Technology is the cornerstone of a new energy policy. The United States is currently spending 50% less on energy R&D than during the 1970s oil embargo. We spend less than four billion dollars a year on clean energy R&D, which is less than we spend in three days on imported oil today. New industry and government relationships are needed, and liability issues must be addressed. The demonstration and application of promising clean technologies must be carried out on an ambitious and cost-effective scale; small, tentative steps are not sufficient.
Technology is at the foundation of most of the strategies we are proposing. The International Energy Agency (IEA) reports that globally, government spending on energy technologies is well below its peak in the late 1970s following the oil crisis. Although R&D spending at the DOE has been increasing in recent years, the fact remains that, at about $4 billion, the federal government now spends about 50% less on energy R&D than it did during the 1970s (Figure 6). To put this in perspective, global subsidies for biofuels in 2006 were about $5.5 billion to $7.3 billion, with U.S. subsidies on the order of $3 billion to $4 billion.
In addition to improving energy security, advanced new technologies can reduce the costs of meeting environmental requirements, especially GHG emissions goals. To eventually achieve significant cuts in GHG emissions at a cost that is acceptable, breakthroughs in technology are necessary. The CCTP Strategic Plan notes that, depending on the reduction target, advanced technologies can cut the global cost of reducing GHG emissions by 56% or more. Therefore, advanced technologies can expand the range of economically and politically acceptable policy options.
New technologies, then, are not a luxury, but they are a fundamental requirement, and technology development should be an integral part of any energy policy. We must challenge our scientists and engineers to accelerate breakthroughs in low-emission solar and wind energy, biofuels, hydrogen, advanced batteries, building efficiency, grid technologies, nuclear power, fusion energy, and other technologies that have the potential to fundamentally transform the way we produce and consume energy.
The U.S. should maintain its clear leadership role in technology development. To support and accelerate the development of a broad portfolio of clean energy and enabling technologies, the federal government should at least double the current federal energy R&D spending, in real terms, from $4 billion to $8 billion. We recognize the difficulty of ensuring responsible oversight and execution of a rapid and steep increase in funding; therefore, we recommend this increase scale up over the next five years. Recognizing that there is no “silver bullet” technology that will solve our energy challenges and that not all technologies will pan out, this funding should support a broad-based and hedged technology portfolio underpinned by a strong modeling and analytical capability. It is also important to support a vibrant scientific enterprise more broadly. Advances in fields as varied as materials research, nanotechnology, super computing, and biotechnology, to name a few, may hold the keys to breakthroughs in fuel cells, batteries, biorefining, and other emerging energy technologies.
There also needs to be a place where high-risk research with a potentially high payoff is not discouraged—indeed, is rewarded—but that will take a cultural change within both the agencies and the Congress. Many R&D programs are adverse to risk, driven in part by fears of congressional oversight and the requirements of the Government Performance and Results Act.
The America COMPETES Act authorizes the establishment of an Advanced Research Projects Agency for Energy (ARPA-E) within DOE, similar to the U.S. Department of Defense’s (DOD) successful Defense Advanced Research Projects Agency. The goal of ARPA-E is to support transformational energy technology research projects. To the extent that it could provide a home for novel, high-risk ideas and cross-cutting technology development, it should be welcomed. DOE, however, has not requested funding for ARPA-E, opting instead to subsume its function within existing programs. DOE should establish, and Congress should provide full funding for, ARPA-E or its equivalent to perform high-risk research. This funding should not, however, come at the expense of other more traditional R&D—robbing Peter to pay Paul does not contribute to a sound energy R&D strategy. Project funding decisions should be made on a merit-based competitive process, not legislated.
We must also ensure that there is a proper climate for R&D for our private sector companies, where most of the R&D investment occurs. In particular, the on-again, off-again nature of the R&D tax credit, which allows businesses to deduct part of those investments from their taxes, has made R&D planning for businesses more difficult. About two-thirds of all R&D conducted
in America (about $200,000 billion in total, including energy) is done by the private sector. The R&D tax credit should be made permanent so that companies have greater certainty as they plan and conduct R&D.
The development and deployment of new, affordable technology is not just the result of activities in a laboratory. Placing technologies on the shelf is one thing; moving them off the shelf is another. Both are important. Moving a new technology off the shelf requires that it be transferred out of the lab, capitalized, installed, and used in a marketplace of discerning consumers who are convinced that they will benefit from its use.
Adopting new technologies is not without risk. Between the laboratory and the marketplace lies a gap that is characterized by the inability of a project to secure sufficient funding or revenue to continue operations (Figure 7). In general, the public sector works in the early R&D phase to develop and validate the technology, and the private sector picks up the technology to commercialize and deploy it into the marketplace.
Public-private partnerships and supportive policies can be used to bridge the gap between the laboratory and the marketplace and overcome the “first movers’ penalty,” providing incentives for innovators to act. Not only must we be willing, therefore, to invest in basic and applied energy R&D, we must also be willing to expand loan guarantees and targeted incentives to encourage the first movers to bring these new technologies into the market. These policies should be designed to stimulate competition and not pick winners and losers, so that markets can work to identify and adopt the best technologies.
When promising technologies are particularly complex and expensive, we must consider new methods of government-industry partnerships to demonstrate those technologies on a commercial scale and on an ambitious schedule.
Additionally, the firms and institutions that will ultimately deploy and utilize these advanced technologies need to be integrated into the technology development and engineering phases to ensure market acceptance and bridge the gap between lab and marketplace. The national laboratories are tremendous national assets, but all too often the technology innovations produced by them do not make it in the market place. One way to address this problem would be to bring into the labs successful businesses and venture capital firms to identify and develop business plans to take promising technologies and move them into the marketplace.
Indeed, securing our energy future is in large part tied to the degree we are able to accelerate the commercial adoption of new technologies, and that will necessitate an accelerated rate of capital formation. The federal government can help leverage private capital to attain these goals by reducing investment risk and lowering the cost of capital. However, traditional federal agencies lack the capability and wherewithal to do this effectively.
To meet this unmet need, we encourage the establishment of a new Clean Energy Bank of the United States (CEBUS), a quasi-governmental entity combining the functions and modeled after the Export-Import Bank, Overseas Private Investment Corporation (OPIC), and the Millennium Challenge Corporation. CEBUS would operate to lower capital costs and mitigate market risks impeding investment in new or advanced energy technologies and would be designed to address market inefficiencies rather than compete with existing market players.
As envisaged, the bank would offer risk management, debt, equity, and securitization products. These could include concessionary financing, direct loans, loan guarantees, lines of credit, and insurance products, and the bank could take equity positions, similar to a venture capitalist, in clean energy projects judged commercially viable. Moreover, to demonstrate the feasibility of precommercial technologies, CEBUS could help manage commercial-scale demonstration projects that require large amounts of public and private capital. After an initial capital infusion, which could include private investment, CEBUS could charge fees for its services to minimize or eliminate the need for appropriations.
Although incentives almost certainly will be needed to overcome the risks associated with adopting many new technologies, ultimately the new technologies will have to be able to compete in the marketplace on an equal footing. Therefore, the real measure of our success in achieving energy security will not be whether wind has achieved “X” percent of our generating capacity or biofuels have achieved a “Y” percent share of the transportation fuels market, but whether there is vigorous competition among different technologies and fuels within and among sectors. Right now there is not, but with new policies, we can drive technology innovation and create a competitive energy marketplace that is good for consumers, good for business, and good for the environment.