification, have 

existed for decades and sometimes have continued 

long after their original goal was met. The difficulties 

in meeting the obligation schedules in ARRA 

notwithstanding, that experience suggests that, once 

started, subsidies to the electricity sector can be difficult to stop.

B Tax Preferences. Because tax preferences (generally 

provided as tax credits or tax deductions) apply only to 

specific actions, many analysts regard them as inefficient tools for promoting reduced GHG emissions. 

For example, conserving home heating oil by installing solar heating systems is encouraged by a tax credit, 

but turning thermostats down and wearing sweaters is 

not, even though doing so could achieve substantial 

reductions in GHG emissions at a lower cost. Tax 

preferences that are intended to encourage consumers 

and producers of electricity to choose technologies 

that reduce emissions vary widely in the amount of 

GHG emissions curtailed per tax dollar forgone. 

According to one calculation, the subsidy per ton of 

greenhouse gases not emitted can vary by about 50 

percent from the same tax provision, depending on 

whether it is used for wind or geothermal technology. 

Most analysts believe that better results might come 

from increasing the price of GHG emissions because 

market forces tend to equalize the cost of reducing 

GHG emissions as consumers and producers respond 

to price signals. Despite their limitations, tax credits 

and deductions have helped encourage investment in 

renewable sources of energy.

Funding for Federal Climate Change 

Programs 

For several decades, the federal government has funded 

programs related to what is now recognized as a global 

trend toward a warming climate. Among the government’s programs are climate science efforts to monitor 

atmospheric concentrations of greenhouse gases and track 

attendant changes in the Earth’s temperatures and 

weather. Other research has involved the development of 

technology for using sources of energy that emit less carbon dioxide. The government has also provided funding 

and tax incentives to encourage the development and 

adoption of products and programs aimed at reducing 

GHG emissions. In addition, the United States assists 

other countries’ efforts to curtail emissions. Last year’s 

enactment of ARRA substantially increased funding for 

efforts to reduce GHG emissions.

Since 1989, a Cabinet-level committee has coordinated 

the activities of 14 federal agencies that study climate 

change or work to mitigate emissions of greenhouse gases, 

although the bulk of the spending is carried out by DOE 

and NASA.3

 Until 2007, the Office of Management

3. Various Administrations have grouped programs differently and 

have sometimes given them different names. For the sake of continuity, this study refers to programs in their current configurations, 

with the recognition that names and composition have changed 

over time. For a comprehensive history of the various Administrations’ groupings of climate change programs, see Jane A. Leggett, 

Climate Change: Federal Program Funding and Tax Incentives, CRS 

Report for Congress RL33817 (Congressional Research Service, 

December 22, 2008), pp. 2–5, www.crs.gov/ReportPDF/

RL33817.pdf. 
FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES 5

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Table 1.

Budget Authority for Federal Climate Change Programs

(Billions of 2009 dollars)

Sources: Congressional Budget Office based on Office of Management and Budget, Federal Climate Change Expenditures: Report to 

Congress (various years); and Government Accountability Office, Climate Change: Federal Reports on Climate Change Funding 

Should Be Clearer and More Complete, GAO-05-461 (August 2005), www.gao.gov/new.items/d05461.pdf.

Notes: Budget authority is the authority provided by law to incur financial obligations that will result in immediate or future outlays of 

federal government funds. 

ARRA= American Recovery and Reinvestment Act of 2009; n.a. = not available.

a. The amounts for 2009 exclude budget authority provided by ARRA, which was enacted on February 17, 2009.

and Budget (OMB), as a member of the committee, tabulated funding for climate change programs and presented the information to the Congress in annual reports 

on what it called the climate change budget.4

 OMB has 

supplied CBO with tabulations for 2008 and 2009. 

Except for appropriations under ARRA, the climate 

change spending and revenue data in this report come 

from OMB’s recent tabulations and are supplemented 

with data that summarize earlier annual reports.5

Regular Appropriations from 1998 Through 2009 

For most of the period from 1998 to 2009, appropriations for all climate change programs were roughly constant as a share of total discretionary appropriations.6

Annual funding related to climate change typically was 

less than 0.6 percent of discretionary funding during 

the period. Because of the increased appropriations provided in ARRA, climate change programs accounted 

for 2.9 percent of all discretionary budget authority for 

2009. ARRA’s appropriations accounted for 36 percent of 

total climate funding from 1998 through 2009, measured 

in 2009 dollars.

Spending in the climate change budget is targeted to 

three primary areas of federal concern: 

B Development of technologies to reduce GHG 

emissions;

B Study and monitoring of the global climate; and

B Support for efforts of other countries to reduce 

GHG emissions.

Most of the real (inflation-adjusted) growth in climate 

programs after 1998 was in funding for technology development, demonstration, and deployment. Real spending 

on climate science was roughly constant. International 

assistance also was roughly constant and relatively small, 

compared with the other two categories (see Table 1). In 

1998, programs in the climate change budget received a 

total of $4.0 billion in budget authority (in 2009 dollars). 

Of that amount, climate science received somewhat more 

than technology development. By 2009, the amounts and 

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 a ARRA

Technology 1.6 2.2 2.2 2.0 2.0 3.0 3.3 3.1 3.0 3.7 4.3 5.2 35.2

Climate Science 2.2 2.1 2.1 2.1 2.0 2.4 2.3 2.1 1.8 1.9 1.9 2.0 0.5

International Aid 0.2 0.4 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.2 0.3 0 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____

Total 4.0 4.5 4.4 4.4 4.2 5.7 5.8 5.4 5.1 5.8 6.4 7.5 35.7

Forgone Revenues from

Tax Preferences n.a. n.a. n.a. n.a. n.a. 0.7 0.6 0.4 1.2 1.6 1.9 2.2 n.a.

4. This CBO study updates a CBO memorandum on federal climate 

spending, Climate Change and the Federal Budget (August 1998).

5. Office of Management and Budget, Federal Climate Change 

Expenditures: Report to Congress (various years); and Government 

Accountability Office, Climate Change: Federal Reports on Climate 

Change Funding Should Be Clearer and More Complete, GAO-05-

461 (August 2005), www.gao.gov/new.items/d05461.pdf.

6. Funding for climate change programs usually is provided in the 

form of budget authority set in annual appropriation acts—that 

is, discretionary budget authority—in contrast with spending for 

Social Security, Medicare, or interest payments on the debt, which 

occurs without specific annual appropriations. Budget authority 

allows agencies to incur financial obligations that will result in 

immediate or future outlays of federal government funds.
6 FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES

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proportions had changed; the total was $7.5 billion, 

and technology programs accounted for two-thirds of all 

funding.

Growth in the climate change budget occurred in three 

ways: First, some programs already in the tabulation, 

such as the Department of Energy’s program for R&D in 

renewable energy, received additional funds. Second, as 

successive Administrations revised the definition of “climate change program,” some existing programs were 

incorporated into the climate change budget without 

changes in mission.7

 For example, in 2003, the Administration transferred the bulk of nuclear energy research 

programs to the climate change budget because nuclear 

power plants do not emit greenhouse gasses to the atmosphere.8

 DOE’s weatherization grants, which constitute a 

substantial portion of the climate change budget, were 

not included before 2001. (Without the weatherization 

and nuclear programs, total funding for DOE’s technology programs would have been roughly a quarter smaller 

after 2003.) Third, the mission of some programs shifted 

to focus on climate change; those programs, once 

excluded from the climate change budget, were subsequently included. One such effort, the R&D program for 

coal that was long a part of DOE’s fossil fuel energy 

research, now is counted as climate change research 

because the focus changed from producing liquid fuels 

from coal to finding ways to reduce GHG emissions from 

coal-fired power plants. 

Climate Change Technology Programs. In recent years, 

the bulk of the funds in the climate change budget have 

been allocated to programs that seek to advance the 

development and introduction of products and processes 

that reduce GHG emissions. Although such programs 

span a range of activities, until ARRA, most of the funding was directed to R&D (see Table 2). Since 1998, morthan 80 percent of the nation’s funding for climate technology programs has gone to DOE.

Funding for technology programs has increased substantially since 1998, when federal agencies received 

$1.6 billion (in 2009 dollars) to develop new technology 

to reduce GHG emissions. By 2009, funding had more 

than tripled; participating federal agencies received 

$5.2 billion in regular appropriations that year. In 

addition to fairly steady increases in annual appropriations, a substantial portion of ARRA’s total budget 

authority was slated for climate-related activities in technology programs. 

The largest share of funding for technology development 

in DOE has been devoted to R&D on conservation and 

on solar and other renewable sources of energy, all 

through DOE’s Office of Energy Efficiency and Renewable Energy (EERE). Conservation funding has included 

support for weatherization assistance and for the efforts 

of state, local, and tribal governments to develop energy 

plans, even though such programs do not involve developing new technology. EERE has also funded R&D on 

high-mileage automobiles and on improving production 

of alternative motor fuels, including ethanol, from biomass. 

DOE’s support for R&D on nuclear power and fossil 

fuels grew considerably before ARRA was enacted; 

excluding funding provided by ARRA, between 2003 and 

2009, appropriations for both programs doubled, 

although they still received less funding than did EERE’s 

programs. Research on nuclear fusion and hydrogen fuel 

also is supported by the department’s Office of Science.

Climate Science. Federal climate science research focuses 

on broadening fundamental scientific understanding of 

climate change and on gathering data to monitor physical 

processes. Although the National Oceanic and Atmospheric Administration (NOAA) of the Department of 

Commerce chairs the coordinating committee for the 

program, the bulk of the funding goes to NASA. 

Adjusted for inflation, funding for climate science programs changed little from 1998 to 2009; in fact, at 

$2.0 billion, the 2009 appropriations were below the 

1998 amounts in 2009 dollars (see Table 3). NASA’s 

efforts have been dominated by the design, development, 

and procurement of satellites engaged in the observation 

7. In some agencies, even for programs that were always in the 

climate budget, some expenses (including salaries) not included 

initially were added later. See Leggett, Climate Change, p. 8. 

8. See Government Accountability Office, Climate Change: Federal 

Reports on Climate Change Funding Should Be Clearer and More 

Complete, pp. 11–13. 
FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES 7

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Table 2.

Budget Authority for Climate Change Technology Programs

(Billions of 2009 dollars)

Sources: Congressional Budget Office based on Office of Management and Budget, Federal Climate Change Expenditures: Report to 

Congress (various years); and Government Accountability Office, Climate Change: Federal Reports on Climate Change Funding 

Should Be Clearer and More Complete, GAO-05-461 (August 2005), www.gao.gov/new.items/d05461.pdf.

Notes: Budget authority is the authority provided by law to incur financial obligations that will result in immediate or future outlays of 

federal government funds. 

ARRA = American Recovery and Reinvestment Act of 2009; EERE= Energy Efficiency and Renewable Energy Program; 

DOE = Department of Energy; * = less than $50 million; n.a. = not available.

a. The amounts for 2009 exclude budget authority provided by ARRA, which was enacted on February 17, 2009.

b. Includes research and development on solar energy, conservation, and renewable-energy programs.

c. Includes research on nuclear fusion, carbon storage, and hydrogen fuel.

d. Includes $4.0 billion for ARRA’s Innovative Technology Loan Guarantee Program. 

e. Consists of the Departments of Agriculture, Commerce, Defense, Housing and Urban Development, the Interior, and Transportation; 

the Environmental Protection Agency; the National Aeronautics and Space Administration; the National Science Foundation; and the

General Services Administration’s budget authority provided by ARRA.

of the planet and its atmosphere and the analysis of the 

data that those satellites collect.9

International Climate Change Assistance. Money given 

by the U.S. government to support other nations’ efforts 

to reduce GHG emissions is by far the smallest component of the climate change budget. International assistance programs have received between $200 million and 

$400 million per year, representing 5 percent of the budget authority for climate change activities from 1998 to 

2009 (see Table 1). Appropriations for international 

assistance for climate change are divided among the 

U.S. Agency for International Development, the State 

Department, and the Department of the Treasury.

American Recovery and Reinvestment Act of 2009

The enactment of ARRA substantially increased funding 

for climate change programs and reinforced the trend 

toward greater funding for technology programs. Funding 

available under ARRA totals $35.7 billion for activities 

that CBO judges are related to climate change: $35.2 billion for technology programs, $0.5 billion for climate science programs, and no additional funding for international assistance. ARRA’s funding was five times the 

amount of the regular 2009 appropriations for climate 

change programs. The legislation also extended and modified several climate-related tax preferences.

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 a ARRA

Department of Energy

EEREb 0.9 1.1 1.1 1.2 1.2 1.4 1.4 1.4 1.3 1.5 1.8 2.2 16.8

Nuclear * * * * * 0.3 0.4 0.3 0.4 0.5 0.7 0.8 *

Electric n.a. n.a. n.a. * * 0.1 0.1 0.1 0.1 0.1 0.1 0.1 4.2

Fossil fuels 0.3 0.3 0.4 0.4 0.2 0.3 0.5 0.4 0.4 0.5 0.6 0.8 3.4

Sciencec * * * * * 0.3 0.4 0.4 0.4 0.5 0.5 0.6 0.1

Other DOE 0.2 0.2 0.2 0.2 0.3 * * * * * * * 4.4 d

___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____

Subtotal 1.4 1.7 1.8 1.9 1.8 2.5 2.7 2.6 2.5 3.2 3.7 4.5 28.9

Other Agenciese 0.2 0.4 0.4 0.1 0.1 0.4 0.5 0.5 0.4 0.4 0.5 0.7 6.3

___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____

Total 1.6 2.2 2.2 2.0 2.0 3.0 3.3 3.1 3.0 3.7 4.3 5.2 35.2

9. U.S. Global Change Research Program, Our Changing Planet: 

The U.S. Climate Change Science Program for Fiscal Year 2010 

(a report by the Global Change Research Program and the Subcommittee on Global Change Research, published as a supplement to the President’s Budget for Fiscal Year 2010, October 

2009), pp. 134–138, http://downloads.globalchange.gov/ocp/

ocp2010/ocp2010.pdf.
8 FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES

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Table 3.

Budget Authority for Climate Science Programs

(Billions of 2009 dollars)

Sources: Congressional Budget Office based on Office of Management and Budget, Federal Climate Change Expenditures: Report to 

Congress (various years); and Government Accountability Office, Climate Change: Federal Reports on Climate Change Funding 

Should Be Clearer and More Complete, GAO-05-461 (August 2005), www.gao.gov/new.items/d05461.pdf.

Notes: Budget authority is the authority provided by law to incur financial obligations that will result in immediate or future outlays of 

federal government funds.

ARRA = American Recovery and Reinvestment Act of 2009; DOE = Department of Energy; DOC = Department of Commerce; 

NASA = National Aeronautics and Space Administration; NSF = National Science Foundation; USDA = Department of Agriculture; 

* = less than $50 million.

a. The amounts for 2009 exclude budget authority provided by ARRA, which was enacted on February 17, 2009.

b. Consists of the Department of Transportation, the Environmental Protection Agency, the National Institutes of Health, the Smithsonian 

Institution, the U.S. Agency for International Development, and the U.S. Geological Survey.

OMB, however, has tabulated ARRA’s climate change 

funding differently. It included only $25.6 billion of budget authority from ARRA in its tally of climate change 

programs.10 Most of the difference between the two estimates can be accounted for by the Administration’s exclusion of $4.0 billion in budget authority for the subsidies 

for DOE’s Innovative Technology Loan Guarantee Program and $4.5 billion allocated to convert facilities 

operated by the General Services Administration into 

energy-efficient “green” buildings.11 CBO believes those 

programs should be included in any comprehensive measure of how much is being spent related to climate change.

Technology Programs Funded by ARRA. The economic 

stimulus legislation directed less money toward developing new technology than to weatherization and conservation programs and to financing the modernization of the 

infrastructure for producing and distributing electricity. 

The legislation provided $16.8 billion for DOE’s programs in EERE (see Table 4). Within those programs, 

R&D funding amounted to $2.5 billion, Energy Efficiency and Conservation Block Grants received $3.2 billion, $5.0 billion went to the Weatherization Assistance 

Program (WAP), $3.1 billion was devoted to the State 

Energy Program, and $2.0 billion went to grants for 

manufacturers of advanced batteries and battery systems, 

mainly for motor vehicles. 

As a rule, WAP funnels most of its funds to state agencies, 

which combine that funding with federal funds from the

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 a ARRA

DOE 0.1 0.1 0.1 0.1 0.1 0.3 0.3 0.3 0.1 0.1 0.1 0.2 0.1

DOC 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.3 0.2 0.3 0.4 0.1

NASA 1.6 1.5 1.4 1.4 1.3 1.5 1.4 1.2 1.0 1.1 1.1 1.1 0.2

NSF 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.1

USDA 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 *

Other Agenciesb 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 * ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

Total 2.2 2.1 2.1 2.1 2.0 2.4 2.3 2.1 1.8 1.9 1.9 2.0 0.5

10. In contrast, the Council of Economic Advisers (CEA) has estimated ARRA’s clean energy investments at about $90 billion. The 

CEA tally for investment in clean energy does not replace OMB’s 

climate change budget but provides a slightly different perspective 

on federal spending. Because CEA used broader criteria, the two 

estimates differ in several ways. For example, CEA’s estimate of 

clean energy funding includes $18 billion in transportation investments that OMB did not count as part of the climate budget. In 

addition, CEA’s estimate of spending on clean energy includes 

about $30 billion for tax expenditures authorized by ARRA 

through 2019. CEA’s analysis of the clean energy budget also considers some programs included in CBO’s tally that were not 

included in OMB’s estimate of the climate budget. See Council of 

Economic Advisers, Economic Report of the President (February 

2010), pp. 243–246, www.whitehouse.gov/administration/eop/

cea/economic-report-of-the-President. 

11. ARRA’s funding of the Innovative Technology Loan Guarantee 

Program was reduced from $6.0 billion to $4.0 billion as 

the result of a transfer to the Car Allowance Rebate System, 

commonly known as Cash for Clunkers.
FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES 9

CBO

Table 4.

ARRA’s Climate Technology Programs

(Budget authority in billions of dollars)

Source: Congressional Budget Office.

Notes: Budget authority is the authority provided by law to incur 

financial obligations that will result in immediate or future 

outlays of federal government funds.

ARRA = American Recovery and Reinvestment Act of 2009; 

R&D = research and development; DOE = Department of 

Energy.

a. Programs that are included in CBO’s climate change tabulation 

but excluded from the tabulation provided by the Office of 

Management and Budget.

b. Originally $6.0 billion; $2.0 billion was transferred to the 

Car Allowance Rebate System.

c. Programs in the Departments of Defense and Transportation, 

the National Aeronautics and Space Administration, and the 

National Science Foundation.

Low Income Home Energy Assistance Program and any 

state funds available for such programs. The money often 

goes to local (typically nonprofit) weatherization organizations that do the work. Organizations active in the field 

suggest that in 2007 such funding from all sources was 

about $800 million, but increases before ARRA have 

brought the total annual funding closer to $1 billion.12

The Department of Energy announced that about $8 billion (about $5 billion from WAP and about $3 billion 

from the State Energy Program) in ARRA funds would 

be provided for such activities. That amount is roughly 

eight times the normal annual funding for such activities.

The tally of climate technology programs funded by 

ARRA includes $4.2 billion for DOE’s Office of Electricity Delivery and Energy Reliability for climate-related 

activities that in 2009 had received $134 million through 

its annual appropriation. Some of ARRA’s funding for 

that office was devoted to energy programs that had been 

authorized but not funded in previous years. For example, the Smart Grid Investment Matching Grant Program, authorized by the Energy Independence and Security Act of 2007, received its first funding under ARRA. 

The $3.4 billion provided by ARRA for technology 

development projects involving fossil fuels was $2.5 billion more than had been appropriated in 2009. That 

ARRA funding included $1.5 billion for industrial carbon capture and energy-efficiency improvement projects; 

$1.0 billion for unspecified fossil fuel R&D efforts; and 

$800 million for the Clean Coal Power Initiative, which 

focuses on ways to reduce carbon emissions while burning coal. ARRA also provided $400 million for the 

Advanced Research Projects Agency–Energy, a new 

agency in the Department of Energy that is modeled after 

the Defense Advanced Research Projects Agency and that 

focuses on high-risk, high-payoff energy technology.

DOE also has $4.0 billion in funding under ARRA for 

the Innovative Technology Loan Guarantee Program. 

The loan guarantees previously had been authorized, but 

the stimulus law provided the program’s first appropriation and extended its authority to electricity transmission 

Energy Efficiency and Renewable Energy

R&D, including geothermal and biomass 2.5

Energy Efficiency and Conservation Block Grants 3.2

Weatherization Assistance Program 5.0

State Energy Program 3.1

Grants for manufacturing advanced batteries and 

battery components 2.0

Other projects 1.0 ____

Subtotal, Energy Efficiency and Renewable Energy 16.8

Electricity Delivery and Energy Reliability 4.2

Fossil Fuels 3.4

Science: Fusion, Sequestration, and Hydrogen Fuel 0.1

Advanced Research Projects Agency–Energy 0.4

Innovative Technology Loan Guarantee Programa 4.0 b

____

Subtotal, DOE's Programs 28.9

General Services Administration

"Green buildings"a 4.5

Energy-efficient federal motor vehicle fleeta 0.3

Department of Labor ("Green" jobs training)a 0.5

Department of Housing and Urban Development

Native American housing block grantsa 0.5

Low-income housing weatherizationa 0.3

Other Programsc 0.3 ____

Subtotal, Other Agencies' Programs 6.3

Total 35.2

2009

DOE's Programs

Other Agencies' Programs 

12. See, for example, Economic Opportunity Studies, “How Many 

Workers Does the Weatherization Assistance Program Employ 

Now? What Jobs Will the Recovery Act Offer?” (Washington, 

D.C.: Economic Opportunity Studies, February 2009), 

www.opportunitystudies.org/repository/File/weatherization/

WAP_Workforce_Scenarios.pdf.
10 FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES

CBO

projects. According to the conference report accompanying the legislation, that program was expected to support 

more than $60 billion in loans.13

Outside of DOE, the largest appropriation provided by 

ARRA was $4.5 billion to support GSA’s “green building” 

effort to improve the energy efficiency of federal buildings. Unless other action is taken by the Congress and 

the Administration to extend ARRA’s deadline, all but 

$550 million of the roughly $16 billion in funding for 

weatherization and conservation programs of DOE and 

GSA must be obligated by September 30, 2010; the rest 

must be obligated by September 30, 2011.14

Climate Science Programs Funded by ARRA. In addition 

to funding technology programs, ARRA provided almost 

$500 million for climate science programs (see Table 3). 

NASA received more than $200 million to accelerate 

development of climate satellites and increase the agency’s 

supercomputing capabilities. The National Science Foundation received about $100 million. The remainder of 

ARRA’s climate science funds goes to DOE and NOAA.

Tax Preferences to Encourage Reductions in 

Emissions of Greenhouse Gases 

The federal tax code contains preferences that encourage 

households and businesses to invest in products and processes that are energy efficient or that reduce GHG emissions. Over the past few years, new tax incentives have 

been added, and taxpayers’ use of some existing incentives 

has increased.15 OMB estimated that such incentives in 

2003 resulted in $700 million in revenue forgone by 

the Treasury. Estimates for 2009 set that amount at 

$2.2 billion (see Table 5).16 OMB’s estimates for 2009 

did not include changes made in ARRA; estimated revenue losses are expected to increase when the effects of 

ARRA are included.

By far the largest tax preference devoted to the reduction 

of GHG emissions is the new technology credit for a portion of the cost of investment in a solar, geothermal, or 

other renewable-energy facility placed in service to produce electricity. The size of the credit varies by year and 

technology. The Administration has estimated that, in 

2009, $1.1 billion in lost revenue was attributable to the 

credit, which was designed to encourage reductions in 

GHG emissions from greater use of energy sources other 

than advanced-technology coal-fired power plants. 

Estimates for tax preferences differ conceptually from and 

are less certain than are estimates for discretionary spending programs. Budget authority for discretionary 

spending is set by law, although it can take several years 

for funds to be obligated and spent, and as noted in the 

discussion of ARRA, it is not certain when those events 

will occur. In contrast, subsidies conveyed in the form of 

tax preferences are decreases in tax revenues relative to 

what would have been collected in the absence of a particular provision of the tax code. Estimates of revenue forgone as a result of tax preferences consider the interaction 

of tax law and rules with economic factors and taxpayers’ 

propensity to make use of the preferences. Those complexities make the estimates of the revenue loss from tax 

preferences more uncertain than estimates of discretionary spending.

Related Federal Actions

The various Administrations’ tabulations of climate programs and tax preferences typically include programs that 

are designed to explain or mitigate climate change caused

13. See House of Representatives, “Joint Explanatory Statement of the 

Committee of the Conference,” Conference Report on H.R. 1, 

American Recovery and Reinvestment Act of 2009, (February 12, 

2009), http://appropriations.house.gov/pdf/Recovery_JS

_DivA.pdf. 

14. An obligation, such as a signed contract, is a definite commitment 

that creates a liability for the government to pay for goods and 

services ordered or received.

15. In some years, the Administration reported current estimated 

amounts of revenue lost because of tax provisions; in others, 

proposed changes to tax provisions were reported. CBO reports 

amounts of revenues lost rather than proposed changes. The Joint 

Committee on Taxation also estimated the revenue forgone from 

tax preferences for energy production and conservation, some of 

which are designed to promote reduced emissions of greenhouse 

gases. See Joint Committee on Taxation, Tax Expenditures for 

Energy Production and Conservation, JCX-25-09R (April 21, 

2009), www.jct.gov/publications.html?func=startdown&id=3554. 

16. The figures in Table 5 reflect the various Administrations’ estimates of the tax preferences in place at the time of each year’s tabulation. For example, the estimates for 2003 and 2004 were taken 

from the April 2006 climate change report to the Congress. See 

Office of Management and Budget, Federal Climate Change 

Expenditures: Report to Congress (April 2006), Table 7, p. 23, 

www.whitehouse.gov/omb/legislative/fy07_climate_change.pdf. 

CBO took estimates for later years from subsequent years’ climate 

change reports. (The 2006 estimate came from the 2007 volume, 

and so forth.) The estimates have not been revised to include 

newly available data, and there are no estimates for tax preferences 

before 2003. 
FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES 11

CBO

Table 5.

Estimated Revenue Losses Attributable to Climate-Related Tax Preferences, 

2003 to 2009

(Billions of 2009 dollars)

Sources: Congressional Budget Office based on Office of Management and Budget, Federal Climate Change Expenditures: Report to 

Congress (various years); and Government Accountability Office, Climate Change: Federal Reports on Climate Change Funding 

Should Be Clearer and More Complete, GAO-05-461 (August 2005), www.gao.gov/new.items/d05461.pdf.

Notes: Estimates were taken from various Administrations’ tabulations that were roughly contemporaneous with the year in question. 

The estimates have not been adjusted to reflect newer data. The estimates for 2009 exclude the effects of the American Reinvestment 

and Recovery Act of 2009.

n.a. = not applicable (either because the tax preference did not exist or because it was not estimated separately); * = less than $50 million. 

a. Before 2008, the energy investment credit was part of the new technology credit. After 2007, the energy investment credit included 

business installation of fuel cells.

by human activity. However, issues of definition render 

the tallies of climate change programs somewhat arbitrary. Programs that are not in the tallies also affect GHG 

emissions. For example, the federal tax on motor fuels, 

which is not included on the various Administrations’ 

lists, cuts consumption of gasoline by making it more 

expensive, but the tax also can increase demand for gasoline by adding to the funds available to build more and 

better highways; both of those effects alter GHG emissions. In other instances, policies in completely unrelated 

fields might affect climate change. Some analysts point 

out that the deductibility of interest on mortgages 

encourages taxpayers to buy larger homes in the suburbs, 

thereby increasing energy consumption and GHG emissions. (Box 1 discusses federal programs and tax preferences that may affect GHG emissions but that are not 

included in the climate change budget.)

New questions about what belongs on the list of federal 

climate change programs could arise in the future. For 

example, the Rural Utilities Service (RUS, formerly the 

Rural Electrification Administration) of the Department 

of Agriculture, which is not included on the current 

Administration’s list, subsidizes electrical generation and 

infrastructure projects that might increasingly come to 

include investments in wind farms and in expanded

2003 2004 2005 2006 2007 2008 2009

New Technology Credit (Without coal) 0.4 0.4 0.2 0.5 0.4 0.9 1.1

Energy Investment Credita n.a. n.a. n.a. n.a. n.a. * *

Tax Credit and Deduction for 

Clean-Fuel-Burning Vehicles 0.1 0.1 0.1 0.1 0.3 0.2 0.1

Exclusion from Gross Income of Utility

Conservation Subsidies 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Credit for Holding Clean 

Renewable-Energy Bonds n.a. n.a. * * * * 0.1

Deduction for Certain Energy-Efficient

Commercial Buildings n.a. n.a. * 0.1 0.2 0.2 0.2

Credit for Building Energy-Efficient Housing n.a. n.a. * * * * *

Credit for Energy-Efficiency 

Improvements to Existing Housing n.a. n.a. * 0.2 0.4 0.2 0.4

Credit for Energy-Efficient Appliances n.a. n.a. * 0.1 0.1 0.1 0.1

Credit for Residential Purchase and

Installation of Solar or Fuel Cells n.a. n.a. * * * * *

Tax Deduction for Qualified 

Energy Conservation Bonds n.a. n.a. n.a. n.a. n.a. * *

Credit for Business Installation of 

Qualified Fuel Cellsa n.a. n.a. n.a. * * n.a. n.a.

___ ___ ___ ___ ___ ___ ___

Total 0.7 0.6 0.4 1.2 1.6 1.9 2.2
12 FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES

CBO

Continued

transmission lines from wind farms to the electrical grid. 

Those future projects could be designed to mitigate climate change, and decisions will be made about whether 

to include such subsidies in the climate change tally.

Rationales for Funding Federal 

Climate Change Programs

Global climate change poses one of the nation’s most significant long-term policy challenges. Human activities are 

producing increasingly large quantities of greenhouse 

gases, especially carbon dioxide. A strong consensus has 

developed in the expert community that, if allowed to 

continue unabated, the accumulation of greenhouse gases 

in the atmosphere will have extensive, highly uncertain, 

but potentially serious and costly consequences for 

regional climates around the world. Those expected 

and possible harmful effects suggest the potential for 

social benefits that could result from policy actions aimed 

at reducing the extent of climate change.

For the programs currently included in the climate 

change budget, analysts recognize at least four possible 

Box 1.

Other Federal Actions That Can Affect Emissions of Greenhouse Gases

In addition to the activities included in the climate 

change budget, the federal government intervenes in 

energy, transportation, and other markets through 

other tax preferences and spending programs in ways 

that could have a bearing on climate change. There is 

significant federal intervention in the form of taxes 

on fossil fuels and other transportation-related goods 

and services. The government also acts through other 

smaller direct spending programs and tax preferences. 

Some subsidies and other interventions in energy 

markets could result in increased emissions and others could have mixed effects.

The tax system’s provisions that encourage domestic 

production of fossil fuels are estimated to have cost 

the government $2.7 billion in 2009 in forgone revenue.1

 Two provisions—one allowing deductions for 

producers of oil and natural gas in excess of their 

actual costs and the other allowing the expensing of 

exploration and development costs from oil and 

natural gas production—together cost the Treasury 

$1.6 billion. Other provisions were individually 

smaller and collectively cost the Treasury $1.1 billion 

(see the table at right). In addition, tax credits that 

producers and sellers of ethanol and other biofuels 

receive are excluded from the Administration’s tabulations of the climate change budget.

On the spending side, federal subsidies for electricity 

production and distribution result in lower energy 

bills for consumers and thus could spur increased 

use of fossil fuels and greater emissions of greenhouse 

gases.

In some cases, consumer subsidies are direct and 

targeted toward particular groups, as with the Department of Health and Human Services’ Low Income 

Home Energy Assistance Program (LIHEAP), the 

government’s largest such program. In 2009, 

LIHEAP received $5.1 billion in budget authority to 

provide annual grants to states, territories, and tribal 

governments that fund energy assistance programs for 

households.2

 Although the program provides some 

help with weatherization, its primary purpose is to 

subsidize the heating and cooling rates paid by the 

program’s low-income participants. 

In other cases, the effect on consumers is less direct. 

Federal agencies use various tools to subsidize the 

production of electricity, which reduces the cost to 

consumers. And unlike LIHEAP’s benefits, which

1. See Joint Committee on Taxation, Estimates of Federal 

Tax Expenditures for Fiscal Years 2009–2013, JCS-1-10 

(January 11, 2010), pp. 29–31, www.jct.gov/publications 

.html?func=startdown&id=3642. 

2. Department of Energy, Energy Information Administration, 

Federal Financial Interventions and Subsidies in Energy 

Markets 2007, SR/CNEAF/2008-01 (April 2008), 

pp. 36–38, www.eia.doe.gov/oiaf/servicerpt/subsidy2/pdf/

subsidy08.pdf.
FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES 13

CBO

ways in which, without federal funding, market forces 

might generate less of certain activities than would 

arise from balancing social benefits and costs. Such 

so-called market failures might occur when the following 

conditions apply: 

B The social benefits of scientific and technical 

knowledge exceed private benefits,

B Prices for energy and for carbon emission do not fully 

reflect environmental and social costs,

B Consumers’ responses to prices appear to have been 

muted by market structures and limited information, 

and

B Investors’ incentives to modernize energy infrastructure are weakened by government regulation and 

industry structure.

Although some or all of those conceptual justifications 

could apply to a variety of policies, they do not indicate 

that any particular federal program should be undertaken. The benefits of specific programs might not justify 

Box 1. Continued

Other Federal Actions That Can Affect Emissions of Greenhouse Gases

Estimated Revenue Loss from

Tax Preferences that Reduce the 

Costs of Fossil Fuels

(Billions of dollars)

Source: Joint Committee on Taxation, Estimates of Tax 

Expenditures for Fiscal Years 2009–2013, pp. 29–31.

Note: * = less than $50 million.

target individual households, the benefits from federal subsidies for electricity go to all customers in a 

service area. Those benefits arise either from the low 

interest rates charged by the Rural Utilities Service to 

the utilities that borrow from it or from the low interest rates that power marketing administrations pay 

for capital. The Energy Information Administration 

estimated that such interest rate differentials were 

worth more than $700 million to utilities in 2007.3

Some policies have mixed effects on emissions. 

Although consumption of fossil fuels is discouraged 

through taxes that increase the prices consumers pay 

for gasoline and diesel fuel, the receipts mostly go to 

the Highway Trust Fund, which pays for construction of more and better highways that encourage fuel 

consumption. Gasoline, diesel, and related excise 

taxes accounted for about $35 billion of the $48 billion in such excise taxes collected in 2009, the Congressional Budget Office estimates. Federal levies on 

airline tickets and other aviation-related activities 

generated another $10 billion for the Airport and 

Airway Trust Fund in 2009. Those levies have effects 

that are similar to those of the gasoline tax. The excise 

tax raises the cost of airline tickets, thus discouraging 

airline use, but a portion of the revenue is used to 

fund improvements in airports that would encourage 

an increase in air travel, thus adding to emissions of 

greenhouse gases.

Expensing of Exploration and Development

Oil and gas 0.3

Other fuels *

Excess of Percentage over Cost Depletion

Oil and gas 1.3

Other fuels 0.2

Tax Credits

Enhanced oil recovery *

Production of fuel from nonconventional sources 0.1

Small Refiners' Credit and Deduction *

Expensing of Property Used in Refining Liquid Fuels 0.5

Amortization of Geological Costs for Oil and Gas

Exploration 0.1

Coal Production Credits *

15-Year Depreciation Recovery for Natural Gas 

Distribution Line 0.1

7-Year Depreciation Recovery for Natural Gas

Gathering Line * ___

Total 2.7

2009

3. Calculated from Department of Energy, Federal Financial 

Interventions and Subsidies in Energy Markets, pp. 101–104.
14 FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES

CBO

their costs, even if there is a justification for federal 

funding in that general area. Furthermore, some analysts 

question the ability of federal agencies to implement programs in a timely and cost-effective manner.

Social Benefits of Knowledge Exceed Private Benefits

One rationale for federal support of climate science and 

technology programs depends on the inability of developers of technical and scientific knowledge to capture all of 

the benefits from their discoveries and inventions. The 

innovations that flow from investments in R&D are 

sometimes imitated by competitors or by businesses in 

other markets at only a small cost, reducing the innovators’ potential profits. Although such diffusion of new 

technology benefits the economy overall, the benefits to 

society as a whole are not accounted for in the innovators’ 

profit calculations and investment decisions. As a consequence, private investment in R&D, particularly in basic 

research, tends to be less than could be most beneficial for 

the economy overall.17

The pure scientific knowledge produced by climate science and monitoring programs would also be undersupplied were it not for government support because, like 

national defense, it is difficult or very costly to exclude 

people from the benefits provided by the knowledge created by those programs. Some of the benefits of this type 

of public good might be supplied by private markets. Yet 

the decisions made by producers responding to market 

signals about how much to supply would not take 

account of the benefits provided to all of those consumers 

who did not pay for, but benefited from, the knowledge 

once it was produced. Government is uniquely capable of 

adding up those benefits and, through taxation and public spending, of supplying the socially desirable amount 

of support for climate science and monitoring programs.

Social Costs of Burning Fossil Fuels Are Not Fully 

Reflected in Market Prices

Federal support for the development and deployment of 

energy-saving technology might be justified because current prices for fossil fuels do not reflect the damage to the 

environment and the economy caused by their use. Specifically, current prices do not recognize the future costs 

that climate change could impose.18 Federal programs can 

be viewed as compensating for the missing incentives that 

the market might have provided if market prices fully 

reflected the social costs of burning fossil fuels. That 

argument might justify federal subsidies for weatherization, for the generation of energy from renewable sources, 

and for establishing the infrastructure necessary to deliver 

electricity from sources that do not emit greenhouse 

gases.

Future changes in the pricing of energy could affect the 

applicability of that rationale. The Congress is currently 

considering policies, such as a cap-and-trade program, 

that would attempt to ensure that the prices consumers 

pay for energy reflect environmental costs.19 If implemented, for example, a cap-and-trade policy would make 

it more costly for utilities to burn coal and other fossil 

fuels to generate electricity. Correspondingly, prices to 

consumers and businesses for electricity produced from 

fossil fuels would go up, thereby reducing demand and 

lowering GHG emissions. The reduction in demand also 

would provide a stronger incentive for utilities to cut 

their investments in and use of coal. In addition, if the 

cost of carbon emissions were fully incorporated into 

the prices of goods and services produced with electricity 

from coal-fired plants, demand for energy-efficient goods 

and services would rise as they became relatively less 

expensive. Under those circumstances, private investment 

in R&D to reduce both energy use and GHG emissions 

also would be likely to increase. Those private investments in R&D in response to the adoption of new energy 

pricing policies could make federal funding duplicative of 

private actions in many areas.

Consumers Have Muted Responses to Price Signals

Some analysts believe that even when prices in energy 

markets direct consumers toward investments in energy 

efficiency that would pay off, some consumers will not 

act as simple economic theory posits they will. Therefore, 

additional government support for adopting energyefficient technologies or weatherization could be justified 

to compensate for the muted consumer response to the 

price signals originating in energy markets. 

17. Energy markets are not unique in this respect. In most areas, the 

private incentives to perform R&D are believed to fall short of 

social incentives because of the inability of innovators to reap all 

the benefits of their investments. See Congressional Budget 

Office, Federal Support for Research and Development (June 2007).

18. Congressional Budget Office, The Economics of Climate Change: 

A Primer (April 2003), pp. 23–25.

19. Cap-and-trade proposals are included in the American Clean 

Energy and Security Act of 2009 (H.R. 2454) and in the 

Clean Energy Jobs and American Power Act (S. 1733).
FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES 15

CBO

One explanation for the putative shortfall in consumer 

investment in energy efficiency is that builders and landlords often make the decisions about which household 

appliances to purchase and install and about how much 

insulation a dwelling will have. However, because buyers 

and tenants—rather than developers and landlords—

often pay monthly energy bills, the former group will 

bear additional costs for decisions made by the latter 

unless the differences in a tenant’s energy costs are 

reflected in the rent that would be charged. Such considerations affect a substantial portion of purchases of 

appliances and housing in the United States.20 Therefore, 

in the trade-off between energy efficiency and initial cost, 

the divergent incentives of landlords and developers and 

those of tenants and home buyers might not encourage 

socially optimal choices. Policies that set minimum efficiency standards for household appliances attempt to 

compensate for the misaligned incentives. 

Some economists who believe that consumers underinvest in energy efficiency have investigated the decision 

rules consumers use when they make choices about investments in energy efficiency.21 For example, consumers 

might use rules of thumb and other analytical shortcuts 

that lead them to undervalue efficiency as a product attribute. Some consumers exhibit “risk/reward asymmetry”—

they tend to discount potential gains and give too much 

weight to costs as they arrive at a decision about whether 

to purchase a product or service, implicitly using discount 

rates that are higher than those implied by most of their 

investment choices. In other instances, consumers might 

have insufficient information or lack the ability to 

process the information that they do have to make the 

best choice. Other research has indicated that when costs 

and savings are measured accurately, consumers’ “underinvestment” in energy-efficient products and services 

shrinks considerably.22

Industry Structure and Regulation Weaken 

Incentives for Investment

Even when investors are confronted with price signals 

that would lead them to invest in new facilities that generate, transmit, and distribute electricity to consumers, 

structural or legal factors could present an impediment to 

investing in a socially optimal way. Notably, difficulties in 

engaging in a coordinated collective effort and sorting 

out the question of which consumers ultimately will bear 

the cost of new facilities could decrease or slow investments in renewable-energy generators and the transmission lines necessary to carry power from wind farms or 

solar arrays to densely populated and industrial areas 

where the electricity is consumed. Subsidies or grants that 

reduce the private cost of new facilities could induce 

investors to make commitments that are more socially 

optimal. 

The electricity industry’s particular difficulties can be 

traced at least in part to the complex, decentralized 

array of state and federal regulations. Each state subjects 

proposed projects in electrical infrastructure to expensive 

and lengthy proceedings of uncertain outcome that 

involve many groups with diverse interests, including, 

often, communities and other groups—such as owners 

of existing generating facilities—that oppose the new 

facilities. State regulatory authorities discount the benefits to consumers in neighboring states in making their 

decisions. Federal regulations compound the state interventions and add to the complexity. Federal subsidies 

provide an incentive for generating benefits that could 

accrue to an entire system as a result of investment but 

that might not be recognized within any individual state’s 

regulatory proceedings.

Assessing Federal Climate Change 

Programs 

Some activities that stem from climate change programs 

or that are encouraged by the tax code have been in existence since the 1970s. Given the range and diversity of 

effort, it is not surprising that some projects have proved 

their worth, others have not produced a positive net 

social return, and still others have shown positive returns 

over some periods and negative returns over others. 

For the purposes of categorizing funding, the climate 

change budget is normally divided into technology, science, international assistance, and tax programs or 

20. Scott Murtishaw and Jayant Sathaye, Quantifying the Effect of the 

Principal-Agent Problem on US Residential Energy Use, LBNL59773 (Berkeley, Calif.: Lawrence Berkeley National Laboratory, 

August 12, 2006), http://escholarship.org/uc/item/6f14t11t.

21. Kenneth Gillingham, Richard G. Newell, and Karen Palmer, 

Energy Efficiency Economics and Policy, Working Paper 15031 

(Cambridge, Mass.: National Bureau of Economic Research, 

June 2009), pp. 19–24, www.nber.org/papers/w15031. 

22. See David Popp, Richard G. Newell, and Adam B. Jaffe, Energy, 

the Environment, and Technological Change, Working Paper 14832 

(Cambridge, Mass.: National Bureau of Economic Research, 

April 2009), pp. 30–33, www.nber.org/papers/w14832.
16 FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES

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preferences. The discussion below focuses on technology 

programs and tax preferences. In examining the technology programs, this study focuses on categories that correspond to areas in which there has been significant 

recent spending: R&D, technology demonstration, 

energy efficiency, and investments in infrastructure. 

Federal Research and Development in 

Climate Change 

Over the past 30 years, federal energy R&D has often, 

but not always, yielded benefits greater than its costs. 

Despite the technical success of a large proportion of 

government-sponsored R&D focused on renewable 

sources of energy, such sources today constitute just a 

small part of the market, mainly because the prices of 

conventional sources of energy do not reflect the social 

cost of their carbon emissions. 

Because R&D in almost any field can be expected to provide benefits slowly and cumulatively, it works best when 

funding is stable and available over the long term and 

when there is a steady supply of researchers to conduct 

the work. Yet federal funding of energy R&D shows a 

history of ebb and flow in appropriations. After nearly 

two decades of decline, R&D funding has increased in 

the past decade.

Returns on Federal Energy R&D. Different types of 

energy R&D have produced very different returns. In 

2001, a panel of the National Research Council estimated 

that, between 1978 and 2000, the net economic benefit 

from some of DOE’s energy-efficiency R&D programs 

was roughly quadruple the amount of funds devoted to 

those projects (measured in constant dollars).23 The benefit from R&D in fossil fuels was much less; in fact, in the 

panel’s estimation, for portions of the same 22-year 

period, the benefit was much smaller than the cost. From 

1978 to 1986, the benefit of fossil fuel R&D was just 

57 percent of the cost. Between 1986 and 2000, the 

benefit increased, but at 1.6 to 1, the benefit-to-cost 

ratio was much lower than the ratio for spending on 

energy-efficiency research. The spending on energyefficiency research was less concentrated in specific large 

projects and technology demonstrations than was fossil 

fuel R&D, which encompassed numerous technology 

demonstration projects. 

In its calculations of net economic benefit, the panel 

included the increased value of economically recoverable 

natural resources, the reduced cost of finding and extracting natural resources, the reduced cost of energy services, 

the increase in workers’ productivity, and the increased 

rights to market the resulting intellectual property. Also 

included in the calculation of a project’s benefit was revenue from future sales of technology developed under 

DOE’s sponsorship, but only for five years ahead because 

of the assumption that DOE’s R&D funding had accelerated the development of existing technology instead of 

generating innovations that would not have occurred 

otherwise. 

The panel also netted production cost from the calculations and it excluded effects on the economy as a whole, 

increased tax revenues, or effects on regional growth. 

Although the analytical framework included the environmental and national security benefits of DOE’s R&D, 

the panel noted that for the most part those benefits 

could be treated only qualitatively. Similarly, the panel 

assigned no value to knowledge for its own sake or to 

the option to use such discoveries in the future. The 

panel noted that the estimates were imprecise because 

of technological and economic uncertainties, the 

many assumptions necessary to its calculations, and 

the fact that in some areas only qualitative assessments 

were possible.24

More support for the usefulness of federally sponsored 

R&D is found in the evidence that energy technology 

patents resulting from government-sponsored projects 

are cited more frequently than are patents from other 

sources.25 Equally important is evidence that transferring 

knowledge from the government to private industry produces valuable research results; subsequent private patents 

that derive from those government patents also are cited 

more frequently. Such widespread use of federal research 

results is consistent with observations that federally sponsored R&D is often the foundation of the development 

of new energy technology.

Federal R&D and Energy Prices. Despite the apparent 

successes, however, the energy technology produced 

23. National Research Council, Energy Research at DOE: Was It Worth 

It? Energy Efficiency and Fossil Energy Research, 1978 to 2000

(Washington, D.C.: National Academy Press, 2001), p. 6, 

www.nap.edu/catalog.php?record_id=10165. 

24. Ibid., pp. 86–94.

25. Popp, Newell, and Jaffe, Energy, the Environment, and 

Technological Change, p. 22.
FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES 17

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under federal auspices has, according to one analysis, 

“failed to emerge as a prominent component of the U.S. 

energy infrastructure.”26 That analysis of studies and forecasts of the use of renewable energy from the 1970s and 

1980s demonstrated that renewable-energy technologies, 

which were a focus of federal R&D, largely failed to 

match projections for their use during the 1980s and 

1990s. Except for photovoltaic electric cells, the prices of 

those technologies declined as predicted by the forecasts 

and projections. (The prices for photovoltaics declined 

more slowly than predicted.) However, the use of many 

renewable-energy devices did not increase as predicted, 

largely because prices for fossil fuels also declined during 

the period. 

Thus, federal investments in R&D yielded major technological innovations and spurred price decreases in 

alternative-energy technologies, but as long as consumers 

did not bear the full social cost of fossil fuel consumption, alternative-energy sources could not make large 

inroads into their target markets. In that sense, climate 

change R&D is different from R&D devoted to producing goods that are less expensive or better in other private 

respects than the products they replace. Climate change 

R&D is devoted largely to developing products that 

could be more expensive than existing products. Federal 

research addresses the nation’s underinvestment in R&D, 

but it does not address the fact that the fossil fuel prices 

in private markets do not reflect the social cost of GHG 

emissions.27

Instability in Federal R&D Funding. Technology development takes time, often decades, to provide benefits. Individual researchers who invest their careers in work on specific technologies or research topics that might not 

transfer easily to other areas might be reluctant to pursue 

work in an area for which the prospect of long-term 

funding is uncertain. And large fluctuations in funding 

can drive researchers out of a field. Climate technology 

funding increased during the period addressed by this 

study, 1998 to 2009. However, adjusted for inflation, 

federal spending on energy research declined (in constant 

dollars) by more than three-quarters in the period just 

before, from 1978 to 1998, and the decline affected all 

major areas of DOE’s work: nuclear energy, fossil fuels, 

and renewable sources of energy.28 Without the prospect 

of sustained funding, many researchers left the field.29

That fluctuation in funding was not conducive to sustaining a research effort, which requires the kind of longterm investment in and by scientific talent that has 

brought benefits to other areas of federal R&D, including 

health and agriculture.30

The types of projects undertaken by research scientists 

change over time; even scientific disciplines that have 

experienced constant or increasing funding change their 

focus as knowledge progresses. Because of that shifting of 

content, federal funding for the same energy research 

from the 1970s onward would not have been likely to 

provide substantial returns. Nevertheless, progress in a 

field depends to a considerable extent on the number of 

engineers and scientists continually working on problems 

in that field, which is most likely not encouraged by ebbs 

and flows in funding.

Technology Demonstration Projects 

The National Research Council reported that from 1978 

to 1985, when DOE’s fossil fuel energy program was 

26. James McVeigh and others, Winner, Loser, or Innocent Victim? Has 

Renewable Energy Performed as Expected? RFF Discussion Paper 

99-28 (Washington, D.C.: Resources for the Future, June 1999), 

p. ii, www.rff.org/RFF/Documents/RFF-DP-99-28.pdf. 

27. Congressional Budget Office, Evaluating the Role of Prices and 

R&D in Reducing Carbon Dioxide Emissions (September 2006). 

See also Carolyn Fischer and Richard G. Newell, “Environmental 

and Technology Policies for Climate Mitigation,” Journal of 

Environmental Economics and Management, vol. 55, no. 2 

(March 2008), pp. 142–162.

28. Statement of Jim Wells, Director, Natural Resources and Environment, Government Accountability Office, before the Subcommittee on Energy and Water Development of the House Committee 

on Appropriations, Advanced Energy Technologies: Key Challenges 

to Their Development and Deployment, GAO-07-550T (February 

28, 2007), p. 2, www.gao.gov/new.items/d07550t.pdf. For a more 

detailed breakdown by DOE program, see Kelly Sims Gallagher 

and others, “DOE Budget Authority for Energy, Research, Development, and Demonstration Database,” in Ending the Energy 

Stalemate: A Bipartisan Strategy to Meet America’s Energy Challenge 

(Washington, D.C.: National Commission on Energy Policy, 

December 2004), Appendix to Chapter 6, http://belfercenter

.ksg.harvard.edu/files/DOE_EnergyTechSpending1978-FY10R

_June22_2.xls.

29. Department of Energy, Scientist and Engineer Energy Employment 

Expected to Decline During 1994–2000 as DOE Funding Is 

Reduced, Manpower Assessment Brief 29 (June 1995), 

www.osti.gov/bridge/servlets/purl/88476-5Hnb4c/webviewable/

88476.pdf. 

30. For more discussion of the time dimension in R&D payoffs, see 

Iain M. Cockburn, Scott Stern, and Jack Zausner, “Finding the 

Endless Frontier: Lessons from the Life Sciences Innovation 

System for Energy R&D,” in Rebecca Henderson and Richard 

Newell, eds., Accelerating Innovation in Energy: Insights from 

Multiple Sectors (Chicago: University of Chicago Press, in press), 

www.nber.org/chapters/c11749.pdf, especially pp. 37–38.
18 FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES

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most heavily dominated by technology demonstration 

projects, federal spending for the fossil fuel energy 

programs substantially exceeded the benefits that they 

produced. The negative results were attributed partly to 

the pressure for rapid results under which DOE operated 

during the energy crises of the 1970s and early 1980s. 

The panel concluded, “In retrospect, technology development in direct coal liquefaction and other synthetic fuels 

programs during the 1970s and early 1980s was not 

handled well by the government or industry. Technologies were targeted for major demonstration expenditures 

before they were well understood.”31

Complicating that problem, DOE had not fully developed its cost-sharing procedures.32 In many cases, the 

projects’ industry partners committed no funds. In others, the contracting organizations were not committed to 

commercializing the technology once the project was 

completed, or industry funding would be provided only 

after the risks had been reduced. A major goal for large 

technology demonstrations is to show private investors 

that a project has a good possibility of meeting targets for 

costs and schedules. Some observers assert that DOE’s 

lack of consistent oversight diminished confidence in the 

projects during that period.

Future Large-Scale Demonstrations. DOE is planning 

large-scale technology demonstration projects that would 

generate electricity with relatively low carbon emissions. 

They will differ from older projects involving fossil fuels, 

which often sought to manufacture liquid fuel from coal 

and shale. Among the planned demonstrations aimed 

at reducing GHG emissions are projects that will burn 

coal to produce electricity but store the resulting carbon 

dioxide deep underground. Advocates promote federal 

support for those and other large-scale demonstrations 

because fossil fuel prices do not currently justify the risky 

investments of bringing new technology to market. 

DOE’s participation in such projects raises at least one 

question for the future: Is the department’s participation 

likely to increase a project’s chances for success? 

Despite the changes in DOE’s management culture over 

the past three decades—strengthening project management policies and guidance, developing consistent and 

objective performance information about ongoing projects, and improving the quality of federal oversight of 

contractors and projects—many analysts believe that the 

department still cannot effectively manage large projects. 

The Government Accountability Office has long been 

critical of DOE’s project management, pointing to 

inadequate oversight of contractors and to projects that 

failed to meet expectations for costs or schedules. Despite 

efforts at reform, as recently as 2007, GAO concluded 

that DOE’s performance suffered from inconsistent 

application of the new management processes and 

consequently had not improved substantially.33

Furthermore, DOE could find itself subject to significant 

time constraints in undertaking technology demonstration projects in the area of climate change. ARRA 

requires most of its funds to be obligated before September 30, 2010. Language in other measures (including 

H.R. 2454) reflects a similar commitment to move technology demonstration projects rapidly.

Some proposals now before the Congress would place the 

responsibility for major projects involving the demonstration of energy technology in the private sector. For example, H.R. 2454 and S. 1733 would establish a research 

cooperative, the Carbon Storage Research Corporation, 

as part of the Electric Power Research Institute.34 If 

approved through an industry referendum and by state 

utility regulatory boards, the new corporation would 

assess fees on utilities that distribute power derived from 

fossil fuels to fund the development and demonstration 

of technology that would capture and store underground 

the carbon dioxide produced by fossil fuel combustion at 

power plants. The corporation would be authorized to 

raise and spend about $1 billion each year over the next 

decade. The funds would not be spent on pilot projects 

but on commercial-scale demonstrations. Whether a new 

industry consortium created by federal legislation, even if 

composed of corporate representatives, could avoid the 

pressures and inefficiencies that have dogged DOE’s past 

large demonstration projects is unclear. There is no previous experience with providing such a large amount of 

funding for government–industry research consortia. 

31. National Research Council, Energy Research at DOE: Was It Worth 

It? p. 166. 

32. Ibid., pp. 46–47.

33. Government Accountability Office, Department of Energy: 

Consistent Application of Requirements Needed to Improve Project 

Management, GAO-07-518 (May 2007), p. 1, www.gao.gov/

new.items/d07518.pdf.

34. For CBO’s analysis of the House bill, see Congressional Budget 

Office, cost estimate for H.R. 2454, the American Clean Energy 

and Security Act of 2009 (June 5, 2009).
FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES 19

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Federal Involvement in Demonstration Projects. The 

closer to commercialization a technology gets, the more 

likely that a developer can capture most of the benefits of 

additional spending on technology development. The gap 

between private and public benefits from investing in 

technology is likely to be substantially smaller at the point 

of demonstration than it is in earlier phases of technology 

development. Generally, as products near commercialization, more effort is directed toward design and refinement 

of prototypes, for example. And because resulting 

improvements are more likely to be specific to the product, they can be less likely to transfer to another product 

or market. Because the technology developer can capture 

more benefit from investments near commercialization, 

many economists argue, government support late in the 

process of technology development is inappropriate, especially given the inefficiencies and distortions that government participation can engender (including the unwillingness to terminate large, expensive projects that are not 

performing well).35

A counterargument, however, holds that government 

involvement is needed later in the R&D process as technology progresses toward the marketplace.36 Federal agencies and, to a lesser extent, universities, foundations, and 

other funders are prepared to underwrite the earlier laboratory work to develop and prove a research concept. 

Venture capitalists and other investors often are more 

willing to fund a start-up once a research concept has 

been turned into a commercial prototype.37 But, the 

argument goes, there is a gap between those two sets of 

well-functioning institutions. Because the process of 

turning a research concept into a prototype is not well 

supported by existing institutions, the government has a 

role in technology demonstrations and other aspects of 

commercialization, even acting as a source of venture 

capital for some projects.38

Nevertheless, the Department of Energy might not have a 

comparative advantage over other institutions in bridging 

such financial or institutional gaps. If commercialization 

is a large and expensive undertaking, the funding process is likely to introduce political and other pressures that 

could distort all stages of the effort from site selection 

through completion of the demonstration.39 Very often, 

promising technology does not come to fruition, and the 

process of screening for commercial success is a challenge. 

The United States has a well-developed venture capital 

industry, and although there have been cases of federal 

agencies’ substituting for venture capitalists, the evidence 

of success is mixed.40 Empirical evidence of a funding gap 

is not well developed; studies of the venture capital process have not consistently identified one stage in the 

process of commercialization at which raising capital is 

significantly more difficult than at any other.41

Programs to Foster Energy Efficiency 

Recent federal weatherization programs have exhibited 

favorable benefit-to-cost ratios. Beginning in the 1990s, 

advanced energy audits for housing and commercial 

properties produced weatherization plans particular to a 

building, instead of relying on generic lists of recommended actions. By customizing the improvements to the 

building, those efforts produced better results.

Past Federal Projects for Weatherization. In 2005, 

Oak Ridge National Laboratory (ORNL) published a 

comprehensive review of several years’ worth of data from 

gas-heated homes in 18 states and the District of Columbia that had been weatherized as part of DOE’s 

35. Kenneth J. Arrow and others, A Statement on the Appropriate Role 

for Research and Development in Climate Policy, Related Publication 08-12 (Washington, D.C.: AEI Center for Regulatory and 

Market Studies, December 2008), http://papers.ssrn.com/sol3/

papers.cfm?abstract_id=1313827. 

36. Lewis Branscomb and Philip Auerswald, Taking Technical Risks: 

How Innovators, Managers, and Investors Manage High-Tech 

Innovations (Cambridge, Mass.: MIT Press, 2001), pp. 11–12. 

37. Ibid., pp. 100–102. See also National Research Council, An 

Assessment of the SBIR Program (Washington, D.C.: National 

Academies Press, 2008), pp. 29–32. 

38. L.M. Murphy and P.L. Edwards, Bridging the Valley of Death: 

Transitioning from Public to Private Sector Financing, NREL/

MP-720-34036 (Golden, Colo.: National Renewable Energy 

Laboratory, May 2003), pp. 11–34, www.cleanenergystates.org/

CaseStudies/NREL-Bridging_the_Valley_of_Death.pdf. 

39. Linda Cohen and Roger Noll, The Technology Pork Barrel (Washington, D.C.: Brookings Institution Press, 1991), pp. 53–67.

40. Josh Lerner, The Government as Venture Capitalist: The Long-Run 

Impact of the SBIR Program, Working Paper 5753 (Cambridge, 

Mass.: National Bureau of Economic Research, September 1996), 

www.nber.org/papers/w5753.pdf. 

41. Josh Lerner, Boulevard of Broken Dreams: Why Public Efforts to 

Boost Entrepreneurship and Venture Capital Have Failed—And 

What to Do About It (Princeton, N.J.: Princeton University Press, 

2009).
20 FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES

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Weatherization Assistance Program.42 ORNL estimated 

that consumption of natural gas declined by 23 percent 

per dwelling, on average. Spread out and discounted over 

20 years, the total saved per building was about $3,900 

(in 2003 dollars). WAP spent about $2,900 (in 2003 dollars) to weatherize a home, for a benefit-to-cost ratio of 

1.3 to 1. The report noted that actual ratios were likely to 

be larger “because the expenditures reported in the statelevel studies often included the cost of installing measures 

designed to reduce base load electricity consumption 

while the savings numbers were for natural gas only.”43

ORNL also considered other benefits of the program, 

among them the reduced occurrence of house fires, the 

decreased incidence of some illnesses, and the lower water 

and sewer bills attributable to use of low-flow plumbing 

fixtures. Such nonemployment, nonenergy benefits were 

about $2,400 per dwelling (also calculated over 20 years 

in 2003 dollars).44 Combining the energy benefits with 

the nonemployment, nonenergy benefits resulted in an 

aggregate benefit-to-cost ratio of 2.2 to 1—that is, each 

dollar spent by WAP produced a total of $2.20 in 

combined benefits.

The energy savings that ORNL reported were much 

higher than had been reported for earlier WAP projects. 

The difference appears to be attributable to changes in 

installation practices, better assessment techniques, and 

use of advanced materials. Since the adoption of new 

methods and materials, the energy savings produced by 

the program have remained roughly constant.45

Spending of ARRA’s Funds for Weatherization and Other 

Efficiency Programs. When ARRA was enacted, questions were raised about the ability of DOE and GSA to 

obligate their ARRA funds for weatherization and conservation effectively, given the time limits specified in 

ARRA. Nevertheless, by mid-February 2010 DOE had 

obligated 85 percent of the $16.8 billion in funding it 

received for EERE programs, but expenditures have proceeded more slowly. WAP, for example, had awarded 

$4.7 billion of its $5.0 billion ARRA appropriation to 

states and territories (some funds were reserved for 

administration), but only $368 million (8 percent) had 

actually been spent.46

Some analysts have suggested several reasons for the slow 

pace of spending. First, DOE might be experiencing 

administrative difficulties in meeting ARRA’s requirements concerning historic preservation and regulations 

that were new to the weatherization program, notably 

a rule that workers on federally funded or assisted construction projects be paid according to locally prevailing 

wage rates. 

Another factor is the effect of the recession on state governments. Constraints in state budgets have hampered 

the ability of those governments to spend weatherization 

grants quickly. Some states have imposed hiring freezes 

that prevent them from employing enough project officers to oversee a larger number of weatherization grants 

and contracts. In some cases, progress has slowed because 

state employees have been furloughed to make up budget 

shortfalls. Finally, new federal regulations have increased 

requirements for training state employees at a time when 

governments cannot afford to fund the additional training. The severity of many of those problems can be traced 

to the difficulty of starting up new programs or sharply 

altering existing projects. DOE’s auditors expressed concern “that the understandable desire to spend the Weatherization funds on a catch-up basis may lead to an environment conducive to wasteful, inefficient, and, perhaps, 

even abusive practices.”47

A shortage of trained energy auditors could impede efficient use of the stimulus funds. Although there is excess 

42. Martin Schweitzer, Estimating the National Effects of the U.S. 

Department of Energy’s Weatherization Assistance Program with 

State-Level Data: A Metaevaluation Using Studies from 1993 to 

2005, ORNL/CON-493 (Oak Ridge, Tenn.: Oak Ridge National 

Laboratory, September 2005), http://weatherization.ornl.gov/pdf/

CON-493FINAL10-10-05.pdf. 

43. Ibid., p. 13.

44. CBO calculation. For the calculation of such benefits, see 

Martin Schweitzer and Bruce Tonn, Nonenergy Benefits from the 

Weatherization Assistance Program: A Summary of Findings from 

the Recent Literature, ORNL/CON-484 (Oak Ridge, Tenn.: 

Oak Ridge National Laboratory, April 2002), pp. 22–23, 

http://weatherization.ornl.gov/download_files/Con-484-

april02.pdf. The conversion to 2003 dollars was done by the 

method discussed by Schweitzer, Estimating the National Effects 

of the U.S. Department of Energy’s Weatherization Assistance 

Program, p. 13. CBO also adjusted the calculations to remove 

a double-counting of the energy savings, which would be 

incorporated into the value of the house.

45. See Schweitzer, Estimating the National Effects of the U.S. 

Department of Energy’s Weatherization Assistance Program, p. 16.

46. See Department of Energy, Special Report: Progress in Implementing 

the Department of Energy’s Weatherization Assistance Program Under 

the American Recovery and Reinvestment Act, OAS-RA-10-04 

(February 2010), Appendix I, www.ig.energy.gov/documents/

OAS-RA-10-04.pdf. 

47. Ibid., p. 5.
FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES 21

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capacity in the market for construction workers overall, it 

takes six to eight months to train an energy auditor. 

About 1,000 energy auditors were available to work in 

the field when ARRA was enacted; one auditor can support three weatherization crews, on average, and capacity 

exists to train another 600 to 700 auditors per year. The 

capacity for training auditors could improve, however. 

ARRA provided $500 million to the Department of 

Labor to fund training of workers in “green” careers. 

Unlike WAP, which had little experience with administering federal pay requirements, GSA has a lengthy background in projects whose workers must be compensated 

at locally prevailing wages. ARRA’s rules concerning pay 

rates thus are not the likely cause of any delay in GSA’s 

obligation of funds under that law.48 By the end of 

December 2009, GSA reported, it had obligated 37 percent of its total appropriation for retrofitting government 

buildings. It had spent just 1.5 percent of that money, 

however, by that time. That outcome is not atypical; 

expenditures for modernizing large office buildings often 

lag significantly behind the signing of contracts. As of the 

middle of February 2010, 2.6 percent of the program’s 

total appropriation had been spent.

Financing for Electricity Infrastructure 

Stimulus funding includes $4.2 billion for programs to 

modernize electricity distribution networks and other 

climate-related electrical infrastructure, primarily 

through matching grants, and $4.0 billion for the Innovative Technology Loan Guarantee Program, including 

transmission facilities.49 Providing such assistance is consistent with a belief that the complicated multistate regulatory structure has slowed investments in facilities to 

generate, transmit, and distribute electricity from sources 

that do not emit greenhouse gases.50

Federal involvement in the financing of electricity infrastructure through ARRA raises opposing short- and longterm concerns. For the short term, it is challenging to 

ramp up spending as rapidly as ARRA’s timetables 

require. Over the longer term, cutting off established federal subsidy programs for electricity infrastructure, once 

the purpose of the subsidies is fulfilled, can be difficult. 

Short-Term Schedules. The Electricity Delivery and 

Energy Reliability matching grant program funded by 

ARRA must obligate all funds by September 30, 2010. As 

of mid-February 2010, DOE had obligated $2.9 billion, 

about 65 percent of that program’s total ARRA funding.

DOE faces another timing challenge with regard to 

the Innovative Technology Loan Guarantee Program. 

The law specifies that funding for loan guarantees 

is to be used on projects that begin construction by 

September 30, 2011. As of February 2010, DOE had 

obligated just 1 percent of those funds. 

Long-Term Objectives. Although subsidies for the transmission and distribution of electricity in ways that slow 

climate change are new, subsidies for electricity distribution and transmission generally are not. The Rural Utilities Service has, since the days of the New Deal, subsidized credit through loans and loan guarantees for 

providing access to electricity and telephone service 

for rural areas. The program’s early accomplishments 

were remarkable, but the service continued long after 

most farms and rural communities had electricity.51

The program’s continuation raises questions about the 

government’s ability to terminate federal subsidy programs after an original goal is met. The continuation of 

subsidies ensured that funding flowed to groups that were 

not targets of the program originally. One survey of RUS 

loans and guarantees made during the late 1990s and 

early 2000s to 530 electricity distributors revealed that 

only 24 percent of the counties served by those distributors were rural, 29 percent of the counties served by 

the borrowers were in metropolitan areas, and more than 

9 percent of the counties served were in metropolitan 

areas of more than 1 million people.52

48. See Government Accountability Office, Recovery Act: Project 

Selection and Starts Are Influenced by Certain Federal Requirements 

and Other Factors, GAO-10-383 (February 10, 2010), p. 24, 

www.gao.gov/new.items/d10383.pdf.

49. Although the loan guarantees are not restricted to electricitygenerating or transmission facilities, large commitments for such 

facilities have been made.

50. Peter Behr, “States and Regions Block Federal ‘Superhighway’ for 

Solar and Wind Power,” ClimateWire, December 15, 2009, 

www.eenews.net/climatewire/2009/12/15/5.

51. Laurence J. Malone, “Rural Electrification Administration,” 

EH.Net Encyclopedia, http://eh.net/encyclopedia/article/

malone.electrification.administration.rural. See also National 

Rural Electric Cooperative Association, “History of the Rural 

Electrification Industry,” Entrepreneur Management Quarterly

(Winter 1997), www.entrepreneur.com/tradejournals/article/

19623930.html.

52. General Accounting Office, Rural Utilities Service: Opportunities 

to Better Target Assistance to Rural Areas and Avoid Unnecessary 

Financial Risk, GAO-04-647 (June 2004), p. 12, www.gao.gov/

new.items/d04647.pdf.
22 FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES

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The infrastructure credit and grant programs developed 

or expanded under ARRA could have a similar trajectory 

as they direct resources to expanding energy-saving infrastructure. As with RUS, the absence of a clearly defined 

target for modernization of the electrical grid could make 

it difficult to terminate programs after their goals are met.

Climate-Related Tax Preferences 

Tax provisions that involve climate-related activities 

typically encourage businesses and consumers to invest 

in new technology by reducing the cost of investing in 

products and processes that curtail GHG emissions 

and thus offsetting some of the price advantage of fossil 

fuels. Tax provisions also can encourage people to make 

more energy-efficient choices in building or refurbishing 

housing.

Most analysts argue that the most direct way to reduce 

GHG emissions is to tax them or to otherwise increase 

their price—for example, by imposing a cap-and-trade 

mechanism.53 Increasing the cost of GHG emissions 

would encourage reductions in emissions through a variety of means but leave determination of the best method 

to the individual or business. Tax preferences, by contrast, usually favor ways of reducing emissions that are 

specified in legislation. For example, there is a tax credit 

to encourage people to reduce consumption of home 

heating oil by installing solar-powered heating units, but 

there is no similar incentive to turn down the thermostat 

or put on a sweater, even though doing so could reduce 

GHG emissions at lower cost than installing solarpowered heating units. 

Tax preferences generally are not neutral among the various technological means of reducing emissions in that 

they give different sources of energy different subsidies. A 

price increase in the form of a tax per ton of greenhouse 

gases emitted would provide an incentive to choose the 

most cost-effective form of energy, regardless of the technology involved. By contrast, existing tax preferences vary 

widely in the amount of GHG emissions curtailed per tax 

dollar forgone. According to one calculation, the forgone 

tax revenue per ton of avoided greenhouse gas emissions 

varies by about 50 percent for the same tax provision, 

depending on whether the taxpayer is using wind or 

geothermal technology.54 In that instance, the tax revenue 

forgone per ton of GHG emissions reduced was $8 for 

geothermal facilities and $12 for windmills. By shifting 

some of the subsidy from wind to geothermal energy, the 

same reductions could be achieved less expensively. In 

that sense, such a tax provision is inefficient. Even so, 

both of those values are less than CBO’s estimate of the 

price of an allowance to emit a ton of greenhouse gases 

under the cap-and-trade system that would be established 

by H.R. 2454.55

The use of tax preferences to reduce GHG emissions also 

favors some taxpayers over others. Taxes on GHG emissions would affect behavior generally because virtually 

everyone would have to pay the tax (or face higher prices 

for the goods that incorporated an energy tax). By contrast, some taxpayers would be unable to take advantage 

of the tax credit or subsidy. Most notably, some taxpayers 

do not have sufficient tax liability from other sources to 

use energy tax credits. Business credits also can be limited 

for companies with more than $25,000 in tax liability, for 

example, or for those subject to the corporate alternative 

minimum tax. 

Even when tax liability is below $25,000 and the alternative minimum tax does not apply, companies are able 

only to reduce their income tax liability to zero with the 

energy credit, leaving potential credits unclaimed.56 Some 

commentators point out that such limits especially affect 

the tax credit for production of energy from renewable 

sources. One set of tabulations for the tax years 2000 to 

2005 suggests that businesses could typically claim about 

half of the credits to which they were entitled.57 In some 

years, only a quarter of the credits could be taken. 

Some tax preferences allow companies to carry general 

business tax credits on their books and use them to 

reduce taxes in future years. However, there is evidence

53. Joint Committee on Taxation, Tax Expenditures for Energy 

Production and Conservation, pp. 114–119. 

54. Statement of Gilbert E. Metcalf, Tufts University, before the 

Senate Committee on Finance, Technology Neutrality in Energy 

Tax: Issues and Options (April 23, 2009), p. 9, http://finance

.senate.gov/hearings/testimony/2009test/042309gmtest.pdf. 

55. Congressional Budget Office, cost estimate for H.R. 2454, p. 13.

56. Those credits are nonrefundable; the taxpayer does not receive an 

immediate refund when the allowable credit exceeds the amount 

of income tax owed. The excess credits can, however, be used by 

the taxpayer in later years.

57. Carl Curtis and Gilbert E. Metcalf, Energy Tax Incentives and the 

Alternative Minimum Tax, Working Paper 14110 (Cambridge, 

Mass.: National Bureau of Economic Research, June 2008), p. 18, 

www.nber.org/papers/w14110.pdf. 
FEDERAL CLIMATE CHANGE PROGRAMS: FUNDING HISTORY AND POLICY ISSUES 23

CBO

Figure 2.

New Wind Energy Generating Capacity

(Gigawatts)

Source: Congressional Budget Office based on Ryan Wiser and Mark Bolinger, 2008 Wind Technologies Market Report (prepared for the 

Department of Energy, July 2009), Figure 1.

that businesses that have limited use of renewable-energy 

production credits in one year are likely to be limited in 

the next year as well.58 Thus, the power of tax preferences 

to encourage reductions in GHG emissions depends on a 

company’s tax status more than on a company’s ability or 

willingness to make such reductions.

Because businesses often cannot use all of the energy tax 

credits available to them, some have begun to acquire 

financial partners that can use the tax benefits. Many 

wind, photovoltaic, and other renewable-energy projects 

are now in place because of a tax advantage available to 

the partners of the developers of those projects rather 

than to the developers themselves.59

That sensitivity of investment in renewable-energy 

projects to tax considerations is best seen in wind 

projects. In the early 2000s, the production tax credit 

given for electricity production from wind, biomass, or 

other renewable sources at qualified facilities was allowed 

to lapse, then subsequently (and retroactively) renewed, 

and then allowed to lapse again. Installations of wind 

energy projects reflected the legislative fate of the credit 

by falling, rising, and falling again as the credit was in 

place or had lapsed (see Figure 2).60

Despite the unpredictable nature of the tax credit, the 

wind power industry has grown rapidly. In the past several years, capacity installed in the United States has 

increased substantially each year, culminating with a 

growth rate in 2008 of 50 percent of installed capacity. 

Furthermore, wind energy projects accounted for 42 percent of all new generating capacity installed in the United 

Sates that year, although the increase in share was attributable more to the decrease in investment in natural gas 

plants than it was to increased investment in wind generation.61 What is not clear, however, is what the growth 

rate would have been had a predictable tax and climate 

policy been in place all along.

1998 2000 2002 2004 2006 2008

0

1

2

3

4

5

6

7

8

9

Years in Which Production Tax Credit Had Expired

58. Ibid., pp. 18–19. 

59. Mark Bolinger, “Financing Solar ... Hard Times?” (presentation 

for “Financing Solar in Hard Times: A Policy Review,” a meeting 

organized in cooperation with the Information Technology and 

Innovation Foundation for the National Academies, Board on 

Science, Technology and Economic Policy, Washington, D.C., 

February 20, 2009), http://sites.nationalacademies.org/PGA/step/

PGA_048687. 

60. Ryan Wiser and Mark Bolinger, 2008 Wind Technologies Market 

Report (prepared for the Department of Energy, July 2009), p. 3, 

www1.eere.energy.gov/windandhydro/pdfs/46026.pdf.

61. Ibid., p. 5.