How much is energy research & development worth as insurance?

In this paper, we estimate the value of energy technology research and deve lopment (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) o il 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 becau se some R&D is applicable to more than one risk. Nevertheless, the total De partment of Energy investment in energy technology R&D [similar to$1.5 bill ion/year in fiscal year 1999 (FY99)] seems easily justified by its insuranc e value alone. In fact, a larger investment might be justified, particularl y in the areas related to climate change, oil price shock, and urban air po llution. This conclusion appears robust even if the private sector is assum ed to be investing a comparable amount relevant to these risks. No addition al benefit is credited for the value to the economy and to the competitiven ess 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 r isks to society was estimated.