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The Impact of Budget Sequestration on DOD Energy Innovation

The impacts of budget sequestration are slowly being unveiled to the general public. Furloughs at the Federal Aviation Authority (FAA) led to air traffic gridlock and angry travelers. Parks and national tourist sites are cutting back hours. And the Department of Defense (DOD) recently announced furloughs for 680,000 civilian employees. While these short-term impacts are painful, in particular to those losing work hours and income, sequestration is initiating cuts with negative, long-term impacts, which are not yet immediately apparent.

One area of specific concern is the potential $381 million in cuts to energy innovation investments at the DOD – a 25 percent cut compared to FY2012 levels. Since 2009, DOD has invested $5 billion in clean energy research, development, testing, demonstration, and procurement, representing almost 25 percent of U.S. clean energy funding in FY2012. DOD’s focus on clean energy innovation is important for three reasons:

  • The DOD has been the source of some of the last century’s most important breakthrough technologies, including the Internet, GPS, and microchips and it could have a similar impact on clean energy technologies like batteries and smart grid;
  • The DOD has developed its own cohesive
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The Epistemic Sequester: Budget Cuts Kill an Important Statistical Program

After already slashing R&D funding, the Sequester is about to deliver another kick in the teeth to American competitiveness: it’s going to sharply reduce our ability to measure it. This one comes courtesy of the Bureau of Labor Statistics, which announced last month that the sequestration has forced it to eliminate its International Labor Comparisons (ILC) program, a neat little database that adjusts foreign data to a common framework, allowing you to compare the traded sector health and competiveness of the United States against that of other countries.

This may not sound like much, but in the nerdy world of competitive analysis economics, it’s huge. No one else provides this data to the same extent as ILC. The OECD does a bit,[i] but their data are rife with warnings about the perils of cross-country comparison among their indicators. Moreover, the OECD has little-to-no data on the big boys such as China and India, which renders its data useless for any “big picture” comparisons of our competitive health. Other organizations, such as the UN Industrial Development Organization, provide limited competitiveness data that is vastly incomplete.

In contrast, the ILC

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Congress Passes Full-Year FY2013 Continuing Resolution

This year’s budget process has been complicated by a number of factors: confusion surrounding the sequestration cuts, the absence of the President’s FY2014 budget proposal, an expiring Continuing Resolution (CR), and Congress reviewing budget proposals for FY2014 and appropriations bills for FY2013 at the same time. While the FY2014 budget is yet to be decided, last week the House approved the Senate’s version of the Full-Year Consolidated and Further Continuing Resolution Act of 2013, which funds the federal government for the remainder of the 2013 fiscal year. Since the current Continuing Resolution is set to expire on March 27, the bill, which now heads to President Obama’s desk to be signed into public law, avoids a government shutdown by a matter of days.

As shown in the figure, the new CR is not very different from the old CR in terms of investments in energy innovation. The previous CR was based on FY2012 funding levels, and the new CR lowers investments in energy R&D by less than one percent from FY2012 levels.

CR(2) graph

The table below shows the recent appropriations legislative history in relationship to FY2012 funding levels. The new

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scientists in research lab

U.S. is Falling Further Behind in Research and Development Funding

Yet another study has highlighted the United States’ expanding investment deficit and our growing innovation disadvantage compared with our global competitors. Battelle’s 2013 Global R&D Funding Forecast indicates that, even before accounting for the looming sequester, total U.S. R&D investment in 2013 is expected to decline in real dollars, with growth of only 1.2 percent compared with an inflation rate of 1.3 percent. This continues a long period of U.S. underinvestment in R&D, which has been particularly acute in stagnating federal research investment. According to the National Science Foundation, federal R&D investment grew at just 1.3 percent annually from 1989 to 2009, while gross domestic product rose an average of 2.4 percent over that time. In fact, to restore federal support for research as a share of GDP to 1987 levels, Congress would have to increase federal research funding by almost $110 billion—per year.

Meanwhile, the world’s greatest growth in R&D investment in 2013 will come from China, which is expected to increase its R&D investment by $22.9 billion in 2013.Through its Innovation 2020 strategy, China plans to invest $1.5 trillion over the next seven years on seven “strategic emerging

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Sequestration Threatens Future of Energy Innovation and GDP Growth

Congress has yet to come up with a plan for handling the threatening consequences of sequestration, or the blunt, automatic across-the-board budget cuts enacted by law by the Budget Control Act of 2011, a consequence of Congress’s failure to agree on a bipartisan deficit reduction plan.  As a result, the first installment of cuts goes into effect January 1st of 2013 and according to the Energy Innovation Tracker will have significant impacts on clean energy innovation that will severely handicap America’s already underfunded clean energy innovation ecosystem.

Under the Budget Control Act of 2011, the sequester calls for the reduction of the federal debt by $2.4 trillion over a ten year period; $1.2 trillion of the savings are slated to come from discretionary spending, which funds the federal government’s education, science, technology and research programs, among others.  A report recently released by ITIF, Eroding our Foundation: Sequestration, R&D, Innovation and U.S. Economic Growth, verifies concerns over the future of U.S. competitiveness if Congress fails to come up with a viable debt reduction alternative. The report concludes that because R&D is a critical input to economic growth, reduction

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