HOW MUCH IS ENERGY RESEARCH & DEVELOPMENT WORTH AS INSURANCE?

In this paper, we estimate the value of energy technology research and development (R&D) as an insurance investment to reduce four risks to the United States. These four risks are (a) the costs of climate stabilization, (b) oil price shocks and cartel pricing, (c) urban air pollution, and (d) other energy disruptions. The total value is estimated conservatively to be >$12 billion/year. However, only about half of this total may be warranted because some R&D is applicable to more than one risk. Nevertheless, the total Department of Energy investment in energy technology R&D [∼$1.5 billion/year in fiscal year 1999 (FY99)] seems easily justified by its insurance value alone. In fact, a larger investment might be justified, particularly in the areas related to climate change, oil price shock, and urban air pollution. This conclusion appears robust even if the private sector is assumed to be investing a comparable amount relevant to these risks. No additional benefit is credited for the value to the economy and to the competitiveness of the U.S. from better energy technologies that may result from the R&D; only the insurance value for reducing the potential cost of these four risks to society was estimated.