The High Price of Inaction

There is no part of our economy that can operate without access to reliable, affordable energy. Our nation has built an energy system that is miraculous in its breadth and power, but in its current incarnation, exacts steep costs in four ways:

  1. US Trade Balance for Goods and ServicesFaltering economic competitiveness in the $5 trillion global energy industry, as vast new markets for clean energy technologies are expanding rapidly in Asia and Europe, rather than in the United States.
  2. Direct economic costs of constrained energy choices, from (a) price volatility, which has driven two recessions and several economic shocks, including the 2008 shock that cost our economy $500 billion in one year alone and (b) the trade deficit, driven by about $1 billion per day sent overseas to pay for imported oil.
  3. National security problems from (a) sending vast sums of money into global petroleum markets that support nations hostile to the United States and (b) relying on an energy system that is increasingly vulnerable to blackouts or supply disruptions.
  4. Environmental dangers, from both (a) air pollution that negatively impacts human health, water quality and ecosystems; and (b) climate change from greenhouse gas emissions, which are largely the byproduct of fossil fuel combustion.

This is a serious nexus of problems. Each individually would merit national attention; together, they should be at the top of the national agenda. Fortunately, serious investments in new energy technologies offer leverage against all these problems.

Goals for American energy

We believe America should have four intersecting energy goals, directly aimed at the costs above.

  1. Fuel the American engine to compete in the global market for energy and energy technology. Create modern industries with modern jobs.
  2. Power the domestic economy with clean, affordable energy.
  3. Reduce national security threats from disruption of energy sources, whether domestic or international.
  4. Protect public health and mitigate the very real threat of climate change.

To achieve those goals, the United States will need to rapidly develop and deploy a rich array of technologies. Energy is fundamentally a technology business, in its extraction, production, transformation, storage, and use. Advanced technologies can improve every one of these phases, sometimes radically. The United States needs a concrete strategy for achieving these clear goals.

Why can’t the private sector solve this problem?

The private sector has underinvested in energy innovation, and it cannot achieve these goals alone. There are fundamental differences between energy and most other economic sectors, and these differences limit the ability of the private sector to solve large-scale energy problems on its own.

First, the high price of inaction highlights the need for the public to invest in better energy options. National security, national economic strength, and the environment are not primary drivers for private sector investments, but they are critical for the health of our country. They merit a public commitment.

Second, large-scale deployment of many new energy technologies requires massive capital expenditures that are too risky for private investors. A new generation of microwave technology might cost $10 million to develop and can be built on existing assembly lines. That risk-reward calculus makes business sense. In contrast, a new electric power source can cost several billion dollars to develop, yet still will carry risk of technology failure or regulatory changes. And the product, electricity, is sold into a generic market that does not differentiate between clean and dirty sources. So that investment does not make sense for most companies.

Third, America’s long-term corporate R&D budgets, especially those run by utilities, have been in decline for several decades.

Fourth, the turnover in the electrical generation system is very slow. Power plants last 50 years or more and are relatively cheap to run once built, so there is little market for new models. Moreover, patents for replacement technology last only 20 years, so the slow power plant turnover considerably reduces the reward for inventors.

Combine these elements and it becomes clear why private sector investments in clean energy technology development have been so small. Once businesses see a market situation that reduces their technology development risk and rewards clean energy sources, they will invest.