Budget Cuts Threaten Industry Research Efforts

American Association of Petroleum Geologists (AAPG)

Basic research – the source of innovative technology – has experienced significant cuts in the past three years as the House and Senate have disagreed on spending proprieties and “sequestration” has become the default budget process.

Sequestration refers to the across-the-board cuts in discretionary federal spending dictated by the Budget Control Act of 2011. Social Security and Medicare are mandatory, not discretionary – and are not impacted.

Federal research provided a foundation for horizontal drilling and hydraulic fracturing, supercomputing and GPS – all essential to the recent oil and gas production increases. Degradation of America’s research capability endangers the future – if currently unclear – technology directions of our industry.

This column is based on two recent analyses and focuses primarily on the Department of Energy, the largest supporter of basic and applied physical science research and research facilities in the United States:

  • In early September, the American Association for the Advancement of Science (AAAS) issued an analysis of the impact on federal appropriations on research and development (R&D).
  • On Oct. 30 the House Committee on Science, Space and Technology Subcommittee on Energy held a hearing titled, “Providing the Tools for Scientific Discovery and Basic Energy Research: The Department of Energy Science Mission.” This hearing explored the benefits of the Department of Energy basic research and ways to improve management of the program.

This hearing also served to gather information in advance of reauthorizing the America COMPETES Act that expires in early 2014.

AAAS reports that federal R&D expenditures declined 16.3 percent between FY 2010 and FY 2013 (including the sequestration cuts); FY 2010 is the fiscal year from Oct. 1, 2009, through Sept. 30, 2010.

As a share of gross domestic product, federal R&D is now 0.82 percent of gross domestic product (GDP). This is significantly less than the almost 2 percent of GDP for federal R&D in the mid-1960s.

The DOE-Office of Science funding for basic research went down from $4.463 billion in FY 2012 to $4.239 billion in FY 2013, including the sequestration cuts.

For FY 2014, the House would provide a 1 percent increase in the office’s funding, with a 33 percent increase in fusion-energy research and a 15 percent cut in environmental research. The Senate would provide an almost 12 percent increase, with the largest increases for fusion-energy research.

The differences between House and Senate are larger for applied research (energy efficiency, renewable, nuclear and fossil-energy research):

u For FY 2014 the House would cut applied research by 32 percent; the Senate would boost funding by 30 percent.

u ARPA-E (Advanced Research Projects Agency-Energy), which invests in short-term research projects that can have transformational impacts but not basic or incremental research, would be cut 73 percent by the House and increased 48 percent by the Senate.

For FY 2014, which started Oct. 1, the government currently is operating under a continuing resolution that continues the FY 2013 funding levels, including the sequestration cuts, through Jan. 15.

As part of the legislation that reopened the government on Oct. 17, the House and Senate established budget negotiations to resolve their differences in funding the government. Despite their differences, neither chamber would increase overall government R&D funding.

As the starting point for negotiations the proposed House funding level for non-defense R&D is 11.6 percent below the Senate level and 5.3 percent below FY 2012, the last pre-sequestration budget.

The Senate number is also down – 2 percent from FY 2012.

How the two chambers will resolve this large discrepancy is impossible to predict.

If a budget agreement is not reached, the most likely scenario is continued funding at the FY 2013 level with additional across-the-board sequestration cuts of 2.57 percent taking effect on Jan. 15.

As mentioned in the March 2013 Policy Watch column, there is a compensatory element: non-federal R&D is a larger share of all U.S. R&D – about 70 percent, up from about 35 percent in the early 1960s.

Industry R&D focuses more on applied research and development rather than long-term basic studies, so the government cuts are significant for long-term innovation that develops from basic research.

What does this mean to the United States for global competition?

The global balance of basic research also is changing. All U.S. R&D is about 2.7 percent of GDP, a level higher than the European Union but lower than Japan (over 3.4 percent) and South Korea (about 3.5 percent). China currently devotes 1.6 percent of its GDP to R&D, but is expected to increase its R&D investment by $22.9 billion in 2013; this represents annual R&D growth of 11.6 percent, significantly greater than the country’s expected GDP growth of 8.2 percent (Battelle 2013 Global R&D Funding Forecast).

It was the National Academies 2005 report, “Rising Above the Gathering Storm,” highlighting the U.S. decline in physical science R&D, that prompted the American COMPETES Act and an increase in federal R&D funding. The report stated:

“Federal funding of research in the physical sciences, as a percentage of gross domestic product (GDP), was 45 percent less in fiscal year (FY) 2004 than in FY 1976.”

In 2004 U.S. R&D was 2.55 percent of GDP, a level that concerned the National Academies panel in light of the commitment of other countries to increase science and technology education that supports scientific research. U.S. R&D reached a high of 2.91 percent of GDP in 2009 before falling back.

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Policy Watch

Policy Watch - Edie Allison

Edie Allison is Director of the AAPG Geoscience and Energy Office in Washington, D.C.

Policy Watch

Policy Watch is a monthly column of the EXPLORER written by the director of AAPG's  Geoscience and Energy Office in Washington, D.C. *The first article appeared in February 2006 under the name "Washington Watch" and the column name was changed to "Policy Watch" in January 2013 to broaden the subject matter to a more global view.

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