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A New Strategy to Spur Energy Innovation

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This was originally published as an article in Issues.

Read the full report (pdf)

The United States must confront the reality of its energy circumstances. Consumers and industry are facing the prospect of a continued rise in the real price of oil and natural gas as conventional reserves are depleted. The increased reliance of the United States and its partners on imported oil—a large proportion of which comes from the hostile and politically fragile Persian Gulf—is constraining the nation’s pursuit of important foreign policy objectives. At the same time, greenhouse gas emissions, especially carbon dioxide emissions from coal-fired electricity-generation plants, are contributing to dangerous global climate change. In the absence of an aggressive U.S. carbon-emission control policy, there in no possibility of an international agreement on greenhouse gas emissions that includes both developed countries and rapidly emerging ones such as China and India.

There is only one solution to the challenge: The United States must begin the long process of transforming its economy from one that is dependent on petroleum and high-emission coal-fired electricity to one that uses energy much more efficiently, develops alternative fuels, and switches to electricity generation that is low-carbon or carbon-free.

The benefits of such a transformation are indisputable: It would avoid unnecessary cost and disruption to the U.S. economy, protect the environment, and enhance national security. The United States has sought to adopt an effective and coherent energy policy since the first oil crisis of 1973, but it has failed to do so. The challenge for U.S. political leaders is to craft, fund, and diligently sustain a range of policy measures that will make this critical transition as certain, rapid, and cost-effective as possible.

In order to meet this challenge, the United States must undergo an innovation revolution. The rate at which the United States is able to develop and deploy new energy technologies will, to a great extent, determine the ultimate speed and cost of the economic transformation. Large-scale carbon capture and sequestration, advanced batteries, plug-in hybrid vehicle technologies, next-generation biofuels for the transportation sector, and a number of other innovations will be vital to achieving a low-carbon economy, and the United States must not only develop but deploy these technologies. The benefits of such innovation will accrue to other countries as well, for U.S. technical assistance programs and trade will carry these advances abroad.

Over the years, the U.S. government has spent more than $300 billion in direct expenditures on energy research, development, and demonstration (RD&D) that have been combined with a variety of indirect financial incentives such as tax credits, loan guarantees, guaranteed purchase, and even equity investments. In addition, the government has adopted a
patchwork quilt of regulations designed to speed the adoption of various energy technologies.

Unfortunately, the resulting pace of innovation generated by this public investment has not been sufficient given the urgency and scale of today’s energy challenge. The various measures that it has employed (including direct federal support for RD&D, indirect financial incentives, and mandatory regulations) have been developed and implemented individually with too little regard for technological and economic reality and too much regard for regional and industry special interests. There has not been an integrated approach to energy technology innovation that encompasses priority areas of focus, the responsibilities of various funding agencies, and the mix of financial assistance measures that are available. If the United States simply continues to pursue energy innovation as it has in the past, then the path to a low-carbon economy will be much longer and costlier than necessary. We propose a new approach for energy RD&D in the United States that will set in motion an innovation revolution by

  • Creating an interagency Energy Innovation Council to develop a multiyear National Energy RD&D strategy for the United States.
  • Increasing the energy RD&D program budget to more than twice its current level.
  • Launching a sustained and integrated energy R&D program in key areas.
  • Establishing an Energy Technology Corporation to manage demonstration projects.
  • Creating an energy technology career path within the civil service.

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