Energy R&D portfolio analysis based on climate change mitigation
Abstract The diverse nature and uncertain potential of the energy technologies that are or may be available to mitigate greenhouse gas emissions pose a challenge to policymakers trying to invest public funds in an optimal R&D portfolio. This paper discusses two analytical approaches to this challenge used to inform funding decisions related to the U.S. Department of Energy (DOE) applied energy R&D portfolio. The two approaches are distinguished by the constraints under which they were conducted: the need to provide an end-to-end portfolio analysis as input to internal DOE budgeting processes, but with limited time and subject to institutional constraints regarding important issues such as expert judgment. Because of these constraints, neither approach should be viewed as an attempt to push forward the state of the art in portfolio analysis in the abstract. Instead, they are an attempt to use more stylized, heuristic methods that can provide first-order insights in the DOE institutional context. Both approaches make use of advanced technology scenarios implemented in an integrated assessment modeling framework and then apply expert judgment regarding the likelihood of achieving associated R&D and commercialization goals. The approaches differ in the granularity of the scenarios used and in the definition of the benefits of technological advance: in one approach the benefits are defined as the cumulative emission reduction attributable to a particular technology; in the other approach benefits are defined as the cumulative cost reduction. In both approaches a return on investment (ROI) criterion is established based on benefits divided by federal R&D investment. The ROI is then used to build a first-order approximation of an optimal applied energy R&D investment portfolio. Although these methodologies have been used to inform an actual budget request, the results reflect only one input among many used in budget formulation. The results are therefore not representative of an official U.S. government or DOE funding recommendation but should instead be considered illustrative of the way in which methodologies such as these could be applied.
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