The Business Plan Recommendation 2

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Invest $16 billion per year in clean energy innovation.

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Innovation spending must relate the size of our energy market and its importance in driving our economy. We argue that our current underinvestment should be scaled to a minimum of $16 billion per year. This is about $11 billion more than we now spend in a typical year, and will put energy research, development and deployment (RD&D) closer to (though still well short of) other technologically intensive sectors; bring U.S. investment in line with those of its trading partners and competitors; and meet the bottom-up needs of major technologies.

The benefits of this investment will far outweigh the costs. By comparison, the United States sends $16 billion overseas for petroleum every 16 days. Our recommended RD&D commitment represents about 3 percent of what the nation spent on the 2008 oil price shock in that year alone. At just 1.5 percent of U.S. energy sales, this figure still represents a significantly smaller share than most high-tech industries re-invest into innovation.

If this recommendation is not adopted, the others will not do much good. Incrementalism will neither fill the gaps, nor create the sweeping change this nation needs in energy. Bold action is required. Numerous groups, from the National Academy of Sciences to the President’s Committee of Advisors on Science and Technology, have studied energy innovation spending; all agree that large increases are necessary.

How much money is needed?

Several perspectives can help determine how much financing is needed to advance new energy technologies. All point to roughly the same total. We examine our nation’s own annual energy expenditures along with the proportion devoted to R&D compared with other sectors of the economy; we compare R&D spending in the United States to that of other nations; and we examine the projected costs for several important technologies. The Report Notes have further details on each of these methodologies, as well as a justification for each of our budget’s line items.

How can the nation ensure this money is spent well?

America’s track record of substantial, sustained money for health and defense research is instructive. Building on that experience, plus our own, we have learned what works:

1. Support for RD&D must have multi-year commitments, which translate to multi-year appropriations. It is impossible to do serious RD&D without assembling topnotch talent, building or buying equipment, conducting experiments, and validating results. None of this can be done well with year-at-a-time funding.
2. Research can be managed and tracked through pre-defined performance gates, to ensure that projects on course keep receiving support and those failing get terminated.
3. Support must be given to technologies that have real potential to scale. The federal government should focus on supporting technologies with potential for national impact—the sectors where there is a major gap between the best technologies available and the technical and economic potential.
4. Earmarks are counter-productive. Congress should fund broad programmatic areas rather than particular projects in specific districts. Competition within broader categories is healthy. This structure increases the likelihood that the best proposals will move forward.
5. Concentrated effort increases success rates. Our analysis of current federal energy RD&D suggests that many programs fail, or are slow to succeed, because funds for RD&D are spread across dozens of laboratories and universities. Program managers must be able to concentrate their resources in order to succeed.

Innovation in health and defense has created jobs and economic growth

The health and defense sectors show how America can spend innovation money effectively. The National Institutes of Health (NIH) is well funded out of the federal budget at around $30 billion per year—which is about 75 percent of global spending in basic medical science. This commitment has developed many medicines that are now central to our people’s health, and has also made America the leader in this vast industry.

The budget of the NIH more than doubled in recent years, and the growth of NIH is instructive in thinking about how to build energy RD&D. For example, the Institutes maintained a healthy level of competition for research grants throughout its period of budget expansion, ensuring that the quality and productivity of research was maintained or even increased.

Fully 80 percent of NIH’s annual research budget supports work performed at university laboratories.10 All resulting papers must be publicly available, thus allowing collaborations to emerge across disciplines and fueling innovation. As a result, NIH was instrumental in funding 15 of the 21 major breakthrough drugs from 1965 to 1992.11

For example, Gleevec, arguably the most effective cancer drug of the past decade, was nearly abandoned by its private sector backer. Under NIH support, a cancer specialist at the Oregon Health and Science University continued the research that led to the drug’s ultimate commercialization.

Another great story comes from the Defense Advanced Research Projects Agency (DARPA), which has been able to produce large-scale technologies in record time through its agile funding model and its risk-tolerant, idea-driven, outcome-oriented culture. The agency exemplifies the benefits of multi-year funding and relative insulation from the political process. DARPA made investments in the technology and infrastructure that gave birth to the Internet. This required collaboration with professors at MIT and UCLA, as well as several private companies, and that required an innovation model that encourages such collaboration.

[box]Last year, more than 30 Nobel laureates called the President’s attention to the need for a sustained increase in federal clean energy innovation spending, emphasizing that “stable R&D spending is not a luxury.” This group of prominent American scientists also recommended that the federal government spend $15 billion per year on clean energy innovation.

Many other expert panels and respected studies have called for sustained increases in federal investment in energy innovation:

[dropcap style=”font-size: 60px; color: #9b9b9b;”]2x[/dropcap]The President’s Council of Advisors on Science and Technology and the National Commission on Energy Policy in 1997 and 2005 recommended a doubling of spending.

[dropcap style=”font-size: 60px; color: #9b9b9b;”]4x[/dropcap]Several studies between 1999 and 2003 looking at options value and risk mitigation recommended a fourfold spending increase.

[dropcap style=”font-size: 60px; color: #9b9b9b;”]3-6x[/dropcap]The International Energy Agency in 2009 recommended a three- to sixfold increase for all countries in the Major Economies Forum.

[dropcap style=”font-size: 60px; color: #9b9b9b;”]6-9x[/dropcap]The Intergovernmental Panel on Climate Change recommended in 2000 a six- to ninefold global increase.

[dropcap style=”font-size: 60px; color: #9b9b9b;”]5-10x[/dropcap]A University of California analysis in 2006 recommended a five-to-tenfold increase for the United States.

Our report, by way of comparison, recommends an increase to about three times today’s levels.[/box]