To Make Clean Energy Cheaper, U.S. Needs Bold Research Push

Jesse Jenkins and I have a new article published at Yale Environment 360 with the Brookings Institution today arguing for major federal investments in a new energy innovation system, based on a recent proposal by Brookings' Metropolitan Policy Project, which included contributions from the Breakthrough Institute and cited our previous report, "Fast, Clean, & Cheap." Note: Jesse Jenkins and David Warren also co-authored this article, but due to editorial requirements are mentioned as contributors.

To Make Clean Energy Cheaper, U.S. Needs Bold Research Push

By Mark Muro and Teryn Norris
Yale Environment 360
April 30, 2009

Energy Secretary Steven Chu recently called for "Nobel-level" breakthroughs and a "second industrial revolution" in energy technology to overcome the world's interlinked energy and climate challenges.

Chu's implication: We currently lack the technologies we need to fully avert catastrophic global warming. His admonition: America must dramatically accelerate the development of clean energy technology.

Chu has it right.

The task is clear: To renew the U.S. economy, respond to global climate change, foster the nation's energy security, and help provide the energy necessary to sustainably power global development, America must transform its outdated energy policy. Innovation and its commercialization must move to the center of energy system reform. The nation must move urgently to develop and harness a portfolio of clean energy sources that are affordable enough to deploy on a mass scale throughout the U.S. and the world. In short, we must make clean energy cheap.

Putting a price on carbon will take us part of the way, but not nearly far enough. To make the revolutionary shift to a low-carbon economy, we propose a bold new research paradigm: the creation, over time, of several dozen renewable energy research hubs around the nation. These centers -- known as energy discovery-innovation institutes, or e-DIIs -- would be established with a combination of federal, state, university, and private funds and would take the lead in accelerating the development of reasonably priced alternative energy technologies and bringing them to the marketplace.



The Brookings Institution's Metropolitan Policy Program -- joined by a number of leading universities, regional alliances, and corporate partners -- has laid out a detailed plan for launching a network of energy innovation institutes around the country. In the Southwest, the institutes might focus on advancing solar technologies. Centers in the Great Lakes region might speed development of advanced battery technology or hydrogen fuel cells. Energy innovation institutes in the Great Plains might focus on developing sustainable, non-food sources of biofuels.

Individual energy innovation institutes would vary not only by theme but also size, with some centers operating with budgets as small as $10 million to $15 million per year, while others -- the most successful and ambitious -- might see their budgets grow to as large as $100 million to $200 million a year, making them as robust as large academic medical centers. Those energy research institutes that "delivered the goods" in terms of clean energy breakthroughs within 5 to 10 years would grow; those that did not, would die. Ultimately, total federal investment in the energy research institutes could grow to $6 billion per year.

Such an ambitious plan is needed to meet the enormous challenges we face: Over the next four decades, global energy demand is expected to triple. At the same time, global greenhouse gas emissions must fall rapidly, decreasing at least 50 to 85 percent by mid-century to avert disruptive climate change.

Most of the growth in energy demand will occur in the developing world, as nations like China, India, and Brazil continue to lift their citizens out of poverty and build modern societies. Overall, that's a very good thing: Increased access to energy brings electricity to pump and treat potable water, lights to read and study by, access to modern health care, relief from backbreaking physical labor, and much more.

The problem, however, is that fossil fuels remain cheap and abundant. That means that in the absence of similarly affordable and large-scale clean energy sources, the nations of the developing world will turn to coal and other fossil fuels to power their development, just as we in the United States have done. And that would virtually assure massive climatic destabilization, regardless of what occurs in the developed nations of the world.

Hence the dominant climate policy agenda of our time: Captivated by market logic and sophisticated regulatory schemes, mainstream climate policy advocates have focused above all on utilizing market-based mechanisms and price signals -- such as carbon taxes and cap-and-trade plans -- to make dirty energy more expensive. According to this approach, the resulting price signals would spur private-sector investment and innovation in clean energy alternatives and secure the energy technology transformation we need.

But there is one complication: Policymakers and the public alike are reluctant to increase the price of energy significantly through higher prices on carbon emissions. At a time of deep economic recession, public tolerance for higher energy prices wanes.

In the developing world, the message is even clearer, summed up by one Chinese official, Lu Xuedu, of the Office of Global Environmental Affairs. "You cannot tell people who are struggling to earn enough to eat that they need to reduce their emissions," declared Lu.

None of which means that putting a price on carbon is a bad idea. Internalizing the many costs of burning dirty fuels is long overdue. But in the midst of a recession, any carbon-pricing scheme the current Congress manages to enact will likely price carbon at levels far below those needed to adequately stimulate rapid deployment of clean energy technologies.

Moreover, price signals alone can only do some of the work, because even ambitious pricing will not fully address the many non-price-related market failures standing in the way of a cleaner and more efficient energy system.

Nowhere is this clearer than in the innovation game. Private energy firms chronically under-invest in energy R&D because they cannot fully capture the future returns of their innovations, which spill over to their competitors. And in contrast to the consumer electronics, pharmaceutical, and computer industries, too few early adopters in the energy-sector are willing to pay five times more to own the latest, greatest gadget, which means that emerging energy technologies must become competitive much more quickly to survive. That makes private companies reluctant to make bets on new clean energy technologies. The energy industry remains one of the least research-intensive industries in the economy. The upshot: private-sector investment in energy R&D will almost certainly proceed more slowly than the climate challenge demands.

Which bring us to the crux of the matter: If we can't rely solely on market signals to make clean energy cheap, the national government must play a more active role. Once again, as it did in laying down the railroads and highways and stimulating the electronics and biotech explosions, the federal government must make significant investments in activities and infrastructure. This includes supervising the construction of a modern, nationwide smart grid that will open the way for private investments in new energy sources by allowing the flexible distribution of renewable power. The government must also make direct investments to support the deployment of emerging clean energy technologies, driving economies of scale, and bringing down prices. And, finally, the government must increase the federal R&D budget by an order of magnitude while deploying some of its investments in radically new ways.

Current federal spending on non-defense, energy R&D remains far too small. The current outlay of about $4 billion is less than half of the amount spent, in real dollars, in 1980. New infusions in the recent economic stimulus package will boost the current figure, as will an additional $15 billion a year to be set aside for clean-tech investments from the cap-trade system projected by President Obama's recent budget outline. Still, such investments will likely come in below the $20 billion to $30 billion per year in federal clean energy R&D that many analysts believe is needed to address the climate and security threats posed by the nation's fossil fuel dependence.

At the same time, federal energy research remains outdated and fragmented. To begin with, the U.S. Department of Energy (DOE) really isn't even in the energy innovation business. The bulk of the department's funding and operational competence remaining focused on managing -- and cleaning up after -- the nation's sprawling nuclear weapons system. Otherwise, what energy research efforts do exist within DOE remain insular, focused largely on weapons development, and generally organized around an "energy technology of the year," instead of the integrated approach demanded by the nation's complex array of energy challenges. The bulk of DOE's research activities -- despite excellence in certain areas -- remain too removed from the marketplace to quickly develop and commercialize clean energy innovations.

To fully mobilize the entire national research enterprise -- universities, federal laboratories, and corporate R&D centers -- the nation needs to begin creating a network of energy innovation institutes. Developed by the National Academy of Engineering, the energy innovation concept is characterized by institutional partnerships, interdisciplinary research, technology commercialization, education, and outreach. The institutes would place a high priority on collaboration, commercialization, and performance.

What sort of research would likely be conducted at the energy innovation institutes? One or two would surely mount an aggressive push on new materials and designs for low-cost solar panels. Others might lead the charge on the development of massive, cost-effective energy storage; new battery chemistry that will lead to truly viable electric vehicles; better plant growth and biotechnology conversion to provide affordable biofuels; superconductive transmission lines for efficient electrical power distribution; new techniques for sequestering carbon or even capturing it from the air; and much more.

The institutes would be geared toward rapid technology transfer designed to maximize the economic and social impact of new renewable technologies. Breakthrough inventions could be protected by intellectual property laws. Depending on the region, energy innovation institutes could take shape at university campuses, through national labs, at other institutes, or even virtually. A competitive awards process would seek to target the best proposals from wherever they originate. And the regional nature of the centers is key: the institutes would draw on local workforces, scientists, businesses, and other resources to rapidly deploy new technologies that respond to local challenges and stimulate local economic development.

Successful examples of effective, practical collaboration among universities, government, and industry already exist. One such enterprise is the Energy Biosciences Institute, a renewable energy research group involving the University of California at Berkeley, the University of Illinois at Urbana-Champaign, Lawrence Berkeley National Laboratory, and the oil giant, BP.

In important ways, the energy innovation institute concept represents a contemporary adaptation of the research paradigm created through the land-grant acts passed by Congress in the 19th century. Then, federal investments established a network of university-based agricultural and engineering experiment stations, augmented by extension services capable of interacting directly with the marketplace. That program was instrumental in developing and deploying the technologies necessary to build a modern industrial nation for the 20th century, while stimulating local economic growth.

Today, the U.S. needs a similarly bold campaign to enlist America's universities, laboratories, and companies in solving one of the most complex and important problems -- the transition to a clean-energy economy -- that the nation has ever faced.

David Warren, a research analyst at the Brookings Institution, and Jesse Jenkins, director of energy and climate policy at the Breakthrough Institute, also contributed to this article.