United States Government Accountability Office

GAO Report to Congressional Requesters

DEPARTMENT OF 

ENERGY 

Key Challenges 

Remain for 

Developing and 

Deploying Advanced 

Energy Technologies 

to Meet Future Needs 

December 2006 

 

GAO-07-106 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

December 2006

DEPARTMENT OF ENERGY 

Key Challenges Remain for Developing 

and Deploying Advanced Energy 

Technologies to Meet Future Needs 

Highlights of GAO-07-106, a report to 

congressional requesters 

Despite periodic price shocks and 

related energy crises, the United

States is even more dependent on

crude oil and natural gas than it

was almost 30 years ago. And, 

without dramatic change, the 

nation will become ever more 

reliant on imported oil and natural 

gas with attendant threats to

national security. The nation has 

also become concerned about

global warming, which has been

linked to carbon dioxide emissions 

from burning coal and oil. To 

address these concerns, the

Department of Energy (DOE) has

funded research and development 

(R&D) on advanced renewable,

fossil, and nuclear energy

technologies. GAO examined the 

(1) R&D funding trends and 

strategies for developing advanced

energy technologies, (2) key

barriers to developing and 

deploying advanced energy

technologies, and (3) efforts of the 

states and six selected countries to 

develop and deploy advanced 

energy technologies. GAO reviewed

DOE R&D budget data and

strategic plans and interviewed

DOE officials and scientists, U.S.

industry executives, independent 

experts, and state and foreign 

government officials. 

What GAO Recommends

GAO suggests that the Congress 

consider further stimulating the 

development and deployment of a 

diversified energy portfolio by 

focusing R&D funding on advanced 

energy technologies. DOE had no

comment on this recommendation. 

DOE’s total budget authority for energy R&D dropped by over 85 percent (in 

real terms) from 1978 to 2005, peaking in the late 1970s but falling sharply 

when oil prices returned to lower levels in the mid-1980s (see table). DOE’s 

R&D efforts have resulted in steady incremental progress in reducing costs 

for renewable energy technologies, reducing harmful emissions of coal-fired 

power plants, and improving safety and efficiency for nuclear power plants. 

Further development and deployment of advanced renewable, fossil, and 

nuclear energy technologies face several key challenges. Challenges for 

renewable technologies include developing (1) cost-effective technologies to 

produce ethanol using agricultural residues and other biomass materials as 

well as the infrastructure for distributing ethanol, (2) new wind technologies 

to expand into low wind and offshore locations, and (3) improved solar 

technologies that can better compete with conventional technologies. 

Challenges for fossil technologies are primarily associated with developing 

advanced coal gasification technologies to further reduce harmful emissions 

and reducing their high capital costs. Challenges for advanced nuclear 

technologies include uncertainty about the Nuclear Regulatory 

Commission’s revised licensing process, investor concerns about high 

capital costs, and the disposal of a legacy of spent nuclear fuel. 

Many states have successfully stimulated the deployment of renewable

energy technologies by using standards, mandates, and financial incentives 

that require, for example, power companies to provide small producers with 

access to the power transmission grid and purchase their excess energy.

Each of the six countries GAO reviewed has used mandates and/or financial 

incentives to deploy advanced energy technologies that are providing, or are 

expected in the future to provide, significant amounts of energy. 

Budget Authority for Renewable, Fossil, and Nuclear R&D, Fiscal Years 1978-2005 

Note: Budget authority is in real terms, adjusted to fiscal year 2005 dollars to account for inflation. 

www.gao.gov/cgi-bin/getrpt?GAO-07-106.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Jim Wells at 

202-512-3841 or wellsj@gao.gov.
Contents 

Letter 1

Results in Brief 5

Background 8

DOE’s Budget Authority for Renewable, Fossil, and Nuclear Energy 

R&D Has Declined by over 85 Percent in Real Terms Since 1978; 

DOE Is Narrowing Its R&D Focus 11 

Advanced Renewable, Fossil, and Nuclear Energy Technologies 

Face Key Barriers to Market Deployment 26 

The States and Countries We Reviewed Have Implemented a 

Variety of Initiatives to Encourage the Development and 

Deployment of Energy Technologies 42 

Conclusions 53

Recommendation to the Congress 54 

Agency Comments 54 

Appendix I Estimated Federal Tax Expenditures Targeted at 

Energy Suppliers and Users, Fiscal Year 2006 56 

Appendix II Scope and Methodology 58 

Appendix III The States’ Use of Renewable Energy Incentives, 

Standards, and Mandates 61 

Appendix IV Three States’ Initiatives to Stimulate the Use of 

Renewable Energy Technologies 63 

Appendix V Comments from the Department of Energy 67 

Appendix VI GAO Contact and Staff Acknowledgments 68 

Page i GAO-07-106 DOE's Energy Challenges
Tables 

Table 1: Comparison of Conventional Pulverized Coal and IGCC 

Technologies 21

Table 2: Comparison of Electricity Generating Costs Using Nuclear, 

Coal, and Natural Gas Energy Sources 38 

Table 3: Comparison of Electricity Generating Costs Assuming a 

Carbon Emissions Tax 39 

Figures 

Figure 1: Comparison of the U.S. Energy Portfolio in 1973 and 2004 9 

Figure 2: Projected U.S. Electricity Generation by Energy Source, 

2005-2030 10

Figure 3: DOE’s Budget Authority for Renewable, Fossil, and 

Nuclear R&D, Fiscal Years 1978 through 2005 13 

Figure 4: DOE’s Budget Authority for Renewable, Fossil, and 

Nuclear R&D, Fiscal Year 2006 14 

Figure 5: Distribution of State Incentives and Policies for 

Renewable Energy 43 

Figure 6: Number of States Using Each of 12 Renewable Standards, 

Mandates, and Incentives 45 

Abbreviations 

AFCI Advanced Fuel Cycle Initiative 

DOE Department of Energy 

EIA Energy Information Administration 

EPA Environmental Protection Agency 

GNEP Global Nuclear Energy Partnership 

IGCC integrated gasification combined cycle 

MIT Massachusetts Institute of Technology 

NRC Nuclear Regulatory Commission 

RPS renewable portfolio standards 

R&D research and development 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 

Page ii GAO-07-106 DOE's Energy Challenges
United States Government Accountability Office

Washington, DC 20548 

December 20, 2006 

The Honorable Bart Gordon 

Ranking Member 

Committee on Science 

House of Representatives 

The Honorable Bart Gordon 

Ranking Member 

Committee on Science 

House of Representatives 

The Honorable Michael M. Honda 

Ranking Member 

Subcommittee on Energy 

Committee on Science 

House of Representatives 

The Honorable Michael M. Honda 

Ranking Member 

Subcommittee on Energy 

Committee on Science 

House of Representatives 

Since 1974, the nation has been subjected to periodic disruptions of crude 

oil imports resulting in price shocks and related energy crises. Oil prices 

doubled in 1974 and doubled again between 1978 and 1980. These price 

shocks alerted the nation to our growing dependence on imported oil and 

the need to conserve energy and develop alternative energy sources. Yet, 

when world crude oil prices plunged in the mid-1980s, the United States 

continued to rely on oil, and U.S. energy companies reduced their 

investments in developing alternative energy technologies. More recently,

crude oil prices more than doubled—gasoline prices exceeded $3 per 

gallon in August 2006—as a result of increased world consumption, 

hurricanes in the Gulf of Mexico, and instability in the Middle East and 

other oil producing regions. However, by October 2006, crude oil prices 

had once again declined, though at higher levels than previously. Despite 

these periodic price shocks and related energy crises, the United States’ 

dependence on imported crude oil and natural gas continues to increase—

crude oil imports have grown from 40.5 percent of the U.S. supply in 1980 

to 65.5 percent of the U.S. supply in 2005, according to the Energy 

Information Administration (EIA), within the Department of Energy 

(DOE). Without dramatic change, the United States is likely to become 

ever more reliant on imported oil and natural gas with all the attendant 

threats to the U.S. economy and national security. 

Since 1974, the nation has been subjected to periodic disruptions of crude 

oil imports resulting in price shocks and related energy crises. Oil prices 

doubled in 1974 and doubled again between 1978 and 1980. These price 

shocks alerted the nation to our growing dependence on imported oil and 

the need to conserve energy and develop alternative energy sources. Yet, 

when world crude oil prices plunged in the mid-1980s, the United States 

continued to rely on oil, and U.S. energy companies reduced their 

investments in developing alternative energy technologies. More recently,

crude oil prices more than doubled—gasoline prices exceeded $3 per 

gallon in August 2006—as a result of increased world consumption, 

hurricanes in the Gulf of Mexico, and instability in the Middle East and 

other oil producing regions. However, by October 2006, crude oil prices 

had once again declined, though at higher levels than previously. Despite 

these periodic price shocks and related energy crises, the United States’ 

dependence on imported crude oil and natural gas continues to increase—

crude oil imports have grown from 40.5 percent of the U.S. supply in 1980 

to 65.5 percent of the U.S. supply in 2005, according to the Energy 

Information Administration (EIA), within the Department of Energy 

(DOE). Without dramatic change, the United States is likely to become 

ever more reliant on imported oil and natural gas with all the attendant 

threats to the U.S. economy and national security. 

EIA projects that total U.S. energy demand will increase by about 28 to 35 

percent between 2005 and 2030. Specific sectors reflect even more 

dramatic growth in energy demand: (1) the transportation sector is 

expected to grow by 43 percent, with annual crude oil consumption 

increasing from about 4.8 billion barrels in 2004 to about 6.8 billion barrels 

by 2030 (a barrel of oil is equivalent to 42 gallons of gasoline), and (2) the 

EIA projects that total U.S. energy demand will increase by about 28 to 35 

percent between 2005 and 2030. Specific sectors reflect even more 

dramatic growth in energy demand: (1) the transportation sector is 

expected to grow by 43 percent, with annual crude oil consumption 

increasing from about 4.8 billion barrels in 2004 to about 6.8 billion barrels 

by 2030 (a barrel of oil is equivalent to 42 gallons of gasoline), and (2) the 

Page 1 GAO-07-106 DOE's Energy Challenges
electricity sector is expected to grow by 50 percent, with electricity 

consumption increasing from about 3.6 billion megawatt-hours in 2004 to 

about 5.3 billion megawatt-hours by 2030 (a megawatt-hour is sufficient to 

meet the demand of 750 households for 1 hour). EIA projects that the 

proportions of energy derived from renewable, fossil, and nuclear sources 

for both transportation and electricity generation will remain about the 

same through 2030. 

Since its creation in 1977, DOE has had leadership responsibility for 

energy research, development, and demonstration programs (R&D) to 

enable the nation to deploy advanced energy technologies for meeting 

future demands and diversifying its energy portfolio.1

 During the past 29 

years, the Congress has provided DOE about $50 billion for R&D in 

renewable, fossil, and nuclear energy technologies.2

 Specifically: 

• DOE’s renewable energy R&D program has primarily focused on (1) 

developing cost-effective technologies for producing ethanol from biomass 

sources, such as agricultural residues and forest waste, and (2) making 

wind and solar energy technologies more cost-competitive sources of 

electricity. DOE has also funded R&D for geothermal and hydropower 

energy technologies and, in 2003, accelerated the R&D funding for 

developing hydrogen technologies. 

• DOE’s fossil energy R&D program has primarily focused on reducing 

emissions of harmful pollutants from coal-fired power plants, particularly 

sulfur dioxide and nitrogen oxide in the 1980s and early 1990s. More 

recently, DOE has concentrated on developing (1) coal gasification 

technologies to improve efficiency and reduce mercury and carbon 

dioxide emissions and (2) sequestration technologies for the long-term 

storage of carbon dioxide. 

• DOE’s nuclear energy R&D program has focused primarily on improving 

nuclear power plant safety—in response to the March 1979 accident at the 

Three Mile Island plant near Harrisburg, Pennsylvania—and efficiency.

3

 1

DOE is also responsible for energy efficiency programs, which are integral to addressing 

future energy challenges by reducing demand. 

2

All historical DOE R&D budget authority totals are presented in real terms by adjusting

them to fiscal year 2005 dollars to account for inflation. 

3

The Three Mile Island accident, which involved one of the plant’s two reactors, was the

most serious incident at a U.S. commercial nuclear power plant. While there were no

deaths or injuries, the reactor’s core began to melt down, creating widespread concern 

about health and safety. 

Page 2 GAO-07-106 DOE's Energy Challenges
More recently, the program has focused on developing technologies and 

designs for new generations of nuclear reactors —so-called Generation III 

and Generation IV. Beginning in October 2007, electric power companies 

are expected to apply for the first licenses to construct nuclear reactors 

since 1979. These reactors will use Generation III technologies. DOE’s 

nuclear R&D program is developing Generation IV technologies for 

deployment after 2020. 

The market has been slow to embrace advanced energy technologies 

because they typically are not economically competitive with conventional 

energy sources such as oil, natural gas, and coal. In part this is because the 

prices U.S. consumers pay for conventional energy do not reflect their true

costs, including the costs of certain adverse environmental impacts; 

economists refer to these hidden costs as negative externalities. For 

example, we continue to rely on electricity generated from coal-fired 

plants because coal is plentiful and inexpensive in the United States. 

However, carbon dioxide emissions from coal-fired power plants—a key 

concern for global warming—are not currently regulated, and thus 

potential environmental costs associated with global warming are not 

reflected in the electricity prices that consumers pay. In contrast, 

renewable energy sources, such as wind farms, and nuclear reactors do 

not produce carbon dioxide emissions in generating electricity. 

The American Jobs Creation Act of 2004 stimulated the deployment of 

ethanol by providing a 51-cent tax credit through December 31, 2010, for 

every gallon of ethanol blended into gasoline.4

 The act also provides tax 

credits that expire on December 31, 2006, for every gallon of biodiesel and 

agri-biodiesel. Similarly, the Energy Policy Act of 2005 promoted a 

diversified U.S. energy portfolio by reauthorizing DOE’s R&D funding and 

providing tax incentives for stimulating investment in advanced 

renewable, fossil, and nuclear energy technologies.5

 Specifically, the 

Energy Policy Act of 2005 extended the production tax credit established 

in the Energy Policy Act of 1992 for renewable technologies for 2 years 

until January 1, 2008. The act also added a new (1) investment tax credit of 

up to $1.3 billion for constructing new clean-coal power plants and (2) 

production tax credit of 1.8 cents per kilowatt-hour for up to 6,000 

megawatts of new nuclear power capacity lasting 8 years after each 

qualifying nuclear reactor begins service. These tax credits and other tax

 4

Pub. L. No. 108-357. 

5

Pub. L. No. 109-58. 

Page 3 GAO-07-106 DOE's Energy Challenges
incentives are legally known as tax expenditures;6

 revenue losses from 

these tax incentives can be viewed as spending channeled through the tax

system. Historically, the tax subsidies that the U.S. government has 

provided to the energy sector have been directed toward the conventional

energy sector. More recently, tax incentives available in fiscal year 2006, 

such as the new technology tax credits, have also been directed toward 

stimulating the development and deployment of advanced energy 

technologies (see app. I).

You asked that we assess the nation’s ability to meet its energy needs 

through 2030 by examining DOE’s efforts to diversify the nation’s energy 

portfolio and reduce its dependence on oil and natural gas. Specifically, 

we examined (1) DOE’s R&D funding trends and strategies for developing

advanced renewable, fossil, and nuclear energy technologies; (2) the key 

barriers to developing and deploying technologies that will address the 

nation’s future energy needs; and (3) the efforts of states and selected 

countries to develop and deploy renewable, fossil, and nuclear energy 

technologies that address future energy needs. 

To ensure that we obtained a balanced view of future U.S. energy 

challenges, we reviewed documents and interviewed DOE officials, 

including program managers and laboratory scientists; senior industry 

executives; independent experts; officials of several state governments 

and states’ associations; and representatives of foreign governments and 

industry associations. More specifically, to review DOE’s R&D funding 

trends and strategy for developing advanced energy technologies, we 

analyzed DOE’s (1) budget authority data for renewable, fossil, and 

nuclear energy R&D from fiscal year 1978 through fiscal year 2006, 

adjusted for any advanced appropriations and rescissions, and (2) 

strategic plans for developing and deploying new energy technologies. For 

perspective, we also reviewed revenue losses due to energy-related tax 

expenditures for fiscal years 2000 through 2006. To assess the key 

technological, economic, and other barriers, we analyzed various energy 

studies and interviewed senior officials at DOE and the Nuclear 

Regulatory Commission (NRC), which regulates the construction and 

operations of nuclear power plants, industry executives, and independent

experts. To examine the efforts of states and selected countries to develop

 6

Tax expenditures result in forgone revenue for the federal government due to preferential 

provisions in the tax code. See GAO, Government Performance and Accountability: Tax

Expenditures Represent a Substantial Federal Commitment and Need to Be Reexamined, 

GAO-05-690 (Washington, D.C.: Sept. 23, 2005). 

Page 4 GAO-07-106 DOE's Energy Challenges
and deploy advanced energy technologies, we identified their use of 

mandates, financial incentives, and other actions. We selected Brazil, 

Denmark, France, Germany, Japan, and Spain because they have initiated

major nationwide programs to stimulate the deployment of advanced 

energy technologies that have changed, or could change, their energy 

portfolios. We found that the data we used to examine trends and states’ 

efforts to develop and deploy energy technologies to be sufficiently 

reliable for our purposes. We conducted our work from October 2005 

through October 2006 in accordance with generally accepted government 

auditing standards. (See app. II for further information about our scope 

and methodology.) 

Despite growing dependence on foreign energy sources, DOE’s R&D 

budget authority for renewable, fossil, and nuclear energy technologies 

declined by over 85 percent (in real terms) between fiscal years 1978 and

2005. Specifically, DOE’s R&D budget authority dropped from about $5.5 

billion (in real terms) in fiscal year 1978 to $793 million in fiscal year 2005. 

Budget authority for renewable, fossil, and nuclear energy R&D peaked in

the late 1970s before falling sharply in the mid 1980s when crude oil prices

returned to lower levels. As funding has shrunk, DOE’s R&D focus has 

narrowed. For example, DOE’s renewable R&D program has focused on 

ethanol, wind, and solar technologies, making steady incremental progress 

in reducing their costs over the past 29 years. DOE’s fossil R&D program 

has focused primarily on reducing harmful emissions of coal-fired power 

plants, working with industry to make significant progress in reducing 

sulfur dioxide and nitrogen oxide pollution during the 1980s and 1990s. 

Currently, DOE is using coal gasification technologies to reduce mercury 

and carbon dioxide emissions and achieve the long-term goal of a “nearzero emissions” power plant. From 1978 through 1998, DOE’s nuclear R&D 

program focused on making incremental improvements in nuclear power 

plant safety and efficiency. Since 1998, DOE’s nuclear R&D program 

shifted its focus to developing “next generation” nuclear facilities for 

reprocessing spent fuel, developing advanced nuclear reactors that 

produce hydrogen and reduce waste, and producing more efficient nuclear 

fuels. Faced with competing R&D priorities and budget constraints, DOE’s 

fiscal year 2007 budget proposed eliminating R&D funding for its 

geothermal, hydropower, oil, and natural gas programs. 

Advanced renewable, fossil, and nuclear energy technologies all face key 

barriers to their development and deployment. Among renewable energy 

technologies, for ethanol to garner a significant share of the U.S. gasoline 

market, ethanol producers need to deploy cost-competitive technologies 

Results in Brief 

Page 5 GAO-07-106 DOE's Energy Challenges
for processing agricultural residues and other biomass materials; it is 

unclear whether ethanol from corn alone can achieve this result. 

Widespread deployment of ethanol also faces infrastructure challenges—

in particular, transporting and storing ethanol and retrofitting gasoline 

station pumps. Barriers to electricity generation from renewable 

sources—primarily wind and solar—include the difficulty of efficiently 

converting renewable energy into electricity, high up-front capital costs, 

including connection to the electric power transmission grid; the 

intermittent nature of wind and solar energy; and the higher financial risks 

associated with gaps in the renewal of the production tax credit. In 

addition, renewable energy technologies must compete with traditional 

fossil energy sources whose greater environmental costs are not reflected

in the price paid by consumers, and renewable energy R&D budgets have 

been subject to growing congressional earmarks in recent years. For 

advanced fossil technologies, the primary challenge continues to be 

controlling emissions of mercury and carbon dioxide generated by 

conventional coal-fired plants. However, reducing these emissions 

requires plants to use new coal gasification technologies, which cost about 

20 percent more to construct than conventional coal-fired plants and carry 

higher perceived investment risk as new technologies. Furthermore, DOE 

and industry have not demonstrated the technological feasibility of the 

long-term storage of carbon dioxide captured by a large-scale, coal-based 

power plant. For advanced nuclear technologies, investors face 

uncertainties about whether NRC’s revised review process for new 

reactors will effectively reduce regulatory delays and minimize added

costs to address safety concerns. While public opposition previously was a 

primary barrier, the nuclear industry reports that public opinion, 

particularly in the southeast United States, is more favorable reflecting the 

increased demand for electricity, perceived advances in safety, and 

growing concerns about global warming. Investors also face higher 

financial risk because of nuclear reactors’ high capital costs and long 

construction time frames, as well as environmental and nonproliferation 

concerns about spent nuclear fuel. 

While federal R&D has declined and the government has relied on the 

market to determine whether to deploy advanced energy technologies, 

many states have assumed higher profile roles by enacting standards, 

mandates, and financial incentives primarily to stimulate renewable 

energy technologies that address their growing energy needs and 

environmental concerns. In particular, 22 states have established 

renewable portfolio standards requiring or encouraging that a fixed 

percentage of the state’s electricity be generated from renewable sources; 

39 states have established rules for electric power companies to connect

Page 6 GAO-07-106 DOE's Energy Challenges
renewable energy sources to the power transmission grid and credit 

producers for excess generation; and 45 states offer tax credits, grants, or 

loans to stimulate the deployment of renewable energy. Examples of state 

initiatives include the following: Since 1980, Minnesota has enacted 

various mandates and production incentives to stimulate the use of 

ethanol. Minnesota had displaced nearly 10 percent of all of its gasoline 

consumption with ethanol by June 2006 and had nearly one-third of the 

nation’s ethanol fueling stations in September 2006. Texas’ 2005 legislation 

extended the state’s 1999 renewable portfolio standard to require the 

installation of 5,000 megawatts of new renewable capacity by 2015. As of

September 2006, electric power companies had installed over 1,900 

megawatts of new renewable capacity in Texas—approximately 3 percent 

of its total electricity consumption. California’s Solar Initiative called for 

3,000 megawatts of new solar capacity by 2017. In response, 150 

megawatts of new solar capacity have recently been installed. Some states 

have also established mandates and financial incentives to stimulate 

advanced fossil and nuclear technologies. For example, 2002 legislation in

Indiana established investment tax credits for advanced coal power plants 

to encourage cleaner coal technologies. Similarly, Calvert County, 

Maryland, recently offered a 50-percent, 15-year property tax credit to the

owner of the Calvert Cliffs nuclear power plant if an additional nuclear 

reactor is built. 

Each of the six countries we reviewed—Brazil, Denmark, Germany, Japan, 

Spain, and France—has sustained long-term efforts using mandates and/or 

incentives to deploy advanced energy technologies that are providing, or 

are expected in the future to provide, significant amounts of energy. For 

example, by 2005, Brazil had eliminated its need to import crude oil for 

gasoline by using mandates and price subsidies to stimulate the 

development of an ethanol industry that uses domestic sugarcane. 

Similarly, Denmark’s stimulation of renewable energy has resulted in wind 

energy generating 19 percent of total electricity consumed in 2005. 

Denmark’s support of wind energy has also created a thriving domestic 

wind turbine industry, which grew from about 200 megawatts to more 

than 3,000 megawatts in annual global sales over the past decade. To 

develop a sustainable energy supply and protect the environment, 

Germany established a goal to increase the share of renewable energy

consumption to at least 4.2 percent of its total energy requirements by 

2010 and to 10 percent by 2020. The 2010 target was exceeded in 2005,

when renewable technologies accounted for 4.6 percent of consumption. 

To reduce its reliance on imported energy, Japan initiated a 10-year 

program subsidizing the cost of residential solar systems. As a result, solar 

systems were installed on more than 253,000 homes and the price of 

Page 7 GAO-07-106 DOE's Energy Challenges
residential solar systems was cut by more than one-half. Spain, supported 

in part by a European Union program to promote cleaner energy 

technologies, is successfully operating a 320-megawatt coal gasification 

plant—the largest such plant in the world—designed to run more 

efficiently with fewer emissions than conventional coal-fired plants. 

France leads the United States in deploying an advanced Generation III 

nuclear reactor—the European Pressurized Reactor—which is designed to

be safer, more efficient, and less susceptible to terrorist attacks than older 

reactors, and will also generate nearly 80 percent more electricity. 

To meet the nation’s rising demand for energy, reduce its economic and 

national security vulnerability to crude oil supply disruptions, and 

minimize adverse environmental effects, we suggest that the Congress 

consider further stimulating the development and deployment of a 

diversified energy portfolio by focusing R&D funding on advanced energy 

technologies. 

For the past several decades, the United States has enjoyed relatively

inexpensive and plentiful energy supplies, relying on market forces to 

determine the energy mix that provides the most reliable and least 

expensive sources of energy—primarily oil, natural gas, and coal. In 1973,

oil cost about $15 per barrel (in real terms) and accounted for 96 percent 

of the energy used in the transportation sector and 17 percent of the 

energy used to generate electricity. 

In 1973, the Organization of Arab Petroleum Exporting Countries 

embargoed nations that it believed supported Israel during the Yom 

Kippur War. The disruption of oil supplies caused oil prices in the United 

States to double between 1973 and 1974, resulting in long gasoline lines 

and rationing by the U.S. government. Natural gas price spikes followed a 

pattern similar to that of oil. Since oil and natural gas accounted for about

35 percent of electricity generation in 1973, electricity prices soared, and 

consumers experienced periodic brown outs. Oil disruptions reoccurred 

with the 1979 Iranian Revolution and the 1979 to 1981 Iran-Iraq War, which 

caused oil prices to double once again from the already record-high prices, 

adversely affecting the U.S. economy. Oil and natural gas prices fell in the 

mid-1980s, and U.S. reliance on fossil fuels and, in particular on imported 

oil, continued as the U.S. economy expanded and domestic sources of oil 

declined. By 2004, about 63 percent of U.S. oil was imported and cost $38 

Background 

Page 8 GAO-07-106 DOE's Energy Challenges
per barrel (in real terms);7

 oil accounted for 98 percent of energy 

consumed for transportation, and coal and natural gas accounted for 

about 71 percent of the energy used to generate electricity. 

As shown in figure 1, the current U.S. energy portfolio is similar to the 

energy portfolio in 1973. The primary change is the growth of the fledgling

nuclear energy industry during the 1970s and 1980s, as new nuclear power 

plants came online and efficiency improved. However, because nuclear 

power plants currently operate at about 90 percent capacity, new growth 

will occur only when new reactors are built. In addition, while hydropower 

makes up the bulk of energy generated from renewable sources, its share 

of the renewable energy has declined because new wind, geothermal, and

solar-generating capacity has been added while hydropower generation

has remained unchanged. 

Figure 1: Comparison of the U.S. Energy Portfolio in 1973 and 2004 

Source: GAO analysis of EIA data.

Renewable energy

1%

Nuclear energy

Fossil energy

Renewable energy

Nuclear energy

Fossil energy

93%

6%

6%

8%

86%

1973 2004

 7

In 2006, crude oil prices peaked at nearly $70 per barrel in the United States. 

Page 9 GAO-07-106 DOE's Energy Challenges
EIA’s model of energy generation in 2030 projects that the United States 

will continue to primarily rely on oil to provide most of the energy in the 

transportation sector and coal to provide most of the energy for generating 

electricity. EIA projects that U.S. electricity generation will grow from 

3,900 billion kilowatt-hours in 2005 to 5,500 billion kilowatt-hours in 2030 

(see fig. 2). 

Figure 2: Projected U.S. Electricity Generation by Energy Source, 2005-2030 

Calendar year

Billions of kilowatt-hours

Source: EIA.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Petroleum

Renewable

Natural gas

Nuclear

Coal

2005 2010 2015 2020 2025 2030

Note: EIA projects a greater reliance on coal to generate electricity if oil prices exceed $90 per barrel 

by 2030 and less reliance on coal and a slight reduction in renewable energy if oil prices are less than

$30 per barrel by 2030. 

In addition to funding energy R&D to develop advanced energy 

technologies, DOE has funded efforts to improve energy efficiency and

reduce energy demand. For example, DOE has encouraged energy 

efficiency by, for example, establishing energy efficiency standards for 

home appliances and air conditioners, and the federal government 

provides tax credits for purchasing energy-efficient equipment. 

Page 10 GAO-07-106 DOE's Energy Challenges
The federal government also provides the energy industry and consumers 

with 23 tax expenditures affecting energy supply, some of which are 

incentives designed to stimulate the development and deployment of 

advanced technologies. From a budgetary perspective, most tax 

expenditures are comparable to mandatory spending for entitlement 

programs because they require no further action. Tax expenditures do not 

compete directly in the annual budget process and, in effect, receive a 

higher funding priority than discretionary spending subject to the annual

appropriations process. Some tax expenditures are enacted on a 

temporary basis, providing an opportunity for scrutiny before they can be 

extended. 

Currently, the United States does not regulate carbon dioxide emissions, 

which contribute to global warming. In 1992, the United States ratified the

United Nations Framework Convention on Climate Change, which was 

intended to stabilize the build-up of greenhouse gases, but did not impose 

binding limits on greenhouse gas emissions. In 1997, the United States 

participated in drafting the Kyoto Protocol, which established some limits 

on greenhouse gas emissions but did not ratify the protocol. Many DOE 

officials and industry executives told us, however, that the federal 

government might begin to regulate greenhouse gas emissions in the 

future to address global warming concerns. The Energy Policy Act of 2005 

authorized R&D funding for the capture and long-term storage—or 

sequestration—of carbon dioxide. 

DOE’s budget authority for renewable, fossil, and nuclear energy R&D 

dropped from $5.5 billion (in real terms) in fiscal year 1978 to $793 million 

in fiscal year 2005—a decline of over 85 percent. Energy R&D budget 

authority peaked in the late 1970s in response to the Organization of Arab 

Petroleum Exporting Countries’ oil embargo of 1973 and fell sharply as 

crude oil prices plunged in the mid 1980s. However, since fiscal year 2000,

federal support for the energy industry—through DOE’s R&D budget 

authority and federal revenue losses from energy-related income tax 

expenditures—has grown. Since 1978, DOE’s renewable energy R&D 

program has made incremental progress in making renewable 

technologies more efficient and reducing their costs. DOE’s fossil energy 

R&D program has focused primarily on reducing harmful emissions by 

coal-fired power plants. During the 1980s and 1990s, the program made 

significant progress in demonstrating technologies that reduce sulfur 

dioxide and nitrogen oxide pollutants, and DOE’s current objective is to 

develop a “near-zero emissions” power plant by targeting mercury and 

carbon dioxide emissions. In response to the Three Mile Island accident in

DOE’s Budget 

Authority for 

Renewable, Fossil, 

and Nuclear Energy 

R&D Has Declined by 

over 85 Percent in 

Real Terms Since 

1978; DOE Is 

Narrowing Its R&D 

Focus 

Page 11 GAO-07-106 DOE's Energy Challenges
1979, DOE’s nuclear energy R&D program focused on improving the safety

and efficiency of nuclear reactors. More recently, the nuclear energy R&D 

program has given priority to (1) encouraging electric power companies to 

submit the first applications to NRC in over 30 years for combined licenses 

to build and operate a nuclear reactor to generate electricity, (2) 

developing technologies for reprocessing spent nuclear fuel that minimize 

the threat of spent fuel being used to make nuclear weapons and reduce 

highly radioactive waste, and (3) developing advanced Generation IV 

reactor technologies. Faced with competing R&D priorities and budget 

constraints, DOE has proposed in recent years to concentrate its R&D 

funding on key technologies for meeting the nation’s growing energy 

demand while eliminating funding for geothermal, hydropower, oil, and 

natural gas technologies. 

DOE’s Budget Authority 

for Renewable, Fossil, and 

Nuclear Energy R&D Has 

Substantially Fallen Since 

1978 

As shown in figure 3, renewable, fossil, and nuclear energy R&D budget 

authority each peaked in the late 1970s before falling sharply in the 1980s.

Similarly, energy R&D funding as a percentage of total nondefense R&D 

expenditures fell from about 20 percent in the late 1970s to less than 5 

percent in fiscal year 2006, according to the American Association for the

Advancement of Science. More recently, total budget authority for the 

three energy R&D programs has risen after bottoming out in fiscal year 

1998. Budget authority for renewable energy R&D peaked at $1.5 billion 

(in real terms) in fiscal year 1979, with most of the funding directed 

toward solar energy. Subsequently, renewable R&D budget authority fell, 

hitting its lowest point of $144 million (in real terms) in 1990. Fossil energy 

R&D budget authority peaked at $1.9 billion (in real terms) in fiscal year 

1979 and then has fluctuated. In particular, the Clean Coal Technology 

Program, a joint DOE-industry effort to demonstrate technologies that 

reduce sulfur dioxide and nitrogen oxide emissions, began in 1985 with 

high levels of DOE budget authority in the late 1980s and early 1990s. 

Fossil energy R&D budget authority rose in fiscal year 2001, and the 

administration introduced its “clear skies” initiative to further reduce 

pollution in fiscal year 2002. DOE’s nuclear energy R&D program peaked 

at $2.4 billion (in real terms) in fiscal year 1978 and then fell through fiscal 

year 1998, when the nuclear R&D program received no budget authority. 

Since fiscal year 1998, budget authority for nuclear energy R&D has 

gradually increased. Similar to DOE’s budget authority for energy R&D, 

estimated federal revenue losses from energy-related tax expenditures 

grew from nearly $2.2 billion (in real terms) in fiscal year 2000 to nearly

Page 12 GAO-07-106 DOE's Energy Challenges
$4.9 billion in fiscal year 2005.

8

 While many of the new tax expenditures 

are for developing and deploying advanced energy technologies, tax 

expenditures for conventional energy remain among the largest in terms of 

revenue loss. The alternative fuels production credit is the largest energyrelated tax expenditure, with estimated revenue losses of about $2.4 

billion in fiscal year 2006.9

Figure 3: DOE’s Budget Authority for Renewable, Fossil, and Nuclear R&D, Fiscal Years 1978 through 2005 

Dollars in millions

Fiscal year

Source: GAO analysis of DOE data.

0

500

1,000

1,500

2,000

2,500

Nuclear

Fossil

Renewable

200

2004

2005

3

199

1994

1995

1996

1997

1998

1999

2000

2001

2002

3

198

1984

1985

1986

1987

1988

1989

1990

1991

1992

3

1978

1979

1980

1981

1982

Note: Budget authority is in real terms, adjusted to fiscal year 2005 dollars to account for inflation. 

Excludes DOE program management costs and indirect facilities costs of DOE laboratories. 

In fiscal year 2006, the Congress provided about $982 million in budget 

authority for energy R&D, including $324 million for renewable energy 

R&D, about $434 million for fossil energy R&D, and about $224 million for 

 8

Summing tax expenditure estimates is useful to gauge their general magnitude but does 

not take into account interactions between individual provisions. 

9

The alternative fuels production credit is a tax credit of $3 per oil equivalent barrel (in

1979 dollars) for gas produced from biomass or synthetic fuels produced from coal. 

Page 13 GAO-07-106 DOE's Energy Challenges
nuclear energy R&D (see fig. 4). The biomass, solar, and hydrogen energy 

programs received about 80 percent of the renewable energy R&D budget 

authority. Similarly, coal R&D programs received more than 80 percent of 

the fossil energy R&D budget authority, particularly for developing and 

demonstrating advanced gasification technologies—including integrated 

gasification combined cycle (IGCC)—mercury capture, and sequestration 

technologies. DOE’s top nuclear energy R&D priority is to encourage 

electric power companies to submit applications to NRC for licenses to 

build and operate Generation III nuclear reactors by competitively 

awarding funds for preparing early site permits and NRC combined license 

applications. The nuclear R&D program also is developing Generation IV

nuclear reactor technologies, especially ones that can reprocess spent 

nuclear fuel that reduce both proliferation risks and the amount of waste 

generated. 

Figure 4: DOE’s Budget Authority for Renewable, Fossil, and Nuclear R&D, Fiscal 

Year 2006 

Dollars in millions

Renewable

Source: GAO analysis of DOE data.

0

50

100

150

200

250

300

350

400

Fossil

Nuclear

R&D programs

Nuclear

Petroleum 

Natural gas

Coal 

Geothermal

Wind

Hydrogen

Solar

Biomass

Page 14 GAO-07-106 DOE's Energy Challenges
Note: Budget authority is in fiscal year 2006 dollars. Excludes DOE program management costs, 

indirect facilities costs of DOE laboratories, and funding for fuel cells—historically, an energy

efficiency program. 

DOE’s Renewable R&D 

Focuses on Innovations in 

Ethanol, Wind, Solar, and 

Hydrogen Energy 

Technologies 

Over the past 29 years, DOE has made steady incremental progress in 

making each of the renewable energy technologies more cost-competitive; 

for example, DOE and its industry partners have reduced wind energy 

costs by more than 80 percent. DOE’s renewable energy R&D efforts have

focused on developing ethanol, wind, and solar energy technologies. More 

recently, in January 2003, the administration announced the Hydrogen 

Fuel Initiative and proposed spending $1.2 billion over 5 years to support 

research in hydrogen and fuel cell technologies. While DOE has conducted 

R&D in geothermal and hydropower technologies since the late 1970s, the 

administration’s 2007 budget proposed to eliminate both programs. 

DOE’s ethanol R&D program, the primary component of its biomass R&D 

efforts, is developing technologies to reduce the cost of producing ethanol, 

which can be blended with gasoline to reduce harmful exhaust emissions. 

In the early years of the biomass program, DOE focused on developing

biofuels and biomass energy systems that primarily relied on corn as the 

energy source. As the biomass program evolved, it sought to make 

biorefinery-related technologies cost- and performance-competitive. As of 

October 2006, 106 biorefineries were operating throughout the United 

States to supply (1) oil refineries with ethanol to oxygenate gasoline—

ethanol is a substitute for methyl tertiary-butyl ether (MTBE), which some 

states have banned because of concerns about groundwater 

contamination, and (2) fuel suppliers with ethanol to produce E85, a blend 

of 85 percent ethanol and 15 percent gasoline that can be used in flex fuel

vehicles.10

Ethanol 

The long-term goal of DOE’s biomass R&D program is to enable U.S. 

industry to produce enough biofuels equivalent to 30 percent of current 

gasoline demand—about 60 billion gallons of biofuels per year—by 2030. 

To meet this goal, the biomass program is focused on developing 

additional sources of ethanol from cellulosic biomass, such as agricultural 

residues, forest wastes, and energy crops. According to DOE, producing 

cellulosic ethanol is difficult because it requires a complex chemical 

process to convert the plant material into a simple sugar to use for 

 10Flex fuel vehicles operate on any blend of ethanol and gasoline, from 0 percent ethanol 

and 100 percent gasoline, up to 85 percent ethanol and 15 percent gasoline.

Page 15 GAO-07-106 DOE's Energy Challenges
ethanol. The biomass program is also working with industry to 

demonstrate biorefinery technologies and assess infrastructure needs. 

DOE’s wind R&D program primarily is focused on developing efficient 

wind turbines that convert the wind’s power into electrical power. 

Historically, DOE’s wind program focused on developing wind turbines for 

high-wind sites because it was the easiest way to achieve significant levels

of electric power generation. High-wind sites—referred to as Class 6—

typically are located in areas where the wind regularly blows from 18 to 20

miles per hour. During the past 29 years, DOE and its industry partners 

have made technological improvements that reduced the cost of wind 

energy by more than 80 percent, and industry has built wind farms on 

many of the high-wind sites that are easily accessible. 

Wind 

DOE’s wind R&D program primarily is seeking to develop new costeffective technology for deploying wind turbines for low-wind areas in the 

United States and exploring the possibility of offshore wind development.

Low-wind sites—referred to as Class 4—generally are located in areas of

sustained winds of 16 to 17 miles per hour and primarily are located in the 

Midwest from Texas to the Canadian border. The advantages of 

developing low-wind resources are that low-wind sites are far more 

plentiful than high-wind sites and are located closer to electricity load 

centers, which can substantially reduce the cost of connecting to the 

electricity transmission grid. DOE’s R&D program is focused on 

developing wind turbine technology for low-wind sites because easily 

accessible high-wind sites are becoming scarce. Specifically, the turbine 

rotor diameter must be much larger to harvest the low-energy winds 

without increasing costs, and the tower must be taller to take advantage of

the increasing wind speed at greater heights. DOE is using public/private

partnerships to improve wind turbine designs and components and 

demonstrate full-scale prototypes. DOE’s goal is to reduce the cost of lowwind generated electricity from about 4.5 to 5.5 cents per kilowatt-hour in 

2002 to 3.6 cents per kilowatt-hour by 2012. 

DOE’s wind R&D program is also exploring wind energy technology for 

the distinct needs of offshore wind sites. While the United States currently

has no offshore wind farms, several projects have been proposed in the 

waters off the Northeast and Gulf coasts. DOE estimates that there are 

over 900,000 megawatts of potential wind energy off the coasts of the 

United States, roughly between 6 and 58 miles offshore. Several European

countries, including Denmark, Ireland, and the United Kingdom, have 

deployed wind farms in the shallow (less than 100 feet deep) waters off 

their coastlines using wind turbine designs adapted from land-based 

Page 16 GAO-07-106 DOE's Energy Challenges
versions. However, the European offshore sites are different from 

potential U.S. offshore wind sites, which are generally located in deeper

waters and expected to have more severe wind, wave, and ice conditions. 

As a result, many U.S. sites will require new technologies. DOE’s offshore 

wind R&D activities include mapping coastal wind resources, organizing 

workshops for knowledge sharing, and collaborating with industry in 

developing offshore technologies to address design, offshore transmission, 

and interconnection issues. DOE is also collaborating with European 

nations on deep-water wind energy and with states to identify the 

regulatory, environmental, and technical issues facing offshore wind 

energy. DOE’s goal is to reduce the cost of electricity generated by 

offshore wind farms located in water 100 to 200 feet deep from an 

estimated 12 cents per kilowatt-hour today to 5 cents per kilowatt-hour by 

2016. 

DOE’s solar R&D program is working to make solar energy technologies a 

more cost-competitive source of electricity. Specifically, DOE’s extensive 

work has advanced solar technologies, improved efficiency and reliability, 

lowered costs, and resulted in more than 235 patents. While solar energy

technologies have evolved and costs have decreased, DOE is focused on 

further reducing solar energy costs to compete in the residential, 

commercial, and industrial energy markets and for solar technology to 

penetrate the market sufficiently to create a sustainable solar industry. 

Currently, DOE’s solar R&D program focuses on developing advanced 

photovoltaics, also called solar cells, that produce electricity directly from

absorbed photons from sunlight; solar heating and lighting systems; and 

utility-size, solar-power plants. 

Solar 

DOE’s photovoltaic R&D program is designed to increase performance, 

reduce costs, and enhance the reliability of photovoltaic systems. DOE 

initially focused on using crystalline-silicon, which continues to hold the 

majority of the photovoltaic market today. DOE’s second generation of 

photovoltaic R&D focuses on thin-film technology, which is designed to 

use less materials to reduce costs and can be made into a variety of forms. 

DOE’s goal is to lower the cost of photovoltaics so that they are an 

affordable alternative to traditional electricity sources across all sectors. 

DOE is working to reduce the costs of photovoltaics from about 18 to 23 

cents per kilowatt-hour in 2005 to about 5 to 10 cents per kilowatt-hour by 

2015. 

DOE’s solar heating and lighting R&D program is developing technologies 

that use sunlight for various thermal applications, particularly space 

heating and cooling, water heating, and to illuminate building interiors. 

Page 17 GAO-07-106 DOE's Energy Challenges
DOE’s R&D program is focused on advancing materials, design, and 

manufacturability that will lower costs of solar water heaters, improve 

their performance, and ease installation. DOE seeks to reduce the costs of

solar water-heating systems operating in cold climates from about 11 to 12 

cents per kilowatt-hour today to about 5 to 6 cents per kilowatt-hour by 

2011. DOE is also working with industry to fully commercialize solar 

lighting systems. However, the administration’s fiscal year 2007 budget 

proposed eliminating funding for the solar heating and lighting R&D 

program. 

DOE is also working with industry and southwestern states to develop

utility-size solar power plants that use two types of concentrating solar 

power technologies: trough systems and dish/engine systems. These 

technologies use various mirror configurations to convert the sun’s energy 

into high-temperature heat that is used to generate electricity in a steam 

generator. DOE’s goal is to reduce the cost of utility-size solar power 

plants in the Southwest from 12 to 14 cents per kilowatt-hour in 2005 to 10 

to 12 cents per kilowatt-hour by 2010. 

In January 2003, the administration announced the Hydrogen Fuel 

Initiative and proposed spending $1.2 billion over 5 years to support 

research in hydrogen and fuel cell technologies. The initiative’s objective 

is to accelerate the development of technologies to produce and distribute 

hydrogen to power fuel cells to replace the internal combustion engine in

vehicles. While hydrogen is used as a fuel for aerospace and rocket 

propulsion applications, it is primarily used in the petroleum refining and

fertilizer industries. DOE’s hydrogen R&D program is focused on 

developing technologies for production and delivery, storage, conversion,

and end-use applications and on standards formulation and other 

research. The program’s goal is to develop the technology needed to allow 

industry to make a technology readiness decision in 2015 and introduce 

new hydrogen vehicles by 2020. However, these technologies are not 

expected to penetrate the market or significantly displace oil before 2030.

Hydrogen 

DOE’s geothermal R&D program is developing technologies to improve 

the efficiency and cost competitiveness of geothermal technologies, which 

currently provide about 0.3 percent of total U.S. electricity and heating

needs.11 DOE’s R&D program has changed over time from a resourceGeothermal 

 11See also GAO, Renewable Energy: Increased Geothermal Development Will Depend on 

Overcoming Many Challenges, GAO-06-629 (Washington, D.C.: May 24, 2006). 

Page 18 GAO-07-106 DOE's Energy Challenges
oriented, long-term, high-risk program to a cost-shared, competitively

selected R&D program to meet immediate industry needs in geosciences,

drilling, resource engineering, and energy conversion technologies. The 

program has developed drilling tools that oil and gas companies have 

adapted for exploration and helped introduce geothermal heat pumps into 

the market.12 The current goals of the geothermal R&D program are to (1) 

decrease the cost of geothermal electricity from about 8 to 9 cents per 

kilowatt-hour in 2004 to about 3 to 5 cents per kilowatt-hour by 2010; (2) 

improve hydrothermal technologies by increasing the productivity and 

lifetime of reservoirs, improve technology performance, and reduce the 

costs associated with drilling geothermal wells; (3) develop additional 

geothermal resources; and (4) explore the technical feasibility of mining 

heat from hot dry rock and magma. However, the administration’s fiscal 

year 2007 budget proposed eliminating funding for the geothermal R&D 

program. 

Since 1991, annual budget authority for DOE’s hydropower R&D program 

has not exceeded $6 million (in real terms) for developing cost-effective 

technologies to improve the operation of hydropower facilities and 

address environmental concerns. Hydropower is currently the largest 

source of renewable energy, generating as much as 10 percent of U.S. 

electricity. The most common type of hydropower plant uses a dam on a 

river to store water in a reservoir. Water released from the reservoir flows 

through a turbine, spinning it, which, in turn, activates a generator to 

produce electricity. Current hydropower technologies can have 

undesirable environmental effects, such as fish injury and mortality from 

passage through hydropower systems, and negative impacts on the quality 

of water downstream. DOE has been working with industry to improve the 

environmental and operational performance of hydropower systems. 

DOE’s goal is to demonstrate advanced turbine technologies that will 

enable a 10 percent growth in generation at existing hydropower plants 

and enhance environmental performance by 2010. However, the 

administration’s fiscal year 2007 budget proposed eliminating funding for 

the hydropower R&D program. 

Hydropower

 12Geothermal heat pumps are used for space heating and cooling, as well as water heating. 

The heat pump transfers heat stored in the earth or in groundwater into a building during 

the winter and transfers it out of the building and back into the ground during the summer. 

Page 19 GAO-07-106 DOE's Energy Challenges
DOE’s fossil energy R&D has focused primarily on reducing emissions and 

increasing the efficiency of coal-fired power plants. DOE also has 

supported oil and natural gas R&D through cost-shared partnerships with 

industry, with most funding focused on advanced drilling and piping 

technologies for exploration and production. 

In the 1980s and early 1990s, DOE’s clean coal technology programs used 

cost-shared cooperative agreements with power companies to 

demonstrate technologies for reducing sulfur dioxide and nitrogen oxide

emissions from coal-fired power plants. In part as a result of concerns 

about acid rain and transboundary pollution, the 1990 Clean Air Act 

amendments required that the U.S. Environmental Protection Agency 

(EPA) regulate hazardous air pollutants, including sulfur dioxide and 

nitrogen oxide emissions.13 Technologies demonstrated by the clean coal 

technology program contributed to a 98-percent reduction in sulfur 

dioxide and similar targets for nitrogen oxide emissions from coal-fired 

power plants from 1986 to 2005. 

DOE’s Fossil R&D 

Program Has Focused on 

Reducing Harmful 

Emissions and Improving 

the Efficiency of Burning 

Coal 

Coal 

While DOE’s fossil R&D program seeks to further reduce sulfur dioxide 

and nitrogen oxide emissions, its overall objective is to drive all coal-fired 

power plant emissions to “near-zero” levels by 2020. To enable industry to 

meet Clean Air Act standards, as well as new goals set out by the 

administration’s Clear Skies Initiative and EPA regulations,14 DOE has 

focused on reducing mercury and carbon dioxide emissions—significant 

contributors to health hazards and global warming, respectively. DOE’s 

objective is to reduce mercury emissions by 95 percent and capture and 

store—or “sequester”—up to 90 percent of carbon dioxide emissions by 

2020. Carbon dioxide capture and storage technologies would separate 

carbon dioxide from other gases produced during the combustion process 

and would transport the captured carbon dioxide to a suitable long-term 

storage site, such as geologic repositories or in the deep ocean. 

 13Under the Clean Air Act, EPA sets limits on how much of a pollutant can be in the air 

anywhere in the United States, which it can enforce by fining companies that violate air 

pollution limits.

14EPA has promulgated a Clean Air Mercury Rule for mercury and a Clean Air Interstate 

Rule for sulfur dioxide and nitrogen oxide reductions across the states. 

Page 20 GAO-07-106 DOE's Energy Challenges
DOE is also working to improve the efficiency of coal-fired plants by up to

50 percent by 2010 and 60 percent by 2020. According to DOE, pulverized 

coal-fired plants using currently available technology are only about 35-

percent efficient—meaning about 65 percent of the energy generated by 

the plant is lost during the conversion process, mostly as heat that is not 

converted to electricity. Several of DOE’s current fossil R&D projects aim 

to develop coal-based plants that employ new, more efficient gasification 

technologies. Rather than burning coal directly, gasification breaks coal 

down into a synthesis gas, comprised primarily of carbon monoxide and 

hydrogen, which is combusted to turn a gas turbine, generating electricity. 

Heat from the combustion process is captured and directed toward a 

steam turbine, which also generates electricity. According to DOE, 

industry, and association officials, power plants using an IGCC 

configuration for gasification increase the efficiency of electricity 

generation and substantially reduce harmful emissions in comparison with 

conventional pulverized coal technology (see table 1). 

Table 1: Comparison of Conventional Pulverized Coal and IGCC Technologies 

IGCC

Performance characteristic 

New conventional pulverized

coal plant current near future 2020

Mercury emissions (pounds/year) 45 29 29 26

Sulfur dioxide emissions (tons/year) 3,027 566 276 250

Nitrogen oxide emissions (tons/year) 1,412 1,094 219 198

Carbon dioxide emissions (tons/year) 3,700,000 3,600,000 3,500,000 3,200,000

Potential for carbon capture and sequestration Limited Yes Yes Yes

Plant efficiency (percent) 38.6 39.7 45-50 50-60

Source: The Electric Power Research Institute and DOE.

Note: DOE is the source of plant efficiency data for the “near future” and 2020. The Electric Power 

Research Institute provided all other data. 

Coal-based power plants that employ IGCC technologies break down coal 

into its basic chemical elements, allowing for the capture of carbon 

dioxide as a concentrated gas stream. In contrast, conventional pulverized 

coal plants burn coal directly, creating a more diluted stream of carbon 

dioxide that is much more costly to separate from the larger mass of gases 

flowing from the combustor. As such, IGCC plants offer greater potential 

for carbon capture and sequestration to reduce carbon dioxide emissions. 

Moreover, according to international climate change experts at the United

Nations Environment Programme and the World Meteorological 

Organization, carbon dioxide capture and sequestration technologies have 

Page 21 GAO-07-106 DOE's Energy Challenges
the most potential for significantly mitigating climate change when applied 

in IGCC plants. Currently, only two coal-based IGCC plants in the United 

States are fully operational and produce electricity, and an additional 28

coal gasification plants are planned for operation by 2030. 

To meet its emissions and efficiency goals, DOE recently proposed a $1 

billion advanced coal-based power plant R&D project called FutureGen—

cost-shared between DOE (76 percent) and industry (24 percent)—which 

will demonstrate how IGCC technology can both reduce emissions and 

improve efficiency by integrating IGCC with carbon capture and 

sequestration technologies. According to DOE, FutureGen is designed to 

be the first “zero-emissions” coal-based power plant and is expected to be

operational by 2015. In addition to producing electricity and capturing and

storing 1 million metric tons of carbon dioxide, the 275 megawatt plant 

also will be capable of producing hydrogen. 

Oil and Natural Gas Since 1978, DOE has supported oil and natural gas R&D, mainly through 

cost-shared partnerships with industry. Historically, DOE’s R&D funding 

for oil and natural gas was principally divided among specific resources, 

such as gas shales and coal-bed methane. In the mid-1980s, however, DOE 

switched its focus to developing energy technologies that cross multiple 

resources. Recently, DOE’s R&D has focused on improving oil exploration 

technologies, extending the life of current oil reservoirs, and developing

drilling technology for tapping into deep deposits of natural gas. For 

example, DOE is working with industry to develop (1) a composite drill 

pipe that is lighter, stronger, and more flexible than steel to improve oil 

and natural gas extraction and (2) technology for tapping into the vast 

amount of natural gas available in naturally occurring methane hydrate 

found on land in permafrost regions and beneath the ocean floor at water 

depths greater than 1,600 feet. In fiscal year 2005, exploration and 

production and methane hydrate R&D received almost two-thirds of 

DOE’s funding for oil and natural gas R&D. While DOE’s fiscal year 2006 

budget proposed terminating the oil and natural gas R&D program, the 

Congress provided $65 million. DOE’s fiscal year 2007 budget again 

proposed terminating the oil and natural gas R&D program. In addition to

the appropriated funds that oil and natural gas R&D program receives, 

section 999A-H of the Energy Policy Act of 2005 established a program for 

R&D and commercialization of technologies for ultra-deepwater and 

unconventional natural gas and other petroleum resource exploration and 

production through September 2014 and authorized the use of $50 million

per year from federal oil and gas lease income for an 11-year period. 

Page 22 GAO-07-106 DOE's Energy Challenges
The commercial nuclear energy industry experienced substantial growth 

during the 1960s and 1970s. By 1974, the federal government had approved

operating licenses for 52 nuclear reactors with plans for dozens more. 

However, the energy crisis in the 1970s led to a significant reduction in 

orders for new reactors and, coupled with concerns about reactor safety

and performance resulting from the 1979 accident at Three Mile Island, the 

industry canceled the application process for 93 other reactors. DOE 

began to focus on short-term R&D, working specifically to restore public 

trust and regulator confidence by improving safety and efficiency of 

operations. By the mid-1990s, the industry had dramatically improved its 

safety record, and the performance of nuclear power exceeded that of any 

other source of energy, reaching 90 percent of total potential capacity. Left

with only incremental improvements in operations and uncertain 

economics, the Congress began to phase out funding DOE’s nuclear 

energy R&D and terminated nuclear R&D funding altogether in fiscal year 

1998. 

DOE’s Nuclear R&D Goals 

Recently Have Focused on 

Restarting the U.S. Nuclear 

Power Industry,

Reprocessing Spent 

Nuclear Fuel, and 

Developing New Reactor 

Designs 

In fiscal year 1999, DOE crafted a long-term nuclear energy R&D agenda 

that focused on developing more efficient systems and proliferationresistant fuel cycles, devising new technologies for managing nuclear 

waste, and designing a fourth generation of nuclear reactors that would 

not use conventional light water reactor technology. In fiscal year 2001, 

DOE prioritized its R&D program to focus on (1) the Nuclear Power 2010 

program, (2) the Advanced Fuel Cycle Initiative (AFCI), and (3) the 

Generation IV Nuclear Energy Systems Initiative. 

DOE’s Nuclear Power 2010 initiative has shared the costs that

participating power companies have incurred in preparing either an early

site permit or an application for an NRC license to construct and operate 

an advanced Generation III nuclear power reactor. In the years after the 

Three Mile Island accident, the nuclear power industry stated that NRC’s 

regulatory process had become too cumbersome, leading to costly delays 

in construction and licensing and becoming a major stumbling block to 

investing in a new nuclear reactor. In response, NRC promulgated 

regulations in 1989 that established a single combined license to construct 

and operate a new reactor, replacing its prior requirement that companies 

obtain both a construction permit and an operating license.15 More 

recently, in fiscal year 2002, to encourage power companies to apply to 

NRC for a combined construction and operating license, DOE initiated a 

 15See 54 Fed. Reg. 15383 (1989). 

Page 23 GAO-07-106 DOE's Energy Challenges
demonstration program with three power companies seeking early site 

permits for potential nuclear reactor sites in Illinois, Mississippi, and 

Virginia. The permits, applications for which were submitted to NRC in 

2003, would allow the sites to be used for nuclear power plants, but the 

power companies still would have to apply to NRC for a combined license 

to construct and operate any reactors later built on these sites. In fiscal 

year 2004, DOE began a demonstration program with two industry 

consortia to develop applications for NRC licenses to build and operate 

two additional reactors at existing nuclear power plants. These 

applications may be submitted to NRC next year. Even if NRC approves 

the licenses, which NRC estimates will take 42 months, the industry 

consortia have not committed to constructing the new reactors. The 

industry has, however, received license extensions for 44 of the 103 

operating nuclear reactors. DOE allocated $65.3 million to the Nuclear 

Power 2010 program in fiscal year 2006 and requested $54 million for fiscal

year 2007. 

The AFCI program is designed to develop and demonstrate technologies 

for reprocessing spent nuclear fuel that could recover the fuel for reuse, 

minimize proliferation threats, and reduce the long-term hazard and 

disposal requirements of spent nuclear fuel. In the 1970s, the United States

pioneered reprocessing technologies, but it abandoned the concept 

because of concerns about nuclear proliferation—plutonium could be

separated to manufacture nuclear weapons.16 Current R&D efforts focus 

on reprocessing spent fuel without separating the plutonium, with the goal 

of rendering it virtually useless to potential proliferators. Much of the 

reprocessed fuel could be reused in commercial reactors to generate 

electricity. 

In February 2006, DOE announced the Global Nuclear Energy Partnership 

(GNEP) program, characterizing it as an extension of the AFCI program. 

GNEP furthers the R&D goals of the AFCI program, accelerating the R&D 

efforts and introducing a global component. DOE’s intent is to work with 

other nations that reprocess spent fuel to supply fuel to countries for the 

purpose of generating electricity. The countries then would return the 

spent fuel to the supplier nations for reprocessing. Once reprocessed, this

fuel would be returned to the countries for reuse. The intent of the 

program is to encourage these “reactor-only” countries not to develop

 16In 1977, President Carter announced plans to indefinitely suspend U.S. reprocessing 

efforts. 

Page 24 GAO-07-106 DOE's Energy Challenges
their own independent nuclear technologies, thereby reducing 

proliferation risks. Details of the program are still being developed. DOE 

requested $243 million for the combined AFCI and GNEP programs in 

fiscal year 2007. According to DOE officials, the GNEP program would 

need about $5 billion over the next 5 years. 

The Generation IV program focuses on developing new, fourth generation, 

advanced reactor technologies intended to be commercially available by

about 2020 to 2030. The program, including the United States and 12 

international partners, identified six advanced reactor designs from which 

DOE has focused on two reactor designs: (1) a sodium-cooled fast reactor 

and (2) a gas-cooled very high temperature reactor. A fast reactor manages 

nuclear reactions somewhat differently than current commercial reactors, 

in which neutrons interact with the low-enriched uranium fuel atoms to 

induce fissions—or the splitting of the uranium atom—that emits more 

neutrons and leads to a self-sustaining chain reaction. The fissioning of 

uranium releases large amounts of energy that is captured as heat to drive 

turbines and generate electricity. Because the fission neutrons are born at 

high energy, they are not inherently efficient at causing more fissions, so 

commercial nuclear reactors are filled with water that functions both to 

slow the neutrons down and act as a coolant and heat removal system. The 

lower energy neutrons in current commercial reactors are much more 

effective at sustaining the uranium fission chain reaction. In contrast, a 

fast reactor manages these nuclear reactions at a higher energy level. Fast 

reactors use coolants such as liquid sodium metal that do not slow down 

the neutron energy. Because fast reactors are more effective than current 

commercial reactors at inducing fissions in a wider variety of nuclear 

materials, including plutonium and other materials that might otherwise 

become wastes from the current commercial reactor fuel cycle, they can 

potentially reduce the total amount, temperature, and radiotoxicity of the 

fuel that might otherwise have to be stored for many thousands of years in 

a geologic repository. The lower temperature may also allow more spent 

fuel to be stored at a deep geologic repository, delaying the need for 

additional repository requirements. This continuous recycle and burning 

of spent nuclear fuel materials is key to the GNEP program. 

The gas-cooled very high temperature reactor is also being developed 

through DOE’s Next Generation Nuclear Plant program because the high 

temperature allows for the efficient production of hydrogen by splitting 

water. U.S. industries annually produce over 9 million tons of hydrogen to,

for example, manufacture fertilizer and refine petroleum. Very high 

temperature reactors may become an efficient and emissions free 

alternative source of hydrogen, which is made primarily from natural gas. 

Page 25 GAO-07-106 DOE's Energy Challenges
The very high temperature reactor can be more efficient than current 

reactors and is designed to be versatile, capable of generating small or 

large amounts of electricity. DOE requested $31.4 million for fiscal year 

2007 for the Generation IV R&D efforts. 

Advanced renewable, fossil, and nuclear energy technologies all face key 

challenges to their deployment into the market. Renewable technologies 

face technological and market barriers—such as efficiency and high upfront capital costs—to substituting for oil and for generating electricity. 

Advanced fossil technologies also face key challenges—such as 

controlling harmful emissions—to deploying advanced technologies for 

generating electricity. Similarly, advanced nuclear technologies face key 

challenges—such as public opposition and high capital costs—that must 

be addressed as the industry considers constructing new nuclear power 

reactors for the first time in nearly 30 years. 

The primary renewable energy technologies with the potential to 

substantially expand their existing production capacity during the next 25 

years are biomass, a partial substitute for gasoline in transportation, and 

wind and solar energy technologies for generating electricity.

In 2005, 95 ethanol refineries located in 19 states produced 3.9 billion 

gallons of ethanol—an increase of 17 percent over 2004 and 126 percent 

over 2001. The United States will consume about 5 billion gallons of 

ethanol in 2006, according to the industry’s September 2006 projections. 

Ethanol is blended in 30 percent of the nation’s gasoline and is primarily 

produced in the Midwest because of the abundant supply of corn. Ethanol 

demand is expected to continue to grow as a result of the national 

renewable fuels standard,17 enacted by the Energy Policy Act of 2005, and 

the decision of many oil refineries to switch to using ethanol instead of 

Advanced Renewable, 

Fossil, and Nuclear 

Energy Technologies 

Face Key Barriers to 

Market Deployment 

Renewable Energy 

Technologies Face a 

Variety of Technical and 

Deployment Barriers 

Ethanol 

 17The national renewable fuels standard establishes a baseline for renewable fuel use,

beginning with 4 billion gallons per year in 2006 and expanding to 7.5 billion gallons by

2012. 

Page 26 GAO-07-106 DOE's Energy Challenges
MTBE as a fuel additive in gasoline that improves its octane and cleanburning properties.18

One of ethanol’s biggest challenges is how to cost-effectively expand the

supply of biomass, in addition to corn, to enable the total ethanol market 

to grow. DOE scientists are exploring technologies that can costeffectively use cellulosic biomass—low-value residues such as wheat 

straw and corn stover or bio-energy crops such as fast-growing grasses 

and trees. Some bio-energy crops, such as switchgrass, require less 

fertilizer than corn and can be grown in many U.S. regions. While 

cellulosic ethanol requires less fossil energy than corn ethanol on a total

life-cycle basis, capital costs are substantially higher for cellulosic ethanol 

plants than for corn ethanol plants. In addition, cellulosic ethanol 

producers need to reduce costs for (1) harvesting and handling cellulosic 

feedstock, (2) enzymes for converting cellulose to fermentable sugars, and 

(3) novel fermenting micro-organisms that can convert these biomassderived sugars to ethanol. Cellulosic ethanol currently costs at least twice 

as much to produce as corn ethanol, according to DOE officials. 

A related challenge is producing sufficient biomass levels without 

disrupting current production of food and forest products. In 2005, 1.43 

billion bushels of corn—nearly 13 percent of the U.S. corn crop—were 

used for ethanol production. In a 2005 report, the U.S. Department of 

Agriculture and DOE estimated that the nation is capable of producing 

enough ethanol to replace 30 percent of the U.S. oil consumption by 2030 

and still meet food, feed, and export demands.19 However, some experts 

have expressed concern that large-scale diversion of agricultural 

resources to generate ethanol could result in higher food prices for people 

and livestock. There are also questions about the amount of land that will

be needed to produce higher levels of ethanol, whether vast preserved 

areas will be transformed into farmland, water quality issues, and soil 

sustainability. In addition, scientists have debated whether ethanol is an 

effective petroleum substitute because of the amount of energy needed to

produce it—a significant amount of energy is used because (1) fertilizer 

 18According to EIA, oil refineries decided to eliminate MTBE primarily because (1) many

states have banned MTBE because of water contamination concerns, (2) industry’s liability 

exposure by adding MTBE to gasoline, and (3) industry’s perception that liability exposure

increased because the Energy Policy Act of 2005 eliminated the oxygen content 

requirement for reformulated gasoline. 

19DOE and USDA, Biomass as Feedstock for a Bioenergy and Bioproducts Industry: The

Technical Feasibility of a Billion-Ton Annual Supply, April 2005. 

Page 27 GAO-07-106 DOE's Energy Challenges
made from fossil fuels is used to grow the corn, (2) most U.S. biorefineries 

use natural gas to convert biomass into ethanol, and (3) the corn and the 

ethanol need to be transported. 

A third challenge is the distribution of ethanol from the biorefinery to the 

consumer, according to DOE officials. Ethanol cannot use the same 

infrastructure as gasoline because it has corrosive qualities and is water 

soluble.20 As a result, an independent infrastructure system for 

transporting and storing ethanol would be needed throughout the United 

States. In particular, no pipelines exist to distribute ethanol from the 

Midwest, where it is mainly produced, to major markets on the East and 

West coasts. In addition, infrastructure constrains the distribution of 

E85—a blend of 85 percent ethanol and 15 percent gasoline—because 

regular gas stations must have separate tanks for storing E85 and 

specialized pumps for dispensing it. Currently, fewer than 1,000 fueling 

stations provide E85 nationwide, compared with 176,000 gas stations. 

These ethanol fueling stations are concentrated in the upper Midwest, and 

about 75 percent of ethanol is transported by rail and 25 percent is moved 

by truck. U.S. consumers have bought more than 5 million flexible fuel

vehicles that can run on E85; however, without a ready supply of E85, 

many of these vehicles will continue to operate using gasoline. 

Ethanol also faces the challenge of becoming more price-competitive with

gasoline. Currently the market for ethanol relies on federal tax incentives. 

One such incentive is the volumetric ethanol excise tax credit, enacted in

2004, which provides a 51-cent tax credit for every gallon of ethanol used 

to produce a fuel mixture through December 31, 2010. Even with tax 

incentives for ethanol producers, the fuel has been more expensive than 

gasoline, in part because ethanol’s energy content is lower than gasoline’s. 

According to DOE and EPA, flex fuel vehicles require about one-third 

more ethanol to match gasoline’s energy content. Similarly, in October 

2006, Consumer Reports, estimated that drivers paying $2.91 per gallon for 

E85 in August 2006 actually paid about $3.99 for the energy equivalent of a

gallon of gasoline because the distance vehicles traveled per gallon 

declined by 27 percent. 

 20It is a normal occurrence for water to accumulate in oil pipelines. In most cases, water 

enters the system through terminal and refinery tank roofs or can be dissolved in fuels

during refinery processes. Introducing ethanol into an oil pipeline risks rendering it 

unusable as a transportation fuel. 

Page 28 GAO-07-106 DOE's Energy Challenges
Finally, congressional earmarks of DOE’s biomass R&D funding rose from 

14 percent of the fiscal year 2000 funds to 57 percent ($52 million) of the 

fiscal year 2006 funds, according to a DOE program official.21 DOE 

program officials told us that the rising number of biomass earmarks 

shifted funding away from DOE’s R&D program, causing the biomass 

program to change its program priorities and terminated some of its costshared projects. Congressionally earmarked projects typically are not 

subject to peer review, are not selected on either their technical merits or 

their contribution to meeting program goals, and are only voluntarily 

accountable for reporting results. 

Both wind and solar technologies have experienced substantial growth in 

recent years; they have benefited from federal and state financial 

incentives, DOE’s R&D programs that decreased costs and improved 

efficiencies, and environmental and energy security concerns. For 

example, U.S. wind electric generation capacity has grown from 2,000 

megawatts in 1999 to 10,000 megawatts by August 2006, enough energy to

power about 2.5 million homes22 with electricity on a typical day. Similarly,

the total photovoltaic market has grown, on average, about 30 percent per 

year over the past 10 years, according to a solar manufacturer. In 2005, the 

United States had an estimated 475 megawatts of installed photovoltaic 

capacity, enough to power about 240,000 homes. EIA data show that in 

2005 domestic shipments of solar photovoltaic solar technology increased 

by 72 percent over 2004.

Wind and Solar 

The wind energy industry faces technological challenges to improve 

turbine design, performance, and reliability that will enable wind power to 

expand into low wind and offshore locations. These locations use bigger 

wind turbines with longer blades mounted on taller towers, requiring 

complex design improvements in such areas as blade development, 

advanced drive train and power electronics, and advanced controls to 

reduce system loads. For example, while traditional blade materials have 

used fiberglass technology, the next generation of turbines will need stiffer 

and stronger materials, such as carbon fiber, to make longer, thinner, but 

equally durable blades. Similarly, offshore wind development faces new 

technical challenges, such as understanding the effects of wave and 

 21Similarly, earmarks accounted for about $43 million, or 27 percent, of appropriated funds 

for DOE’s hydrogen and fuel cell R&D program in fiscal year 2006. 

22One megawatt of wind power generates about as much electricity as 240 to 300 

households use each year. 

Page 29 GAO-07-106 DOE's Energy Challenges
current loads on the base of wind structures, connecting offshore wind 

farms to the electric transmission grid, and designing support structures 

for turbines located in deep water. 

Solar technologies also face challenges of improving the scientific 

understanding of the electronic process of capturing and converting 

sunlight at the molecular level and technical challenges of improving 

performance and reliability. For example, DOE is pursuing thin-film 

photovoltaic technologies, which are designed to reduce material costs by 

using thin layers of semiconductor material. According to DOE, this 

technology is not as efficient in converting sunlight to electricity as 

conventional crystalline-silicon solar cells, but manufacturing costs are 

anticipated to be lower. The challenge is to increase their efficiency, while 

continuing to reduce the costs of manufacturing thin-film technologies. 

DOE scientists are also seeking to reduce failure rates for components in 

solar water-heating systems that are exposed to high temperatures and 

improve the 12-year tank life of current solar heaters in cold climates. 

A second major challenge to deploying both wind and solar technologies is 

overcoming investors’ concern about their higher up-front capital costs. In 

particular, wind investors pay substantial up-front capital costs to build a 

facility and connect it to the power transmission grid. Constructing a wind 

farm may cost less than connecting the facility to the power transmission 

grid, according to DOE officials who noted that the connection could cost

$100,000 or more per mile, on average, depending on such factors as the 

project’s size, the terrain, and the transmission line rating. In addition, in 

most areas, a wind farm’s investors would pay for upgrading the power 

transmission grid to carry the extra load, which can be high because prime 

wind resources are often found far from large urban areas that need the 

electricity. Similarly, the primary barrier to deploying solar photovoltaic 

technologies is their up-front purchase costs, which continue to make 

them more expensive than traditional energy sources, according to DOE 

and industry executives.23 More recently, the rapidly growing solar energy

industry has experienced an industrywide shortage of solar-grade 

silicon—the principal material for making crystalline-silicon photovoltaic 

cells—because of competition from other industries, such as computer 

chip manufacturers. As a result, the price of silicon wafers on the market 

has doubled in each of the past 2 years, according to EIA. The tight silicon 

 23The Energy Policy Act of 2005 also established a new residential investment tax credit for 

solar energy systems that provides a 2-year tax credit through December 31, 2007. 

Page 30 GAO-07-106 DOE's Energy Challenges
supply has also created back orders of several months. Because 

photovoltaic manufacturing costs have risen sharply, manufacturers have 

changed their business strategies to maintain profits and continue to 

finance their plans to expand their production and strengthen their 

distribution capabilities. 

Both wind and solar power also have unique intermittency characteristics

that can constrain their use because the existing power transmission grid 

was built to accommodate large central-station power plants located near

population centers that operate full time. This system relies on precisely 

predicting and controlling power plant output to avoid blackouts and 

other disruptions. However, wind and solar energy are intermittent energy 

sources because wind speed and sunlight vary, depending, for example, on 

the time of day and the weather—on average, wind turbines operate the 

equivalent of less than 40 percent of the hours in a year due to the 

intermittency of wind. Alternatively, the electricity generated must be 

immediately used or transmitted to the power transmission grid because

no cost-effective means exists for storing electricity. DOE is conducting 

R&D in this area. 

A recent challenge facing the wind industry is mitigating environmental 

and community concerns about its adverse effects. While wind energy 

does not create the pollution or greenhouse gas emissions associated with 

fossil fuel power generation, some wind farms have resulted in the death 

of birds and bats because they are located amidst migratory pathways or 

important habitats.24 Our 2005 report found that impacts of wind farms on 

birds and other wildlife varied by region and by species, and the lack of 

comprehensive data on bird and bat fatalities from wind turbines make it 

difficult to make national assessments of the impact of wind turbines on 

wildlife.25 In addition, wind energy may face community opposition 

because it affects visual aesthetics and landscapes. For example, the first 

proposed U.S. offshore wind project, consisting of 130 wind turbines off 

the coast of Massachusetts, ran into opposition from local residents and 

 24The Fish and Wildlife Service estimates that some of the leading sources of bird mortality 

per year are attacks by domestic and feral cats, hundreds of millions of bird deaths; 

collisions with building windows, 97 million to 976 million bird deaths; poisoning from

pesticides, at least 72 million bird deaths; and collisions with communication towers, 4 

million to 50 million bird deaths. 

25See GAO, Wind Power: Impacts on Wildlife and Government Responsibilities for

Regulating Development and Protecting Wildlife, GAO-05-906 (Washington, D.C.: Sept. 16,

2005). 

Page 31 GAO-07-106 DOE's Energy Challenges
organizations who oppose the appearance of wind turbines in Nantucket 

Sound. 

Another challenge for wind energy is that the federal production tax 

credit—the primary federal financial incentive to stimulate the deployment 

of renewable energy systems—periodically must be legislatively extended, 

creating uncertainty among investors whether the tax credit will be 

extended. The federal production tax credit, initially established by the 

Energy Policy Act of 1992 for a limited duration, had expired before being 

renewed by subsequent legislation in 1999, 2001, and 2003. The Energy 

Policy Act of 2005 extended it an additional 2 years, until January 1, 2008. 

According to DOE officials and industry representatives, the production 

tax credit has helped to offset the significant higher capital costs per unit 

of generating capacity needed to start up wind power projects, compared 

with projects for fossil fuel power generation. However, the uncertainty 

about the production tax credit’s availability has created a boom-and-bust 

cycle for installing new wind power capacity—installation of new capacity

fell dramatically in years when the authorization for the tax credit expired 

and its renewal was delayed, as compared with years when it was 

available without interruption. Potential developers are reluctant to 

commit resources to the planning and construction of new capacity 

without the certainty that the tax credit will be reauthorized. Furthermore, 

according to the American Wind Energy Association, 4 to 6 months before 

the tax credit expires, financial lenders hesitate to provide capital for wind 

projects because of the uncertainty of whether the tax credit will be 

extended. 

DOE officials and industry representatives believe the continued 

availability of the production tax credit, or other subsidy support, is vital 

to the potential future growth of the wind industry. According to an 

industry representative, a long-term production tax credit would facilitate 

steady market development for wind power and other renewable sources

by encouraging companies to enter the market, allowing the industry to 

conduct long-term planning, and eventually help the industry stand on its 

own. According to some stakeholders, renewable energy sources require 

subsidies, such as the production tax credit, to level the playing field 

because various subsidies for fossil fuel and nuclear technologies have 

made it difficult for renewable energy sources to compete. 

Both DOE’s wind and solar R&D programs have experienced a large 

increase in the amount of congressional earmarks in recent years. Wind 

energy earmarks grew from 6 percent of funding in fiscal year 2004 to 

about 33 percent ($13 million) of funding in fiscal year 2006, according to a 

Page 32 GAO-07-106 DOE's Energy Challenges
DOE program official. Similarly, solar energy earmarks grew from 1 

percent of funding in fiscal year 2004 to about 17 percent ($14 million) of 

funding in fiscal year 2006, according to a DOE program official. An 

industry association executive noted that congressional earmarks reduce 

DOE’s ability to adequately fund its solar R&D programs and meet targets. 

Barriers to Advanced 

Fossil Technologies 

Include Harmful Emissions 

and High Capital Costs of 

New Coal Gasification 

Plants 

While coal-fired power plants have substantially reduced their sulfur 

dioxide and nitrogen oxide emissions, electric power companies face 

important challenges to deploying a new generation of advanced IGCC 

coal gasification power plants. These challenges are to further reduce 

mercury and carbon dioxide emissions and manage the risk associated 

with high construction and operating costs of new advanced coal 

technologies. The administration’s Clear Skies Initiative set goals for coalfired plants to cut their 2003 emissions—49 tons of mercury, 10.2 million 

tons of sulfur dioxide, and 3.9 million tons of nitrogen oxide—by an 

average of 70 percent by 2018. However, coal-fired plants also annually 

emit 2.1 billion tons of carbon dioxide—the most significant contributor to 

greenhouse gases and global warming—or 36 percent of the nation’s total 

carbon dioxide emissions. EPA currently does not regulate carbon dioxide 

emissions but might do so in the future to address the growing concern 

about the harmful effects of greenhouse gases. 

IGCC coal-gasification technology enables power plants to separate sulfur 

dioxide, nitrogen oxide, mercury, and carbon dioxide before the synthesis 

gas is burned, thus reducing their emission into the air. DOE and industry 

are conducting R&D to develop sequestration technologies for the longterm storage of carbon dioxide gas without the gas gradually leaking back 

into the atmosphere. DOE has funded 25 carbon-dioxide sequestration 

projects as of September 2006, but has not yet demonstrated the storage of

carbon dioxide captured by a large-scale, coal-based power plant. 

Specifically, when carbon dioxide is compressed and stored in geologic 

formations, such as oil and gas reservoirs, its density is close to that of 

some crude oils, resulting in buoyant forces that tend to drive carbon 

dioxide upwards. It is unknown whether carbon dioxide will remain safely 

sequestered if pressure, temperature, or other conditions change. 

According to international climate change experts, leakages could 

significantly affect climate change or contaminate groundwater. Moreover, 

given the long-term nature of carbon dioxide capture and sequestration, 

storage sites may require monitoring for very long periods of time—

possibly for “eternity,” according to one DOE official. 

Page 33 GAO-07-106 DOE's Energy Challenges
New coal gasification plants also face the high costs associated with 

employing advanced energy technologies, such as IGCC and carbon 

dioxide capture and sequestration systems. In particular, IGCC plants are 

20 percent more expensive—about $100 million more—than pulverized 

coal plants that use currently available technology, according to 

International Energy Agency, DOE, and industry officials. Moreover, 

carbon dioxide capture and sequestration technologies will further 

increase an IGCC plant’s costs because capturing and sequestering carbon

dioxide increases fuel consumption by as much as 25 percent. According

to international climate change experts, an IGCC plant that employs 

carbon dioxide capture and sequestration technologies could increase the 

cost of electricity per kilowatt hour from 21 to 78 percent, depending on 

plant design, the cost of fuel, and the storage site characteristics.26

In addition to technological and cost barriers, the uncertainties 

surrounding new coal-gasification technologies create substantial 

investment risks that threaten to hinder development. Despite the greater

efficiency, reduced emissions, and the ability to capture carbon dioxide, 

only four coal-based IGCC power plants currently operate worldwide. The 

unproven nature of IGCC technology creates uncertainty and reluctance 

among industry to invest in building a new coal-based IGCC power plant, 

particularly given the additional cost, according to DOE and industry 

officials. Furthermore, international climate change forecasting models 

predict that carbon dioxide capture and sequestration systems are unlikely 

to be deployed on a large scale without explicit government regulations 

that substantially limit greenhouse gas emissions to the atmosphere. In 

light of such technological uncertainties, industry officials noted that costsharing initiatives with DOE will continue to be an important factor in 

encouraging the demonstration and deployment of IGCC plants. 

 26The higher cost of electricity generated using IGCC technology in comparison with 

conventional coal-fired technologies more fully reflects the total cost of burning coal by 

including the cost of controlling the release of harmful emissions. Alternatively, several 

countries have enacted a carbon tax that puts a value on the carbon emissions that

conventional coal-fired technologies generate. 

Page 34 GAO-07-106 DOE's Energy Challenges
The nuclear energy industry, DOE, and NRC face important challenges in 

reinvigorating the nuclear power industry include an untried regulatory 

process, the public’s concern about safe operations, investor concerns 

about high capital costs, and uncertainty about the long-term storage of 

nuclear waste. During the 1960s and 1970s, several nuclear power plants 

experienced construction costs that doubled and time frames that 

extended several years longer than anticipated—in one case, a project 

took nearly 20 years to build and begin operations, according to the 

Nuclear Energy Institute, an industry association. Since 1974, power 

companies have cancelled applications for 93 proposed reactors and have 

shut down 22 of 126 operating reactors before their 40-year license 

expired. NRC issued its last permit to construct a nuclear reactor in 1978, 

the year before the Three Mile Island nuclear reactor accident, which 

heightened public opposition to nuclear power and tightened NRC’s 

oversight of nuclear power plant operations. More recently, however, NRC 

has approved a 20-year license extension for 44 of the 103 operating 

nuclear reactors in the United States and is reviewing applications to 

extend the licenses for 10 additional reactors. 

Advanced Nuclear Energy 

Technologies Face 

Uncertainty about NRC’s 

Regulatory Process, Public 

Opposition, High Capital 

Costs, and the Storage of 

Nuclear Waste 

Because NRC has not issued a construction permit in almost 30 years, 

investors worry that the problems that contributed to the schedule delays, 

cost overruns, and abandonment of many planned reactors may not be 

resolved. Among the reasons for these problems were that electric power

companies custom-built many of the nuclear power plants, rather than 

using a standard design, and sometimes began construction with 

preliminary design information, only to resort to mid-construction retrofits 

as final design plans changed. In addition, NRC’s regulatory process at that

time required the applicant to obtain a construction permit first and apply 

for an operating license in the midst of construction. Final approval of the 

operating license sometimes hinged on time-consuming and costly 

retrofits, particularly if operational procedures conflicted with design 

features. 

To reduce these high costs and long time frames, NRC streamlined its 

licensing process in 1989 by combining its construction and operating 

licenses into a single license that requires applicants to submit final design 

information, safety analyses, and environmental data in advance of or with 

the license application. While industry representatives generally agree that 

the revised licensing process reduces risk of costly retrofits, they are 

concerned that the new process has not been tested and could still lead to

extensive delays. For example, some representatives noted that NRC has 

already fallen behind schedule in reviewing the early site permits that 

three electric power companies submitted as part of a DOE demonstration 

Page 35 GAO-07-106 DOE's Energy Challenges
program to stimulate power companies to apply to NRC for a combined 

construction and operating license. The early site permits address site 

suitability matters such as safety and environmental issues and, once 

obtained, can be used as a reference in a combined license application to

streamline the site suitability portion of the application.27 NRC

acknowledged the delays, attributing them to a learning process under 

new procedures and regulations; an unexpectedly large number of public 

comments received electronically; and, in one case, the applicant’s 

decision to change the design. Electric power companies have notified 

NRC that they plan to submit license applications to build and operate at

least 29 new reactors. To prepare, NRC has implemented a designcentered approach that encourages applicants to use a standardized 

design for each reactor manufacturer with variations only to address the 

site’s local characteristics, such as environmental conditions. NRC also 

has created a separate Office of New Reactors to oversee the licensing 

process, plans to hire 400 additional staff by fiscal year 2008, and is 

developing a more robust system to handle electronic comments. NRC 

expects to review license applications and issue a decision within 42 

months. However, while it has issued its draft regulatory guidance for 

submitting and reviewing the combined license applications, NRC does 

not expect to finalize the guidance until March 2007. 

A second challenge that investors face is public opposition to nuclear 

power. According to the nuclear energy industry, public support for 

nuclear power has increased in recent years, primarily as a result of the 

industry’s improved safety record and a growing awareness that nuclear

power production releases few greenhouse gases.28 Electric power 

companies plan to construct most of the announced new reactors at 

existing nuclear power plants in the southeast United States, where public 

opinion is more favorable toward nuclear power. Reactor projects at 

existing nuclear power plants also benefit from existing power 

transmission lines and historical environmental data for the required 

environmental impact assessment. However, industry officials 

acknowledge that public support is fragile and note that a nuclear accident 

anywhere in the world could undermine this support. 

 27See 10 C.F.R. pt. 52. 

28Mining and processing of uranium and transporting of nuclear fuel result in some 

greenhouse gas emissions. In addition, greenhouse gas emissions result from site 

construction and worker transportation for both nuclear and renewable energy facilities. 

Page 36 GAO-07-106 DOE's Energy Challenges
A third challenge facing nuclear energy is the high capital costs to build 

new nuclear reactors and a potential shortage of skilled workers. Nuclear 

energy representatives expect a new nuclear power plant to cost between 

$1.5 billion and $4 billion—more than double the cost of a comparably 

sized conventional coal-fired plant. These costs may increase if (1) 

transmission lines need to be installed or upgraded, (2) significant delays 

occur during construction or start-up operations, and (3) lawsuits are filed 

resulting in higher legal costs and delays. Although nuclear power plants 

have relatively low operating costs and can operate at 90-percent capacity, 

the overall cost of construction makes nuclear energy a high-cost option. 

In addition, nuclear energy industry officials noted that a potential 

shortage of skilled workers creates additional uncertainties over 

construction schedules that could increase the cost of a new plant. With 

the hiatus in nuclear power plant construction, industry officials have 

expressed concerns that there may be a shortage of workers with the skills 

critical to the construction of new nuclear power plants, particularly if 

several utilities plan construction simultaneously. 

The Energy Policy Act of 2005 has facilitated the construction of new 

nuclear power reactors by providing a 1.8 cents/kilowatt-hour tax credit 

for up to 6,000 megawatts of new nuclear energy capacity for the first 8 

years of operation (up to $125 million per reactor). The Department of the 

Treasury is to prescribe the process for allocating the tax credit in 

consultation with the Secretary of Energy. In addition, the act authorizes

the Secretary of Energy to enter into six contracts with sponsors of 

advanced nuclear facilities to ensure against certain delays in attaining 

full-power operation and provide indemnification of (1) 100 percent of 

covered costs, up to $500 million each for the first two reactors and (2) 50 

percent of covered costs, up to $250 million each for the next four reactors 

after an initial 180-day delay. 

Recently, the Massachusetts Institute of Technology (MIT) and the 

University of Chicago issued studies comparing nuclear power’s costs with 

other forms of generating electricity. 29 Both studies concluded that, 

assuming no unexpected costs or delays in licensing and construction, 

nuclear power is only marginally competitive with conventional coal and 

natural gas and, even then, only if the nuclear power industry significantly 

reduces anticipated construction costs. The nuclear power industry has 

 29MIT. The Future of Nuclear Power (Cambridge, MA: July 2003); University of Chicago,

The Economic Future of Nuclear Power (Chicago, IL: August 2004). 

Page 37 GAO-07-106 DOE's Energy Challenges
proposed constructing modular plants based on a set of reference designs 

in the hopes of reducing construction costs. New technologies that use 

more reliable and less expensive passive safety systems also can reduce 

costs considerably compared with active safety systems currently used. 

For example, several of the proposed nuclear reactors utilize less piping. 

Despite the projected cost reductions, the MIT authors suggested that 

investors would most likely prefer conventional coal or natural gas over 

nuclear energy for generating electricity. Table 2 shows that without 

substantial cost reductions, nuclear energy cannot compete with either 

conventional coal or natural gas. 

Table 2: Comparison of Electricity Generating Costs Using Nuclear, Coal, and

Natural Gas Energy Sources 

Cents per kilowatt-hour 

Energy source 25-year period 40-year period

Nuclear (base case) 7.0 6.7

Nuclear (best case) 4.7 4.4

Coal 4.4 4.2

Natural gas 4.9 5.1

Source: MIT. 

Note: Costs were calculated using 2002 dollars and an 85 percent capacity factor using merchant 

plant financing, reflecting a risk premium for nuclear energy. The best case for nuclear energy 

assumes a 25-percent reduction in construction costs and a 12-month reduction in construction time. 

The natural gas case assumes combined cycle turbine technology and a price that starts at 

$4.50/million Btu and rises at a 2.5 percent rate over 40 years. Although natural gas prices were 

lower in 2002 than today, construction and other costs have risen, resulting in a good measure of 

relative costs, according to one of the MIT authors.

However, the MIT study found that if a tax on carbon emissions were 

introduced, nuclear energy could become much more competitive because

conventional coal and natural gas power plants would be subject to the 

tax while nuclear reactors would not because they do not emit carbon 

dioxide during the generation of electricity (see table 3). Coal-based IGCC 

plants could perform better than the conventional coal-fired power plants 

in capturing and sequestering carbon dioxide emissions, but these plants 

are considerably more expensive to build and operate than conventional

coal-fired plants. Part of DOE’s R&D efforts include reducing the cost of 

construction of coal-based IGCC plants. 

Page 38 GAO-07-106 DOE's Energy Challenges
Table 3: Comparison of Electricity Generating Costs Assuming a Carbon Emissions

Tax 

Cents per kilowatt-hour 

Energy source 25-year period 40-year period

Nuclear (base case) 7.0 6.7

Nuclear (best case) 4.7 4.4

Coal ($50/ton carbon tax) 5.6 5.4

Coal ($100/ton carbon tax) 6.8 6.6

Natural gas ($50/ton carbon tax) 5.3 5.6

Natural gas ($100/ton carbon tax) 5.8 6.0

Source: MIT. 

Note: Costs were calculated using 2002 dollars and an 85 percent capacity factor using merchant 

plant financing, reflecting a risk premium for nuclear energy. The best case for nuclear energy 

assumes a 25-percent reduction in construction costs and a 12-month reduction in construction time. 

The natural gas case assumes combined cycle turbine technology and a price that starts at 

$4.50/million Btu and rises at a 2.5 percent rate over 40 years. Although natural gas prices were 

lower in 2002 than today, construction and other costs have risen, resulting in a good measure of 

relative costs, according to one of the MIT authors.

The revival of the nuclear power industry is also challenged by uncertainty

about long-term disposal of commercial reactors’ spent nuclear fuel. DOE 

reports that about 55,000 tons of commercial spent nuclear fuel—enough 

to fill the area of a football field about 10 feet deep—currently sits in 

interim storage at 72 sites in 33 states, mostly at operating reactor sites. 

This spent fuel must be safely disposed of to protect the public and the 

environment from harm because it will remain highly radioactive for 

hundreds of thousands of years. The Atomic Energy Commission, DOE’s 

predecessor, initially planned to recycle spent nuclear fuel to reduce the

amount of waste for disposal, but the 1970s recycling technology did not

address concerns that plutonium might be separated and diverted for use 

in manufacturing nuclear weapons. The Nuclear Waste Policy Act of 1982 

determined that the spent fuel should be disposed of in a deep geologic 

repository; and, in 1987, an amendment to the act identified Yucca 

Mountain, about 100 miles northwest of Las Vegas, Nevada, as the one site

that DOE should study further. However, DOE has extended the 

repository’s commissioning date from the original 1998 target to 2017.30 In 

 30The Nuclear Waste Policy Act of 1982 originally set 1998 as the date for DOE to begin 

accepting spent nuclear fuel for disposal. DOE has revised its estimate of the repository’s 

opening first to 2010 and currently to 2017, characterized by DOE as a “best-achievable 

schedule.” 

Page 39 GAO-07-106 DOE's Energy Challenges
addition, once the repository is completed, decades may be needed to

transport the spent fuel from various locations across the country to 

Yucca Mountain. In the meantime, utilities continue interim storage of 

spent nuclear fuel at operating reactor sites.31

Many states have expressed alarm at the delays in opening Yucca 

Mountain, fearing that the repository will suffer continual delays or might 

never open, forcing the nuclear power plants to store the spent fuel 

indefinitely. While the states are concerned about the public health and

environmental risks, especially with about 2,200 tons of spent nuclear fuel 

being added to the national inventory annually, DOE and NRC cite a long 

list of studies that indicate that the risks of radiation release from spent 

fuel in interim storage in pools or in dry storage casks is low.32 The states 

are also concerned that Yucca Mountain project delays are resulting in 

ongoing costs for the consumer because, under the Nuclear Waste Policy 

Act, users of nuclear power generated electricity pay $0.001 per kilowatthour into a Nuclear Waste Fund, which is designed to pay for the 

permanent disposal of all commercial spent nuclear fuel and high-level 

waste, including the siting, licensing, and construction of a nuclear waste 

repository. In fiscal year 2006, DOE reported $19.4 billion in the fund. DOE 

reported that from project inception in fiscal year 1983 through fiscal year 

2005 that it had spent approximately $11.7 billion (in real terms).33

Recently, DOE revised the start date from 2010 to 2017 and estimated that 

the project would incur an additional $10.9 billion (in real terms) from 

fiscal year 2006 to fiscal year 2017. According to the National Council of 

 31NRC requires that utilities store spent nuclear fuel immersed in deep pools of water or in 

dry storage casks consisting of all steel or steel and concrete. Currently, 37 commercial dry 

storage facilities exist in 27 states. However, Private Fuel Storage in Utah, a facility 

licensed to take waste from a consortium of commercial reactors, is not yet operational.

Two sites in Colorado and Idaho that are managed by DOE and store commercial spent 

nuclear fuel from the Fort St. Vrain and Three Mile Island reactors, respectively, are not

included in this count. 

32NRC has determined that there is reasonable assurance that a geologic repository will be 

open by 2025, giving it confidence that the nuclear waste issue will be resolved. In the 

meantime, NRC testified that continued interim storage is considered safe. In February

2006, NRC licensed a centralized interim storage facility in Utah that the electric power 

industry is pursuing to relieve congested spent fuel pools. However, there is no timetable 

for construction. 

33Funding includes $8.3 billion from the Nuclear Waste Fund, $3 billion from defense waste, 

and the remainder from various reprogramming actions. Both commercial spent nuclear

fuel and high-level defense waste are planned for disposal at Yucca Mountain. 

Page 40 GAO-07-106 DOE's Energy Challenges
State Legislatures, seven states have prohibited the construction of new 

nuclear plants, citing the need to resolve the spent nuclear fuel issue. 

Nuclear energy representatives also told us that another barrier facing 

nuclear power is states’ opposition to transporting spent nuclear fuel. 

Specifically, once Yucca Mountain opens, DOE expects to make about 175 

shipments of spent nuclear fuel each year to Yucca Mountain, by both rail 

and truck, over at least 24 years. Some states and public interest groups 

have cited safety concerns if an incident occurred while the spent fuel was 

near populated or environmentally sensitive areas. DOE and NRC officials 

report that transportation casks have been certified to withstand severe 

accidents and, according to numerous studies, have also been found to 

withstand certain acts of sabotage and are considered safe for transporting 

spent nuclear fuel. 

In fiscal year 1999, DOE began R&D to develop proliferation-resistant 

technology for reprocessing spent nuclear fuel. The new technology—

called uranium extraction or UREX—strives to keep plutonium mixed 

with other highly radioactive elements. The resulting product can be used

as fuel in a fast reactor, but it would be very unattractive to proliferators 

because the desired plutonium is mixed with thermally hot and highly 

radioactive elements. The technology still needs to be demonstrated to 

show that it can be cost competitive. In addition, while supporting the idea 

of reprocessing spent fuel, industry representatives noted that 

reprocessing technologies are technically challenging and very expensive 

and would make nuclear energy less economic. DOE and industry 

representatives have suggested that the reprocessing program, including 

development of a fast reactor, could cost about $5 billion by 2012 and 

could exceed $35 billion by 2050. DOE and NRC officials noted, however, 

that the reprocessing program could delay the need for a second 

repository, potentially saving money over the long term. 

Page 41 GAO-07-106 DOE's Energy Challenges
While federal R&D funding has declined and the government has relied on

the market to determine whether to deploy advanced energy technologies, 

the states and countries we reviewed have enacted various standards, 

mandates, and financial incentives in an effort to deploy energy 

technologies that address their energy needs and environmental concerns. 

The states have focused their efforts on stimulating the deployment of 

renewable energy technologies; some states have also provided incentives 

for stimulating the deployment of advanced fossil and nuclear energy 

technologies. Each of the six countries we reviewed has sustained longterm efforts resulting in the deployment of one or more advanced 

renewable, fossil, and/or nuclear energy technologies. While the countries’ 

initiatives have not been without difficulties, they have sustained longterm efforts using mandates and/or incentives to deploy advanced 

technologies that are providing, or are expected to provide, significant 

amounts of energy. 

Forty-five states have enacted legislation or developed initiatives to 

stimulate the deployment of renewable energy technologies, primarily to 

address their growing energy demand, reduce adverse impacts on the 

environment, encourage local economic development, and/or provide a 

reliable, diversified supply of electricity for residents. (See app. III for 

states’ use of five types of standards, mandates, and financial incentives 

for stimulating renewable energy.) As of 2006, (1) 39 states have 

established interconnection and net metering rules that require electric 

power companies to connect renewable energy sources to the power 

transmission grid and credit, for example, the monthly electricity bill of 

residents with solar-electric systems when they generate more power than

they use;34 (2) 22 states have established renewable portfolio standards 

(RPS) requiring or encouraging that a fixed percentage of the state’s 

electricity be generated from renewable sources; and (3) 45 states offer 

various tax credits, grants, or loans including, for example, exemptions 

from the state sales tax for purchases of renewable energy equipment and 

low- or no-interest loans for the purchase of renewable energy equipment. 

As shown in figure 5, states in the West, Northeast, and Midwest are 

leading many of these efforts. 

The States and 

Countries We

Reviewed Have 

Implemented a 

Variety of Initiatives 

to Encourage the 

Development and 

Deployment of 

Energy Technologies 

States Are Stimulating 

Renewable Energy through 

Standards, Mandates, and 

Financial Incentives 

 34The Public Utility Regulatory Policies Act of 1978, (Pub. L. No. 95-617, (1978)) requires 

that utilities buy excess energy generated by small energy producers. The states determine 

its minimum purchase price. 

Page 42 GAO-07-106 DOE's Energy Challenges
Figure 5: Distribution of State Incentives and Policies for Renewable Energy 

Sources: GAO analysis of the Database of State Incentives for Renewable Energy maintained by the Interstate Renewable Energy

Council and Map Resources (map).

5 or fewer state incentives or policies, rules and regulations for renewable energy

6-10 state incentives or policies, rules and regulations for renewable energy

11-15 state incentives or policies, rules and regulations for renewable energy

16-20 state incentives or policies, rules and regulations for renewable energy

Note: The map does not show the magnitude of state incentives. For example, while Minnesota has 

more types of financial incentives for renewable energy than California, California’s rebate programs

have a collective budget over 500 times greater than the budget for the single rebate program 

administered by Minnesota. 

Many states have adopted various standards, mandates, and financial 

incentives to stimulate the deployment of renewable energy technologies 

by offsetting their high startup costs. The following are two examples of 

states’ initiatives: 

Page 43 GAO-07-106 DOE's Energy Challenges
• In 2002, New Mexico enacted a production tax credit of 1 cent per 

kilowatt-hour for companies that generate electricity from wind, solar, or 

biomass. In February 2006, New Mexico enacted a 30-percent personal 

income tax credit (up to $9,000) for residents who purchase and install 

photovoltaic or solar thermal systems. New Mexico also has net-metering 

and interconnection rules, which address connecting renewable energy 

sources to the power transmission grid and crediting producers for excess 

power generation. 

• Since 2004, Massachusetts has provided $2.5 million annually in grants to 

consumers who install qualified clean-energy technologies under the 

state’s RPS. These technologies include solar thermal electric power, 

photovoltaics, and wind generation. Massachusetts also has net-metering 

and interconnection rules. 

Figure 6 shows the number of states that provide each of 12 incentives we

reviewed to stimulate renewable energy 

Page 44 GAO-07-106 DOE's Energy Challenges
Figure 6: Number of States Using Each of 12 Renewable Standards, Mandates, and

Incentives 

Note: Net metering and interconnection refer to eligibility and pricing rules for connecting renewable 

energy sources to the power transmission grid and for crediting producers for excess generation. A 

public benefit fund is a general fund to support renewable energy resources, energy efficiency 

initiatives, and renewable energy projects for low-income residents, supported by a small surcharge 

on each consumer’s electricity bill. 

In addition to specific incentives and policies, some states have 

implemented statewide programs to stimulate the deployment of advanced 

renewable energy technologies. Three examples of states’ efforts are 

described as follows (see app. IV for further details): 

Number of states

Source: Database of State Incentives for Renewable Energy maintained by the Interstate Renewable Energy Council.

0 5 10 15 20 25 30 35

Production incentive

Public benefit fund

Personal tax

Corporate tax

Sales tax

Rebates

Grants

Loans

Renewable portfolio

standard

Property tax

Net metering

Interconnection

• Since 1980, Minnesota has provided mandates and production incentives 

to stimulate ethanol production. In particular, Minnesota (1) established 

an incentive in 1986 that paid ethanol producers 20 cents per gallon over 

10 years and (2) mandated in 2003 that all gasoline sold in the state contain 

Page 45 GAO-07-106 DOE's Energy Challenges
at least 10-percent ethanol. In 2004, Minnesota’s governor proposed raising 

this mandate to 20 percent. As a result, the state is now home to one-third

of the nation’s E85 (85 percent ethanol and 15 percent gasoline) stations 

and has replaced nearly 10 percent of all its gasoline consumption with 

ethanol. 

• In 2005, Texas enacted legislation that extended its 1999 RPS to require 

the installation of 5,000 megawatts of new renewable capacity—in 

addition to 880 megawatts of existing renewable capacity—by 2015. The 

Texas RPS represents 5 percent of the state’s electricity demand. Electric 

power retailers that do not comply with RPS requirements are subject to 

penalties of up to $50 per megawatt-hour, or 5 cents per kilowatt-hour. 

Moreover, to ensure a wide variety of renewable projects, the Texas RPS 

requires that 500 megawatts of new capacity come from renewable 

sources other than wind. According to the Electric Reliability Council of 

Texas, Inc., as of September 2006, Texas had installed over 1,900 

megawatts of new renewable energy, representing about 3 percent of its 

total electricity consumption. 

• In 2006, California enacted a $2.2 billion solar initiative to support the 

governor’s goal to install 3,000 megawatts of new solar energy by 2017. In

particular, the initiative provides rebates for new photovoltaic and solar 

thermal systems, and pay-for-performance incentives that reward highperforming solar systems (greater than 100 kilowatts). The initiative also 

sets aside 10 percent of its funding to subsidize solar energy for lowincome and affordable housing projects. According to a state official, 

California has already installed more than 150 megawatts of new solar 

energy capacity. 

In addition to the investment tax credits and loan guarantees that the 

Energy Policy Act of 2005 authorizes for the deployment of fossil and 

nuclear technologies, some states have enacted financial incentives and 

requirements to further stimulate the deployment of advanced fossil and 

nuclear technologies that support state needs and goals. For example, 

Indiana enacted legislation in 2002 to provide financial incentives for clean 

coal projects using Illinois Basin coal or gas and extended these incentives

in 2005 by establishing investment tax credits for state investments in 

IGCC power plants. Similarly, Pennsylvania’s Energy Deployment for a 

Growing Economy program provides low-interest loans for IGCC plants in 

an effort to build advanced coal plants that use coals abundant to the 

state. 

Some States Are Offering 

Incentives to Encourage 

the Deployment of New 

Fossil and Nuclear Energy 

Technologies 

Page 46 GAO-07-106 DOE's Energy Challenges
However, states provide far fewer incentives for fossil and nuclear 

technologies—both in variety and number—than for renewable energy 

technologies. As of 2006, only seven states had incentives for coal 

gasification and IGCC technologies, according to the National Conference 

of State Legislatures. We found no national database on states’ nuclear 

incentives, although industry officials said that states or localities may 

offer a variety of economic incentives to attract large businesses, such as a 

nuclear power plant. 

An industry association official noted that states may have an important 

influence over regulatory incentives for fossil plants, such as requiring 

new coal-fired plants to employ mercury removal technologies. For 

example, Idaho has stopped construction on all conventional pulverized 

coal-fired power plants until the state finishes researching the possibility 

of building new gasification plants that significantly reduce mercury 

emissions. Similarly, while industry officials say state and local incentives

for new nuclear plants—the most common of which are property tax 

breaks—do not significantly impact the high costs of plants, states may 

have an indirect impact on encouraging or discouraging the construction 

of new nuclear plants. For example, seven states specifically discourage or 

prohibit the construction of new nuclear plants until methods of waste 

disposal are determined. In contrast, some states and localities may send 

more positive signs about nuclear energy by offering economic 

enticements. For instance, Calvert County, Maryland, recently offered a 

50-percent, 15-year property tax credit to the Calvert Cliffs nuclear power 

plant’s owner if another nuclear reactor is built. 

We identified six countries—Brazil, Denmark, Germany, Japan, Spain, and 

France—that illustrate a range of financial initiatives and mandates to 

stimulate the development and deployment of advanced renewable, fossil, 

and nuclear energy technologies. For example, successful use of financial 

incentives and/or mandates has enabled Germany to generate 10.2 percent 

of its electricity from renewable sources and Denmark to generate 19

percent of its electricity from wind technologies, surpassing the United 

States in the percentage of electricity derived from renewable sources. 

In 1975, in response to oil price shocks, Brazil initiated a program to 

replace imported oil with ethanol produced from domestic sugarcane to

power vehicles. To stimulate its ethanol industry, Brazil (1) required its 

major oil company, Petrobras, to purchase a guaranteed amount of 

ethanol; (2) provided $4.9 billion in low-interest loans to the agricultural 

and industrial sectors to stimulate ethanol production for transportation 

The Countries We

Reviewed Have Stimulated 

the Development and 

Deployment of Advanced 

Renewable, Fossil, and 

Nuclear Energy 

Technologies 

Brazil Has Displaced 40 

Percent of Its Gasoline 

Consumption with Ethanol 

Page 47 GAO-07-106 DOE's Energy Challenges
use; (3) provided subsidies so ethanol’s price at the pump was 59 percent

of the price of gasoline; and (4) required that all fuels be blended with a 

minimum of 22 percent ethanol (called E22 fuel). Brazil removed its price

supports for ethanol in 2000, when it deregulated the ethanol market, but 

still requires that all fuels be blended with 20 to 25 percent ethanol, 

depending on market conditions. Moreover, to receive an operating 

license, all fueling stations must provide an ethanol or ethanol-blend 

pump. In 2003, the Brazilian government introduced flex-fuel cars—which 

can run on ethanol, gasoline, or a blend of the two, thus allowing 

consumers to choose which fuel to use based on the current oil and 

ethanol prices—further encouraging the consumption of ethanol. 

As of 2005, Brazil was the world’s ethanol leader, producing 4.2 billion 

gallons of ethanol per year, or 47 percent of the world’s supply. Brazil no 

longer needs to import crude oil for transportation, saving an estimated 

$1.8 billion per year by displacing 40 percent of its gasoline 

consumption—200,000 barrels of oil per day—with ethanol, according to 

Brazilian experts. In comparison, the United States produced 3.9 billion 

gallons of ethanol in 2005, displacing about 3 percent of gasoline 

consumption. By 2011, Brazil’s ethanol production is expected to increase 

to 27 billion gallons per year—a more than 600 percent increase—from 

efficiency improvements and land expansion. With the introduction of 

flex-fuel cars, consumer confidence in ethanol consumption has grown 

significantly, according to Brazilian embassy officials. As a result, more 

than 70 percent of cars sold in Brazil today run on ethanol or ethanol 

blends, and according to Brazil’s former Secretary of Environment, 

ethanol is now fully competitive with international gas prices—sold for 60

to 70 percent of the price of gasoline at the pump.

Brazil has also significantly improved its environmental profile by 

replacing oil with ethanol in the transportation sector. From 1975 to 2000, 

for instance, the use of ethanol in cars saved 100 million tons of carbon 

emissions, according to Brazilian authorities. In addition, ethanol 

production has helped Brazil become more self-sufficient in electricity. In 

particular, by burning sugarcane waste, mills have been able to generate 

energy surpluses of around 600 megawatts per crop season, allowing them 

to be completely self-sufficient in electricity, and in some cases, to export

electricity abroad. 

Successive Danish governments have committed to a series of national 

energy plans aimed at reducing dependency on imported fuels, improving 

the environment, and moving toward greater sustainability. As a result, 

since 1980 there has been general consensus in Denmark that renewable 

Denmark’s Wind Energy 

Generates 19 Percent of Its 

Electricity 

Page 48 GAO-07-106 DOE's Energy Challenges
technologies—and especially wind energy—require special support to gain 

an advantage in the market. Specifically, the Danish government has (1) 

conducted R&D in wind turbine technologies since the 1970’s; (2) provided

investment subsidies for 30 percent of the installation cost of wind 

turbines until 1990; and (3) required that electric power companies 

purchase wind energy from private producers at a fixed price until 1999, 

when the obligation moved to electricity consumers paying for all 

increased costs associated with wind power. In addition, the government 

exempts wind generators from a carbon dioxide tax,35 gives wind power 

priority access to the electric power grid, and has established regulations 

for building wind turbines. 

In 2005, renewable energy accounted for approximately 28 percent of the 

Danish electricity supply, including 19 percent from wind power—the 

highest percentage in the world. Since 1980, more than 6,000 wind turbines 

have been established in Denmark. From 2001 to 2003, a repowering 

program led to approximately 1,500 smaller wind turbines being replaced 

by approximately 300 new and larger wind turbines, which together have 

tripled the capacity. At the end of 2005, Denmark had 3,122 megawatts of 

installed wind power capacity—more than the 2,631 megawatts of the 

installed capacity in Texas, the nation’s leader in wind power. 

Denmark’s long-term support of wind energy has fostered a thriving wind 

turbine industry, with global sales increasing over the last decade from 

about 200 megawatts of capacity per year to more than 3,000 megawatts 

per year. Danish wind turbine manufacturers accounted for about 40 

percent of global sales in 2004, providing about 20,000 jobs domestically, 

or 4 percent of Danish industrial production. In particular, Denmark is a 

world leader in offshore wind power development. Denmark built the first 

offshore wind farm in 1991 and had eight operating offshore wind farms by 

the end of 2005. Two additional offshore wind farms are planned to supply 

electricity to 350,000 to 400,000 households, or about 4 percent of the total 

Danish electricity consumption.36 As a result of its experience, Denmark 

has gained extensive technical knowledge in how to integrate wind power 

into the overall electricity system, how to combine wind power with other 

sources of energy to maintain the electrical system’s stability, and how to 

 35Renewable technology plants are exempt from taxes placed on power plants that emit 

carbon dioxide. 

36One of the new offshore developments, Horns Rev II, is expected to be operational by

2009. 

Page 49 GAO-07-106 DOE's Energy Challenges
develop offshore wind farms—including the logistics of transporting, 

installing, and maintaining wind turbines at sea. 

In 2000, the German government enacted the Renewable Energy Sources 

Act to accelerate the growth of renewable energy technologies in the 

German electricity market. It amended the act in 2004 to increase country

targets for renewable technologies and further develop the framework 

conditions for renewable technologies.37 The Renewable Energy Sources 

Act requires electricity grid operators to purchase electricity generated 

from renewable energy technologies and establishes minimum rates for it. 

Germany’s goal is to increase the share of renewable energy consumption 

to at least 4.2 percent of its total energy requirements by 2010, 10 percent 

by 2020, and at least 50 percent by 2050. The target for 2010 was exceeded 

in 2005, when renewable technologies accounted for 4.6 percent of 

consumption. The German government is also offering tax relief for 

biofuels and financial support for constructing plants that generate heat 

and/or electricity from renewable energy sources. In response, Germany 

has more than doubled its electricity consumption from renewable energy 

sources—from 4.8 percent in 1998 to 10.2 percent in 2005. In particular,

Germany generated about 1 billion kilowatt-hours of solar electricity in 

2005, tripling the generation of electricity from solar cells in 2 years. 

Germany has also become the world leader in wind energy with 18,428 

megawatts of installed wind capacity that produced 26.5 terawatt-hours of 

electricity in 2005. 

Under the Kyoto Protocol and as a member of the European Union, 

Germany has committed to a 21-percent reduction in the 1990 baseline 

year’s greenhouse gas emissions from 2008 to 2012. The German 

government believes the Renewable Energy Sources Act is one of 

Germany’s most effective and efficient instruments for climate protection, 

stating that using renewable energy technologies prevented the emission 

of approximately 84 million tons of carbon dioxide in 2005. The 

government also states that renewable energy technologies have created 

jobs in Germany—the renewables sector had 157,000 jobs in 2004, 

including 64,000 jobs in wind power, 57,000 jobs in biomass, and 25,000 in

the solar industry. The government estimates that renewable energy jobs 

Germany’s Renewable Energy 

Technologies Generate 10 

Percent of Its Electricity 

 37The German government also amended the Atomic Energy Act in 2002, which will 

systematically decommission the nation’s existing nuclear power plants once the volume of 

electricity specified for each plant is generated—the last nuclear power plant in Germany is

estimated to shut down about 2020. 

Page 50 GAO-07-106 DOE's Energy Challenges
increased to 170,000 in 2005, and German industry estimates that this 

number will grow to more than 255,000 by 2010. 

In 1994, Japan launched a 10-year residential solar project as part of its 

efforts to deploy domestic energy technologies that would diversify its 

energy portfolio and reduce its dependence on energy imports.38 The goal 

of the residential solar project was to reduce the cost of photovoltaics and

promote installation of solar systems in residential communities. Initially, 

the Japanese government provided a subsidy covering 50 percent of the 

cost of installing a residential solar system. This percentage subsequently 

dropped to 33 percent and eventually became a fixed amount as the 10-

year project matured. As a result of the project, over 253,000 homes 

installed solar systems that collectively generate over 931 megawatts of 

power. Even though the government subsidy decreased, the number of 

systems installed increased considerably year by year, as the installation 

price decreased. According to a solar manufacturer, the cost of installing a 

solar system dropped from about $16,000 per kilowatt in 1994 to about 

$6,000 per kilowatt when the project ended. Due to the successful 

transformation of the photovoltaic market, Japanese homeowners 

continue to buy and install solar systems without the government subsidy. 

The 10-year residential solar project has also helped create a Japanese 

solar industry that has become a world leader in the photovoltaic market. 

According to the European Commission, Japanese manufacturers’ share of 

the world photovoltaic market is now greater than 40 percent. The 

residential solar project also enables the Japanese government to fulfill its 

commitment to increase its share of renewables in its energy portfolio to 

about 3 percent by 2010 and reduce its greenhouse gas emissions under 

the Kyoto Protocol. 

In the early 1990s, the European Union and the Spanish government 

collaborated to construct the world’s largest coal-based IGCC plant in 

Puertollano, Spain, to improve the efficiency, cost, and environmental 

profile of coal-based power plants. The 320-megawatt IGCC plant, which

began generating electricity from coal in 1998, is operated by a consortium

of eight utilities from France, Germany, Italy, Portugal, Spain, and the 

United Kingdom as part of a European Union program to demonstrate 

Japan Has Installed over 931 

Megawatts of Residential Solar 

Systems 

Spain Began Operating an 

IGCC Coal Gasification Plant in 

1997 

 38About half of Japan’s total energy demand is for oil, which is primarily imported from the

Middle East. 

Page 51 GAO-07-106 DOE's Energy Challenges
energy technologies that promote clean coal and reduce the European 

Union’s dependency on natural gas.

The European Union and the Spanish government supported the 

construction of the Puertollano plant by subsidizing about 8.5 percent of 

its nearly $900 million cost. European consortium members noted that, in

comparison, DOE can fund up to 50 percent of the cost of commercial 

IGCC demonstration projects. In 2000, the Puertollano plant produced 

nearly 1 million megawatts of electricity using synthetic gas. The 

Puertollano plant is expected to operate at over 45 percent efficiency and 

eliminate 99.9 percent of sulfur dioxide emissions. DOE plans to achieve

efficiencies and emissions levels comparable to the Puertollano plant by

2010—currently, U.S. IGCC plants are about 40-percent efficient and 

eliminate 98 percent of sulfur dioxide emissions. 

In response to the oil price shocks in 1973, France decided to reduce its 

reliance on oil-fired power plants to generate electricity by launching a 

nuclear initiative designed to make nuclear power a primary source of 

electricity. France built 56 nuclear reactors during the 1970s and 1980s 

and, according to the International Energy Agency, spent about 90 percent 

of its energy R&D funding on nuclear energy from 1985 through 2001. The 

French government reported that its R&D efforts during this time focused 

on technological improvements and safety, as well as development of a 

fast reactor. Today, France has 58 nuclear reactors generating 75 to 80 

percent of its electricity.

France does not license reactors for a specific amount of time, but 

conducts reviews every 10 years to grant continued operational authority. 

Reactors are expected to operate for about 40 years. Some interest groups 

in France have called for an end to nuclear energy, citing radioactive

waste and safety issues and noting that Germany has decided to phase out 

of nuclear energy and close down its reactors. However, the French 

government has maintained its support for nuclear energy, deciding in a 

2005 law to keep the nuclear option open for the future and planning to 

potentially replace its current reactors with a new generation of reactors 

designed to be more efficient, safer, and less susceptible to external 

threats. As part of this effort, France has developed the European 

Pressurized Reactor, which uses Generation III technology and will be 

capable of generating 1,600 megawatts of electricity, a significant increase 

over the capacity of existing reactors, which range from 900 megawatts to 

1,450 megawatts. Two European Pressurized Reactors are under 

construction—one in Flammanville, France, scheduled to be operational 

in 2012 and a second in Finland scheduled to be operational in 2009. 

France’s Advanced Nuclear 

Reactor Is Scheduled to Begin 

Operations in 2012 

Page 52 GAO-07-106 DOE's Energy Challenges
France is one of 13 partners in the Generation IV International Forum that 

collaborates on R&D to develop next generation nuclear reactor 

technologies. France is conducting R&D on several nuclear reactors, 

including the sodium-cooled fast reactor that is a critical element of the 

U.S. GNEP program. In addition, France has provided U.S. researchers 

with access to the French Phenix fast reactor to study how highly 

radioactive nuclear fuel might be converted to less radiotoxic material. 

It is unlikely that DOE’s current level of R&D funding or the nation’s 

current energy policies will be sufficient to deploy alternative energy 

sources in the next 25 years that will reverse our growing dependence on

imported oil or the adverse environmental effects of using conventional 

fossil energy. The United States has generally relied on market forces to 

determine the nation’s energy portfolio, primarily conventional supplies of 

oil, natural gas, coal, and nuclear energy. In contrast, advanced energy

technologies have higher up-front capital costs that make them less cost 

competitive than conventional technologies. As a result, despite periodic 

energy price spikes caused by disruptive world events and about $50 

billion (in real terms) in energy R&D funding since 1978, the United States 

has made only steady incremental progress in developing and deploying 

advanced renewable, coal, and nuclear technologies that can compete 

with conventional energy technologies. However, continued reliance on 

conventional technologies leaves the United States vulnerable to crude oil 

supply disruptions, with economic, energy security, and national security 

consequences. 

The nation is once again assessing how best to stimulate the deployment 

of advanced energy technologies in response to recent high energy 

prices—caused by the growing world demand for energy, wars in the 

Middle East, and last year’s hurricanes—and concerns about the adverse 

environmental effects, particularly greenhouse gas emissions, of using 

conventional fossil energy. Reducing the nation’s dependence on oil and 

carbon dioxide emissions in the next 25 years is not unlike the 1960s 

challenge to put a man on the moon. Without sustained high energy prices

or concerted, high-profile federal government leadership, U.S. consumers 

are unlikely to change their energy-use patterns, and the United States will 

continue to rely upon its current energy portfolio. Specifically, government 

leadership is needed to overcome technological and market barriers to 

deploying advanced energy technologies that would reduce the nation’s 

vulnerability to oil supply disruptions and the adverse environmental 

effects of burning fossil fuels. 

Conclusions 

Page 53 GAO-07-106 DOE's Energy Challenges
The nation’s current energy portfolio has raised concerns about the 

adverse environmental effects of energy generation—particularly 

greenhouse gas emissions from coal-fired and oil-fired power plants and 

the long-term storage of spent nuclear fuel. In addition, the duration of 

certain federal tax incentives has been insufficient to stimulate investment 

decisions to deploy advanced energy technologies. For example, 

renewable energy industry representatives have stated that the 2-year 

extension of the production tax credit in the Energy Policy Act of 2005 

does not provide sufficient certainty to stimulate investment. In providing 

a production tax credit to stimulate the construction of projects using 

advanced technologies, the credit’s duration is key to encouraging 

companies and their lenders to undertake the substantial investments and 

build an industry over time. 

Several states have taken the lead in encouraging the deployment of 

advanced energy technologies, particularly in renewable energy. For 

example, in the past 7 years, Texas tripled its renewable energy use as a

result of its renewable portfolio standard. Similarly, Minnesota’s ethanol 

program has displaced 10 percent of gasoline consumption with ethanol. 

Many other states have initiatives to stimulate renewable energy 

generation as well. States’ initiatives that diversify our energy portfolio 

and reduce harmful emissions are positive steps. Similarly, foreign 

countries, including Brazil, Denmark, and Germany, have sustained longterm efforts using mandates and/or financial incentives to deploy 

advanced energy technologies that are providing, or are expected in the 

future to provide, significant amounts of energy. Approaches taken by 

these countries may provide useful insights and opportunities for fostering 

the deployment of advanced energy technologies. 

To meet the nation’s rising demand for energy, reduce its economic and 

national security vulnerability to crude oil supply disruptions, and 

minimize adverse environmental effects, the Congress should consider 

further stimulating the development and deployment of a diversified 

energy portfolio by focusing R&D funding on advanced energy 

technologies. 

We provided DOE with a draft of this report for its review and comment. 

In its written response, DOE did not comment on our recommendation to 

the Congress. (See app. V.) DOE provided technical comments, which we 

have incorporated as appropriate. 

Recommendation to 

the Congress 

Agency Comments 

Page 54 GAO-07-106 DOE's Energy Challenges
As arranged with your offices, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days from the 

report date. At that time, we will send copies to interested congressional 

committees, the Secretary of Energy, the Director of the Office of 

Management and Budget, and other interested parties. We will also make 

copies available to others upon request. In addition, the report will be 

available at no charge on the GAO Web site at http://www.gao.gov. 

If you or your staffs have any questions about this report, please contact 

me at (202) 512-3841 or wellsj@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made major contributions to this report are 

listed in appendix VI. 

Jim Wells 

Director, Natural Resources 

 and Environment 

Page 55 GAO-07-106 DOE's Energy Challenges
Appendix I: Estimated Federal Tax 

Expenditures Targeted at Energy Suppliers Appendix I: Estimated Federal T and Users, Fiscal Year 2006 ax 

Expenditures Targeted at Energy Suppliers 

and Users, Fiscal Year 2006 

Dollars in millions 

Federal tax expenditures targeted at energy suppliers and usersaBudget function 

First 

year

b

Estimated

FY 2006 

revenue loss

1 Capital gains treatment of royalties on coal Energy 1974 $90

2 Excess of percentage over cost depletion, fuels Energy 1974 670

3 Expensing of exploration and development costs, fuels Energy 1974 680

4 New technology credits (addresses energy production from several 

technologies, including wind and solar energy) 

Energy 1978 510

5 Alcohol fuel creditscEnergy 1980 40

6 Alternative fuel production credit Energy 1980 2,390

7 Exclusion of interest on energy facility bonds Energy 1980 90

8 Exception from passive loss limitation for working interests in oil and gas 

properties 

Energy 1988 40

9 Tax credit and deduction for clean-fuel burning vehicles Energy 1992 90

10 Enhanced oil recovery credit Energy 1994 0

11 Credit for holding clean renewable energy bonds Energy 2005 0

12 Deferral of gain from dispositions of transmission property to implement the 

Federal Energy Regulatory Commission’s restructuring policyd

Energy 2005 620

13 Credit for production from advanced nuclear power facilities Energy 2005 0

14 Credit for investment in clean coal facilities Energy 2005 50

15 Temporary 50 percent expensing for equipment used in the refining of liquid 

fuels 

Energy 2005 10

16 Pass through low sulfur diesel expensing to cooperative owners Energy 2005 0

17 Natural gas distribution pipelines treated as 15-year property Energy 2005 20

18 Amortize all geological and geophysical expenditures over 2 years Energy 2005 40

19 30 percent credit for residential purchases/installations of solar and fuel cells Energy 2005 10

20 Credit for business installation of qualified fuel cells and stationary 

microturbine power plants 

Energy 2005 80

21 Alternative Fuel and Fuel Mixture tax credit Energy 2005 170

22 Bio-Diesel and small agri-biodiesel producer tax credits Agriculture 2004 90

23 Expensing of small refiner capital costs with respect to complying with EPA 

sulfur regulations 

Natural resources 

and environment 

2004 10

Total estimated tax expenditurese$5,700

Source: GAO analysis of tax expenditures reported by the Department of the Treasury. 

Note: For descriptions of tax expenditures, see Office of Management and Budget. Analytical 

Perspectives, Budget of the United States Government, Fiscal Year 2007, (Washington, D.C.: 2005).

Page 56 GAO-07-106 DOE's Energy Challenges
Appendix I: Estimated Federal Tax 

Expenditures Targeted at Energy Suppliers 

and Users, Fiscal Year 2006 

a

This list does not include five tax expenditures whose primary focus is energy conservation—

exclusion of utility conservation subsidies, deduction for certain energy efficient commercial building 

property as well as tax credits for construction of new energy efficient homes, energy efficiency 

improvements to existing homes, and energy efficient appliances—with revenue loss estimates 

summing to $510 million for fiscal year 2006. This list also does not include tax incentives for general 

research and development available for all businesses. Also, the Department of Treasury does not

report tax expenditures with revenue losses below $5 million. 

b

First year the Department of the Treasury reported expenditures. 

c

The alcohol fuel credit includes, among other things, the volumetric tax credit for ethanol, which was 

enacted in 2004. Treasury estimates a $2.1 billion reduction in excise tax receipts in fiscal year 2006 

as a result of income tax revenue losses and reduced excise tax receipts. 

d

This tax expenditure was listed under the community and regional development budget function in 

2004. 

e

Summing tax expenditure estimates does not take into account interactions between individual 

provisions. 

Page 57 GAO-07-106 DOE's Energy Challenges
Appendix II: Scope and Methodology Appendix II: Scope and Methodology 

To review the Department of Energy’s (DOE) research and development 

(R&D) funding trends, we analyzed DOE budget authority data for 

renewable, fossil, and nuclear energy R&D from fiscal year 1978 through 

fiscal year 2006. The data consist of DOE’s annual appropriations, adjusted 

for any advanced appropriations and rescissions. To assess the reliability 

of these data, we interviewed DOE program managers and budget officials 

with oversight of each of the technologies. We asked DOE officials a series

of data reliability questions, including questions covering data 

classification, particularly over time; program changes that could impact 

data classification or budget accounts; custody and maintenance of the 

data, including updates; quality control procedures; and accuracy and

completeness of the data. Where appropriate, we adjusted the data to 

ensure consistency in reporting over time. We obtained historical 

documents, program plans, and assessments from other entities to 

corroborate the data. We determined that the data were sufficiently 

reliable for the purposes of this report. In addition to DOE’s R&D funding, 

we reviewed revenue losses from energy-related tax expenditures for 

fiscal years 2000 through 2006 by reviewing tax expenditure revenue loss

estimates prepared by the Department of the Treasury and published in 

the President’s annual budget. While the aggregate value for energy-related 

tax expenditures is useful for gauging their general magnitude, summing 

does not take into account interactions between individual provisions. We 

excluded annual tax expenditures below $5 million because Treasury does 

not report them. To review DOE’s strategy for developing advanced energy

technologies, we reviewed DOE documents, including strategic plans, 

program plans, and studies on each of the technologies. We also collected

and analyzed documents from industry and industry associations. In 

addition, we interviewed senior DOE managers, program managers and 

scientists at DOE laboratories, senior power company and industry 

association executives, and independent experts.

To assess the key technological, economic, and other barriers to 

developing and deploying new energy technologies, we analyzed various 

documents from DOE, including program plans, energy studies and 

assessments, and key budget documents, including supporting 

documentation justifying budget requests. We also analyzed documents 

from other federal agencies; utilities; industry associations; state utility 

commissions and associations; and independent experts, including studies 

from the Electric Power Research Institute, the Massachusetts Institute of 

Technology, and the University of Chicago. We interviewed DOE and NRC 

officials; program managers and scientists at DOE laboratories; executives 

of utilities, manufacturers, and industry associations; public utility 

Page 58 GAO-07-106 DOE's Energy Challenges
Appendix II: Scope and Methodology 

commissions from various states; and selected state governments and 

government associations. 

To examine the efforts of states to develop and deploy advanced energy

technologies, we analyzed reports and assessments from DOE, various 

state governments and associations, industry and industry associations, 

and independent experts. We also used the Database of State Incentives 

for Renewable Energy, maintained by the Interstate Renewable Energy 

Council, to analyze state initiatives and select three states with successful 

initiatives—Texas’ renewable portfolio standards, Minnesota’s ethanol 

program, and California’s solar programs. To assess the reliability of this 

database, we reviewed relevant documentation and obtained responses 

from the database administrator to a series of data reliability questions 

covering issues such as data entry, access, quality control procedures, and 

the accuracy and completeness of the data. We determined that the data

were sufficiently reliable for the purposes of this report. In addition to the 

database, we collected documents and interviewed officials from DOE; 

industry and industry associations; and various state organizations, 

including the National Conference of State Legislatures and the Western 

Governor’s Association; and selected public utility commissions. 

To develop a nonprobability sample of countries that have developed and 

deployed advanced renewable, fossil, and nuclear technologies, we (1) 

reviewed the Energy Information Administration’s (EIA) international data

to identify significant changes in consumption patterns among renewable,

fossil, and nuclear energy technologies; (2) examined other related 

information; and (3) interviewed cognizant DOE officials and independent 

industry experts.1

 We selected Brazil, Denmark, France, Germany, Japan,

and Spain because they have initiated major efforts to deploy advanced 

energy technologies that could change their energy portfolios. To obtain 

information on each country’s initiatives, we analyzed documents from 

EIA, the International Energy Agency, each of the countries, and 

independent experts. We also interviewed DOE officials; officials from 

each country, either at their U.S. embassy or by telephone or e-mail; and 

independent experts. 

 1

Results from a nonprobability sample cannot be used to make inferences about a

population because in a nonprobability sample some elements of the population being

studied have no chance or an unknown chance of being selected as part of the sample. 

Page 59 GAO-07-106 DOE's Energy Challenges
Appendix II: Scope and Methodology 

We conducted our work from October 2005 through October 2006 in 

accordance with generally accepted government auditing standards. 

Page 60 GAO-07-106 DOE's Energy Challenges
Appendix III: The States’ Use of Renewable 

Energy Incentives, Standards, and Mandates 

State Tax creditsaRebatesb

Public benefit

fundsc

Renewable portfolio 

standardsd

Net metering & inter

connection rulese

Alabama •

Alaska 

Arizona • •

Arkansas •

California • • • • •

Colorado • •

Connecticut • • • •

Delaware • • • •

Florida •

Georgia •

Hawaii • • •

Idaho •

Illinois • • •

Indiana •

Iowa • • •

Kansas •

Kentucky •

Louisiana •

Maine • • • •

Maryland • • • •

Massachusetts • • • • •

Michigan •

Minnesota • • • •

Mississippi 

Missouri • •

Montana • • • •

Nebraska 

Nevada • • •

New Hampshire •

New Jersey • • • •

New Mexico • • •

New York • • • • •

North Carolina • •

North Dakota • •

Ohio • • •

Appendix III: The States’ Use of Renewable 

Energy Incentives, Standards, and Mandates 

Page 61 GAO-07-106 DOE's Energy Challenges
Appendix III: The States’ Use of Renewable 

Energy Incentives, Standards, and Mandates 

State Tax creditsaRebatesb

Public benefit

fundsc

Renewable portfolio 

standardsd

Net metering & inter

connection rulese

Oklahoma • •

Oregon • • • •

Pennsylvania • • •

Rhode Island • • • • •

South Carolina • 

South Dakota 

Tennessee 

Texas • • •

Utah • •

Vermont • • •

Virginia •

Washington •

West Virginia • 

Wisconsin • • • •

Wyoming • •

Total 21 17 15 22 39

Source: GAO analysis of the Database of State Incentives for Renewable Energy, maintained by the Interstate Renewable Energy 

Council.

a

Provided to corporations or individuals that purchase or install renewable energy equipment. For 

example, New Mexico offers a 30-percent personal income tax credit (up to $9,000) for residents who 

install photovoltaic or solar thermal systems. Tax credits are one of the most frequently used statelevel financial incentives. 

b

Typically provided in the form of cash rebates to residents and businesses for the purchase and 

installation of renewable energy equipment. For example, New York provides $4 to $4.50 per watt to 

eligible installers for the installation of approved, grid-connected photovoltaic systems. 

c

A surcharge on each consumer’s electricity bill that goes into a general fund to support renewable 

energy resources, energy efficiency initiatives, and renewable energy projects for low-income 

residents. For example, Connecticut residents are charged up to 0.1 cents per kilowatt-hour on their 

utility bills, which provides funding for Connecticut’s Energy Efficiency Fund for energy efficiency and 

Clean Energy Fund for renewable energy. 

d

Require that a fixed percentage of the state’s electricity be generated from renewable sources. For 

example, Texas enacted legislation in 2005 requiring the installation of 5,000 megawatts of new 

renewable capacity by 2015. According to the National Conference of State Legislatures, renewable 

portfolio standards have been particularly successful in encouraging wind power development. 

e

Eligibility and pricing rules for connecting renewable energy sources to the power transmission grid 

and crediting producers for excess generation. For example, the value of energy generated in excess 

of what is used is subtracted from the monthly utility bill of residents in Arizona with solar-electric

systems. 

Page 62 GAO-07-106 DOE's Energy Challenges
Appendix IV: Three States’ Initiativ

Stimu

Tech

es to 

late the Use of Renewable Energy 

nologies 

Page 63 GAO-07-106

Appendix IV: Three States’ Initiatives to 

Stimulate the Use of Renewable Energy 

Technologies 

Minnesota, Texas, and California have implemented programs to stimulate 

the use of renewable energy technologies. In response to various 

incentives and mandates, Minnesota now has one-third of the nation’s 

ethanol fueling stations and had displaced nearly 10 percent of its gasoline

consumption with ethanol by June 2006. Since Texas enacted renewable

portfolio standards (RPS) in 1999, its electric power companies have 

installed over 1,900 megawatts of new renewable energy capacity—

approximately 3 percent of the state’s total electricity generation. Since 

California began its Solar Initiative in January 2006, over 150 megawatts of 

new solar capacity have been installed. 

Minnesota’s Ethanol Program began in 1980 as an effort to expand the 

state’s farm economy by building a new market for corn, its largest crop; 

meet EPA standards for air quality in the Twin Cities area by reducing 

carbon monoxide emissions from cars; and reduce dependence on 

imported oil. To reach these goals, Minnesota established financial 

incentives and mandates to encourage the development of a state ethanol 

industry over a 17-year period. As of June 2006, ethanol had displaced 

nearly 10 percent of Minnesota’s gasoline consumption. 

The Minnesota Ethanol Program encouraged growth in the state’s ethanol 

industry, primarily through the use of producer incentives and mandated 

ethanol blends. In particular, state legislation passed in 1980 provided a 

tax credit for gasoline that was blended with 10-percent ethanol, and in 

1986, the state set up a producer payment incentive that paid ethanol 

producers 20 cents per gallon for a 10-year period. Legislation enacted in

1992 required that all gasoline offered for sale in the state be blended with

7.7 percent ethanol beginning in 1997. This provision was amended in 2003 

to require blends to contain at least 10 percent ethanol. In 1995, Minnesota 

also established a statutory goal to develop over 200 million gallons of 

ethanol production. The tax credits were eliminated in 1997, and the 

producer incentive payments were phased out beginning in the late 1990s.1

In 2004, Minnesota enacted legislation doubling the requirement to 20 

percent by 2013. 

Minnesota’s Ethanol 

Program 

 1

Some payments are still being made to producers that qualified for the program prior to

1999. However, these payments are now less than 20 percent and are being continuously 

phased out. 

DOE's Energy Challenges
Appendix IV: Three States’ Initiatives to 

Stimulate the Use of Renewable Energy 

Technologies 

Currently, nearly all gasoline in Minnesota is blended with 10-percent 

ethanol, representing over $100 million in annual savings on oil imports. 

Ethanol production has expanded from 1.5 million gallons in 1987 to a 

current capacity of over 500 million gallons. Corn prices have also doubled 

to 30 cents a bushel, and the Twin Cities area is in compliance with EPA 

air quality standards, according to Minnesota officials. Minnesota is the 

nation’s leader in the use of renewable fuels, with the highest renewable 

fuel use per capita in the nation. It is home to 32 percent of the nation’s 

E85 stations. 

To reduce a growing dependency on imported fossil fuels, make better use 

of the region’s natural renewable resources, and improve air quality 

profiles, Texas enacted legislation in 2005 that extended its 1999 RPS to 

require the installation of 5,000 megawatts of new renewable capacity, or

about 5 percent of the state’s electricity demand, by 2015. Texas has 

already tripled its use of renewable energy in the 7 years since its RPS was 

initially enacted. 

Texas uses more total energy—including electricity, petroleum, natural 

gas, and coal—than any other state. In the early 1990s, Texas’ use of 

renewable energy was less than 1 percent, the lowest in the United States. 

In 1992, Texas became a net importer of energy. Moreover, if Texas was a

country, it would have ranked 7th in the world for greenhouse gas 

emissions in the early 1990s, according to climate change experts at the 

Pew Center on Global Climate Change. Despite these conditions, however, 

Texas also ranks first in abundance of U.S. solar and biomass resources, 

and second for wind resources. To encourage the use of the state’s 

abundant renewable resources and improve its environmental profile, 

Texas’ 1999 legislation established an RPS mandating that state utilities 

derive 2,000 megawatts of new generating capacity from renewable 

sources by 2009. When Texas had nearly reached this capacity by 2005, 

new legislation increased the mandate to 5,000 new megawatts by 2015. 

Electric power retailers that do not comply with RPS requirements are 

subject to penalties of up to $50 per megawatt-hour, or 5 cents per 

kilowatt-hour, as tracked by a renewable energy credit system. To 

encourage a wide variety of renewable developments, the Texas RPS also 

requires that 500 megawatts of total mandated new capacity come from 

renewable sources other than wind, because wind power is the most 

competitive renewable energy technology in Texas—98 percent of new 

installed capacity in Texas prior to 1999 was wind power. In addition, 

Texas’ RPS set a nonbinding target of 10,000 megawatts of installed 

renewable capacity by January 1, 2025. 

Texas’ Renewable 

Portfolio Standards 

Page 64 GAO-07-106 DOE's Energy Challenges
Appendix IV: Three States’ Initiatives to 

Stimulate the Use of Renewable Energy 

Technologies 

According to the Electric Reliability Council of Texas, Inc., as of 

September 2006, Texas had tripled its renewable energy capacity, 

installing over 1,900 megawatts of new capacity, representing about 3 

percent of its total electricity consumption. During 2001 alone, Texas 

installed 912 megawatts of wind power—more than the entire country had

installed in any previous year—and created 2,500 wind-power related jobs.

Texas’ 2025 goal would result in an estimated $5 billion in consumer 

electric bill savings and the creation of nearly 20,000 jobs, according to the 

Union of Concerned Scientists. 

Since 1998, California has supported the installation of solar systems—

including photovoltaic systems and solar thermal systems—by

establishing production incentives and rebates for solar energy generators 

and consumers. These programs are designed to reduce electricity demand

and improve the reliability of the state’s electricity system. In January 

2006, California enacted a $2.2 billion Solar Initiative to install 3,000 

megawatts of new solar energy by 2017, supporting the governor’s 2006 

“Million Solar Roofs Plan” to power 50 percent of all California homes—or 

1 million roofs—with solar energy by 2019. As of January 2006, California 

had installed over 150 megawatts of new solar systems on over 20,000

homes, businesses, schools, and government buildings, according to 

California state officials and a California environmental group. 

California established the Emerging Renewables Program in 1998. 

Implemented by the California Energy Commission, the program has 

encouraged the use of naturally abundant solar resources by allocating 

$118 million in rebates from 2002 through 2006 for the installation of new, 

primarily residential, renewable energy generating systems. In particular, 

for systems less than 30 kilowatts, the program offered $2.60 per watt for 

the installation of solar-cell systems and $3.00 per watt for the installation 

of solar-thermal systems. The Emerging Renewables Program also 

allocated $10 million toward a performance-based incentive option for 

photovoltaic installations, giving electricity generators $0.50 per kilowatthour over a 3-year period. In 2001, the California Public Utilities 

Commission initiated the Self-Generation Incentive Program, which offers 

rebates through 2007 for nonresidential distributed renewable generation

for 30 kilowatt or larger systems. Since its inception, the rebate program 

has spent about $50 million per year, achieving 50 megawatts of installed 

solar capacity, with another 62 additional megawatts in progress. In 2006, 

the Public Utilities Commission introduced the California Solar Initiative, 

which will provide $2.9 billion in solar energy incentives over 11 years and 

support the governor’s Million Solar Roofs Plan to install 3,000 megawatts

California’s Solar 

Programs 

Page 65 GAO-07-106 DOE's Energy Challenges
Appendix IV: Three States’ Initiatives to 

Stimulate the Use of Renewable Energy 

Technologies 

of new solar energy capacity by 2017. By integrating California’s existing 

Emerging Renewables Program and rebate solar programs, the initiative 

will continue to encourage new solar installations through rebate 

incentives for new photovoltaic and solar thermal systems, and pay-forperformance incentives that reward high-performing solar systems 

(greater than 100 kilowatts). To help sustain the solar industry, rebates for 

new solar systems will begin at $2.50 per watt, but will decline by about 10 

percent annually over the next 10 years. In addition, the initiative sets 

aside 10 percent of program funding for low-income and affordable 

housing projects. 

Page 66 GAO-07-106 DOE's Energy Challenges
Appendix V: Comments from the Department Appendix V of Energy : Comments from the Department 

of Energy 

Page 67 GAO-07-106 DOE's Energy Challenges
Appendix VI: 

A

GAO Contact and Staff 

cknowledgments 

Page 68 GAO-07-106

Appendix VI: GAO Contact and Staff 

Acknowledgments 

Jim Wells (202) 512-3841 or wellsj@gao.gov 

In addition to the individual named above, Richard Cheston, Assistant 

Director; Robert Sanchez, Kerry Lipsitz, Christina Connelly, Chuck 

Bausell, MaryLynn Sergent, Anne Stevens, and Alison O’Neill made key 

contributions to this report. Also contributing to this report were Doreen 

Feldman, Barbara Timmerman, and Jenny Chanley. 

DOE's Energy Challenges

GAO Contact 

Staff 

Acknowledgments 

(360625) 
GAO’s Mission The Government Accountability Office, the audit, evaluation and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To

have GAO e-mail you a list of newly posted products every afternoon, go 

to www.gao.gov and select “Subscribe to Updates.” 

The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of 

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. Orders 

should be sent to: 

U.S. Government Accountability Office 

441 G Street NW, Room LM 

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

Obtaining Copies of 

GAO Reports and 

Testimony

Order by Mail or Phone 

To Report Fraud,

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

PRINTED ON RECYCLED PAPER