As business leaders, we feel that America’s current energy system is deficient in ways that cause serious harm to our economy, our national security, and our environment. To correct these deficiencies, we must make a serious commitment to modernizing our energy system with cleaner, more efficient technologies.
Such a commitment should include both robust, public investments in innovative energy technologies as well as policy reforms to deploy these technologies on a large scale. By tapping America’s entrepreneurial spirit and longstanding leadership in technology innovation, we can set a course for a prosperous, sustainable economy—and take control of our energy future.
Conversely, if we continue with the energy status quo, we will expose ourselves to risks that pose significant threats to our way of life.
There are two reasons the government must play a key role in accelerating energy innovation. First, innovations in energy technology can generate significant, quantifiable public benefits that are not reflected in the market price of energy. These benefits include cleaner air and improved public health, enhanced national security and international diplomacy, reduced risk of dangerous climate change, and protection from energy price shocks and related economic disruptions. Currently, these benefits are neither recognized nor rewarded by the free market.
Second, the energy business requires investments of capital at a scale that is beyond the risk threshold of most private-sector investors. This high level of risk, when combined with existing market structures, limits the rate of energy equipment turnover. A slow turnover rate exacerbates the historic dearth of investments in new ideas, creating a vicious cycle of status quo behavior.
The government must therefore act to spur investments in energy innovation and mitigate risk for large-scale energy projects. By heeding the following five recommendations, we feel the government can unleash the nation’s technology potential.
Recommendation 1: Create an independent national Energy Strategy Board
The United States does not have a national energy strategy.
Without such a strategy, there is no way to assess the effectiveness of energy policies, nor is there a coherent framework for the development of new energy technologies. The results of this neglect have included oil-driven recessions, environmental degradation, trade deficits, national security problems, increasing CO2 emissions, and a deficit in energy innovation.
We recommend the creation of a congressionally mandated Energy Strategy Board charged with (1) developing and monitoring a National Energy Plan for Congress and the executive branch, and (2) oversight of a New Energy Challenge Program (see Recommendation 5). The board should be external to the U.S. government, should include experts in energy technologies and associated markets, and should be politically neutral.
Recommendation 2: Invest $16 billion per year in clean energy innovation
In order to maintain America’s competitive edge and keep our economy strong, the United States needs sizable, sustained investments in clean energy innovation. We believe that $16 billion per year – an increase of $11 billion over current annual investments of about $5 billion – is the minimum level required.
This funding should be set with multi-year commitments, managed according to well-defined performance goals, focused on technologies that can achieve significant scale, and be freed from political interference and earmarking.
If Recommendation 2 is not adopted, our other recommendations will not matter much. Reliance on incrementalism will not do the job.
This $16 billion figure covers all of the recommendations we make in this report.
Recommendation 3: Create Centers of Excellence with strong domain expertise
Technology innovation requires expensive equipment, well-trained scientists, multi-year time horizons and flexibility in allocating funds. This can be done most efficiently and effectively if the institutions engaged in innovation are located in close proximity to each other, share operational objectives and are accountable to each other for results.
Resources should not be spread thinly across many institutions working on the same problem. To provide the above attributes to the energy industry, we recommend the creation of national Centers of Excellence in energy innovation. The Department of Energy’s newly created Energy Innovation Hubs are a good start at such centers, but are not sufficiently funded to achieve the desired results.
Additional centers of excellence need to be supported with an annual budget of $150 to $250 million each. To function effectively and deliver results, each of these centers will need the flexibility to pursue promising developments and eliminate dead-end efforts.
Recommendation 4: Fund ARPA-E at $1 billion per year
The creation of the Advanced Research Projects Agency-Energy (ARPA-E) has provided a significant boost to energy innovation. ARPA-E focuses exclusively on high-risk, high pay-off technologies that can change the way energy is generated, stored, and used, and has challenged innovators to come up with truly novel ideas and “game changers.” The program has high potential for long-term success, but only if it is given the autonomy, budget, and clear signals of support to implement needed projects. It will need long-horizon funds on a scale commensurate with its goals, and a life extension beyond the current federal stimulus. We recommend a $1 billion annual commitment to ARPA-E.
Recommendation 5: Establish and fund a New Energy Challenge Program to build large-scale pilot projects
America’s energy innovation system lacks a mechanism to turn large-scale ideas or prototypes into commercial-scale facilities.
We recommend the creation of a New Energy Challenge Program to fund, build and accelerate the commercialization of advanced energy technologies—such as fourth generation nuclear power and carbon capture and storage coal plants.
This program should be structured as a partnership between the federal government and the energy industry, and should operate as an independent corporation outside of the federal government. It should report to the Energy Strategy Board (see Recommendation 1) and focus on the transition from pre-commercial, large-scale energy systems to integrated, full-size system tests. The public sector should initially commit $20 billion over 10 years through a single federal appropriation, which would unleash significant private sector resources as projects are developed.
In the defense, health, agriculture, and information technology industries, this country has made a deliberate choice to use intelligent federal investments to unleash profound innovation. As a result, the country leads in all those realms. In energy, however, the United States has failed the grade, and is paying a heavy price for that failure. We are optimistic about the potential for dramatic change in the energy realm. To seize this opportunity, America must put aside partisan interests and make a strong, bold commitment.