Without a doubt, the opportunity is ripe for offshore wind technologies to generate low-carbon electricity. Seventy-eight percent of U.S. electricity demand comes from 28 coastal and Great Lake states, which geographically correspond well to high-speed offshore wind patterns. Many of these states pay higher average electricity costs than the rest of the country, providing an opening for low-cost, low-carbon energy alternatives (price data found here, page 7). But offshore wind has a big problem: it’s not cost-competitive with other sources of electricity.

The federal government, partnered with coastal states, recognizes this challenge and is implementing a multi-year innovation strategy to reduce the cost of offshore wind (Figure below), while improving performance.

The strategy addresses three critical challenges: high-costs of the offshore turbine technology itself; the lack of manufacturing, installation, maintenance, and interconnection systems for offshore wind; and the multi-jurisdictional permitting and siting process for development offshore. According to ITIF’s Energy Innovation Tracker, the DOE and the NSF invest in offshore wind science, research, development, early-stage deployment, and training to address these challenges, totaling nearly $100 million as of FY2012 (Figure below). These investments address a long-list of research challenges, including upgrading turbine technology for its operation at sea, developing and testing new turbine foundations that offer greater reliability and ease of installation, transmission issues, as well as technical shipping and maintenance challenges unique to offshore turbines.

In FY2012 the DOE invested $28 million in seven next-generation offshore wind demonstration projects. These projects are developing, testing, and permitting new turbine technologies, such as hurricane-resistant foundations, foundations that are environmentally friendly and easy to install, and floating turbine designs.

These potential advancements could greatly reduce the costs of offshore wind installation and maintenance. In FY2011, the DOE invested $6.7 million to develop modeling tools for designing higher performance turbine designs. And in the same year, the DOE invested $2.5 million to study how best offshore wind can be connected to the electric grid to enable transmission and commercial wind developers to plan accordingly for the next stage of technology integration.

While many next-generation offshore turbine designs – such as the floating turbine prototype demonstration off the coast of Maine – are still in the early stages of testing, additional demonstration and research on offshore wind requires building and testing more turbines connected to the grid, which is where the DOI auction comes in. Even though the lease area is small, it will allow more established renewable companies such as Wind Inc. and Mainstream Renewable Power to develop existing designs, and it will encourage start-up companies such as Neptune Wind to commercially build-out their designs. This will begin the process of identifying the infrastructure needs for building out commercial-scale sites, including the optimal shipping needs for installing turbines, efficient methods of maintenance, and developing turbine manufacturing facilities, all of which will require testing and potentially more research. Overtime, DOI’s leases will provide a commercially active platform for companies to test and install different offshore wind designs, especially as next-generation offshore wind technologies advance beyond the prototype and demonstration phase.

In other words, the significance of the DOI auction is really more about public sector support for offshore wind innovation rather than how many homes the leases will potentially power. It is the next logical step in a cohesive innovation strategy implemented by the federal government and supplemented with small but targeted public investments. Large-scale offshore deployment may still be years away, but the DOI auction will surely accelerate the development of cheap, reliable offshore wind technologies.

Originally posted on Energy Trends Insider.

There’s no simple answer to that question, so we talked about a range of important ideas such as supporting advanced manufacturing, creating technology incubators, and reforming the DOE National Labs system. But what struck me was my colleagues’ insistence that what’s also needed is educating policymakers and advocates on how the energy innovation ecosystem fits together.

During the last five years, the U.S. federal government has added new institutions to spur innovation at different points along the technology development cycle, such as ARPA-E, the Energy Innovation Hubs, and Energy Frontier Research Centers. Analysts like myself argue more is needed. In response, policymakers fear duplication, extra bureaucracy, and inefficiencies often because these requests lack a clear case for how the policy pieces complement rather than repeat or compete with each other. This misunderstanding fuels – along with many other factors – a lack of support for strengthening the ecosystem as a whole.

Describing how these pieces work together can quickly get nuanced, but a metaphor came out of the discussion that merits repeating: think of energy innovation policy as a group of people mowing an Earth-sized, overgrown lawn. In this case, mowing the lawn is the stand-in for developing competitive, high-performance clean energy technologies. It is the problem we’re trying to collectively address and we’re implementing a coordinated set of policy solutions to do so.

Programs like the Energy Frontier Research Centers (EFRCs) within the DOE Office of Science are trying to solve fundamental science problems. For mowing the lawn, it is the equivalent of researching why the grass is growing in the first place. If we completely understand why the grass is growing, we can potentially develop better, more efficient solutions for mowing the entire lawn in the future. The EFRCs and Office of Science are studying underlying science problems in chemistry, material science, and physics that could potentially lead to more energy dense batteries, more efficient solar panels, and new low-carbon technologies we haven’t thought of today. We know that understanding the basic science is crucial because the possible outcomes of the work are unknown and unlimited.

The Energy Innovation Hubs are more goal-oriented. The Hubs are collaboratively working with academics, industry, and the National Labs to reach particular technological milestones (not particular technology). This is the equivalent of knowing what type of futuristic lawnmower the world needs to cut the grass, and exploring a multitude of ways to develop it. The Hubs have set audacious technology goals and are conducting crosscutting research that bridges breakthrough science with engineering and industrial application. For example, the Joint Center for Energy Storage Research is taking the last decade’s worth of breakthrough material and chemistry science to develop new battery storage pathways that are five times more energy dense than today’s best lithium-ion battery at one-fifth the cost in five years. We know that developing batteries with such characteristics would be game-changers for emerging industries like electric vehicles. In this case, we understand the technological characteristics necessary to revolutionize clean energy; we just need to figure out how to apply breakthrough science to get there.

ARPA-E is investing in transformative energy technologies by providing small grants on three-year terms to overcome research barriers to piloting potential breakthrough energy technologies. ARPA-E targets investments outside of traditional research pathways. This is the equivalent of going beyond asking how to develop a better lawnmower, to wondering how to develop grass that naturally grows half the length or half as fast so that we don’t need to cut it as much or at all. For clean energy, this has included investing in “electrofuels” – biofuels created by microorganisms and not plant material, like that used to make traditional biofuels. Electrofuels could be ten times more energy efficient than current biofuels at less cost because they do not rely on fertilizers or plant processing, and do not require large areas to grow crops. In this case, we are thinking outside the box and are making small, strategic investments to advance entirely unique and new breakthrough energy technologies.

These programs also work synergistically with the rest of the U.S. innovation ecosystem. To give one example, the DOE Office of Energy Efficiency and Renewable Energy (EERE) invests in, among many other areas, research to develop next-generation lithium-ion batteries rather than next-generation batteries, in general. To extend the lawnmower metaphor one more time, this situation is equivalent to developing a better ride-on lawnmower – we know it works, but in order for it to mow more land faster and at cheaper costs, it requires new blade research, innovative lightweight materials, and advanced fuels.

EERE works on a cohesive set of research issues that could impact energy technology development and deployment in the coming years. For instance, basic science breakthroughs made at EFRCs inform potential research solutions at EERE and vice versa. Energy Innovation Hubs are leveraging research conducted through EERE to reach its technological milestones – in fact, EERE hosts a Hub on Critical Materials.

And for EERE and ARPA-E, the synergy is advancing. The Administration and the DOE have proposed creating technology incubators to invest in “off-pathway” energy technologies not currently pursued inside EERE. For example, if an ARPA-E grantee succeeds in piloting its breakthrough technology, but requires additional research to demonstrate the technology at scale (e.g. take a successfully new battery chemistry and demonstrate it in a working car), an EERE incubator could serve as a potential mechanism for moving it forward. This would be in addition ARPA-E projects potentially gaining follow-on support from large strategic companies, venture capital, and other private investors. Incubators would ensure that breakthrough ideas piloted by ARPA-E investments (or developed by academia or the Labs), could gain research support through the early demonstration stage.

Metaphors like these are a reminder that energy innovation is a non-linear process with many points of contact, public-private partnerships, development goals, and investment pathways. It all works together and there is no single point of investment that spurs breakthrough technologies, energy or otherwise. In fact, an efficient, well-oiled energy innovation ecosystem includes and requires federal support across numerous development and technology pathways, which also support each other. While the U.S. energy innovation ecosystem is grossly underfunded, special policy care is also necessary to ensure that its structure is well connected.

Originally posted on Energy Trends Insider.

One area of specific concern is the potential $381 million in cuts to energy innovation investments at the DOD – a 25 percent cut compared to FY2012 levels. Since 2009, DOD has invested $5 billion in clean energy research, development, testing, demonstration, and procurement, representing almost 25 percent of U.S. clean energy funding in FY2012. DOD’s focus on clean energy innovation is important for three reasons:

• The DOD has been the source of some of the last century’s most important breakthrough technologies, including the Internet, GPS, and microchips and it could have a similar impact on clean energy technologies like batteries and smart grid;
• The DOD has developed its own cohesive innovation ecosystem that bridges its investments in research to its procurement budget and actual use of new technologies in the battlefield, which allows for accelerated pathways for technology development;
• The DOD budget is typically not politically controversial in comparison to other sources of energy innovation investment like the Department of Energy, assuring consistent funding over time rather than periods of boom and bust.

During the past five years DOD has quickly ramped up its energy innovation investments to address strategic challenges impacting warfighters, such as protecting liquid fuel supply lines and addressing the geopolitical consequences of climate change. But budget sequestration threatens to slow, or even halt, these efforts.

According to the Budget Control Act of 2011 – the legislative vehicle for the sequester – the DOD budget must be reduced by 9.4 percent beginning in FY2013 from its FY2011 budget and then remain at those levels with minimum increases through FY2021. The severity of sequestration indicates that most programs will feel at least some budget pain, but it’s unclear how each energy program or project will specifically be impacted until DOD leadership decide how to allocate the cuts. Even so, we can estimate how much investment in energy innovation will be reduced at DOD if cuts are made across-the-board.

ITIF’s Energy Innovation Tracker details each of DOD’s energy innovation projects in an easy to use database and provides a good baseline to estimate sequestration cuts. According to the Tracker, the DOD invested roughly $1.5 billion in energy innovation in FY2012, which I’ll use as a close proxy for this year’s budget because Congress simply passed an FY2013 Continuing Resolution rather than a new budget. I also group DOD’s energy innovation budget into two buckets: (1) research, development, testing, and demonstration; and (2) procurement.

Table 1 estimates cuts to energy research, development, testing, and demonstration programs. The second column represents DOD’s energy research budget baseline in FY2011 using Tracker data. The third column represents DOD’s energy budget in FY2012. Assuming the DOD cuts each of these tranches of research funding evenly, I estimate the 9.4 percent cut to each services research budget compared to the FY2011 baseline in the third column. The total estimated sequestration cut compared to DOD’s FY2012 budget is shown in the last column. Based off of these assumptions, sequestration cuts $195.7 million from DOD’s FY2012 energy research budgets, or roughly 19.6 percent.

Table 2 details the same estimation as Table 1, but for DOD’s energy procurement investments. Sequestration cuts $185.2 million from DOD energy procurement investment in FY2012, or a total cut of 38 percent. In total, I estimate that sequestration is cutting DOD energy innovation investments by $380.9 million, or 25.7 percent from its FY2012 budget of $1.5 billion.

What does this mean for DOD energy innovation? Immediately, sequestration is reducing the Army’s ability to develop and demonstrate new hybrid and all-electric vehicle technology for its Green Warrior Convoy, and the Navy’s ability to develop highly efficient power electronics systems in the pursuit of electrifying its ship fleet. It also may reduce DOD’s ability to procure next-generation biofuels for both the Air Force and the Navy, and advanced mobile electric grid systems for the Army. These innovations in power generation and use have the potential to spill over into commercial markets with DOD’s research, testing, and procurement support.

Of course, cuts to DOD’s energy innovation programs may be more or less severe depending on how the DOD prioritizes projects. These estimates don’t attempt to prioritize programs, rather give a sense of how an across-the-board sequestration would impact DOD energy innovation. Nonetheless, to make the numbers work, DOD will almost certainly have to scale back its energy innovation investments to the detriment of its long-term ability to meet its energy security goals.

And at least up until now, DOD has shown an interest in not cutting some of its energy innovation investments. For example, it recently announced a new round of procurement for next-generation biofuels as part of its effort to diversify its liquid fuel options. It’s also moving forward with its planned $7 billion Multiple Award Task Order Contract program through the Army Corp of Engineers. The DOD is contracting renewable energy companies to build and maintain renewable electricity generation projects and in exchange, DOD will sign a long-term power purchase agreement (PPA). DOD just signed agreements for geothermal-based electricity generation projects and will announce other renewable sources later this year.

Only time will tell whether the DOD decides to cut $381 million from its budget elsewhere or decide energy innovation must take a big hit. As ITIF has written before, decisions like these are being made across the federally funded innovation enterprise, as sequestration could potentially cut $12.5 billion from public research budgets. DOD’s ramp-up of investment in energy innovation in recent years shows the significant interest of the defense industry to accelerate the development of energy options for security and mission flexibility. Sequestration could slow – or even stop – these efforts.

Originally posted on Energy Trends Insider.

In a previous article I argued that climate policy advocates should make energy innovation part of their policy elevator pitch. A good opportunity to start is now available through the debate on reforming and re-authorizing the America COMPETES Act.

Within the climate advocacy community there are those that argue for aggressive clean energy innovation policy (such as myself) and those that argue for aggressive deployment of existing clean energy technologies (such as Center for American Progress’s Joe Romm and 350.org’s Bill McKibben). Each provides different policy emphasis and nuance. Today, deployment policies receive higher priority, reflected in it dominating the narrative among advocates as well as dominating the portfolio of U.S. public investments in clean energy. As a result, conflict occurs over what policy changes should be made.

As Grist’s Dave Roberts argues (correctly to a degree), both “camps” agree on a lot and everyone should aggressively work for clean energy to be a national priority to “lift all boats,”—both innovation and deployment of today’s technologies alike. How then should this consensus be reflected in our pitches to policymakers?

In my earlier piece I proposed what my two minute energy innovation pitch would look like, but many climate hawks like Bill McKibben (in the comment section here) asked how they could advocate for more specific energy innovation policies. Here’s how they can start: push for reform and re-authorization of the America COMPETES Act.

The America COMPETES Act is Important Climate and Innovation Policy

Don’t be fooled by the lack of “climate” in the policy title — COMPETES is just as important to addressing climate change as it is to its originally stated goal of strengthening U.S. international competitiveness. The legislation, originally enacted in 2007 and reauthorized in 2010, directly supports science and technology institutions that underpin U.S. innovation, particularly in clean energy.

This included calling for the doubling of budgets for key science programs by 2018 that directly impact clean energy, including the Department of Energy’s (DOE) Office of Science and the National Science Foundation (NSF). It also authorized increasing the budget of the National Institute of Standards and Technology (NIST), which supports energy innovation in electric grids, nanotechnology, material science, and manufacturing. Furthermore, COMPETES authorized the creation of DOE’s ARPA-E which invests in breakthrough clean energy technologies. Finally, COMPETES authorized a number of additional institutional reforms to enhance collaborative research, as well as a long list of educational reforms to  increase the number of individuals entering STEM disciplines, a vital component to a growing clean energy industry.

In other words, the COMPETES Act strengthens the very foundation that the emerging clean energy industry must rely on for present and future growth. Without aggressive support for these programs, the U.S. clean energy industry won’t have a strong and constant flow of new ideas and technologies to expand their markets and continuously cut costs. And without reforms to U.S. STEM education policies, emerging high-tech companies in clean energy may not have access to a large pool of qualified scientists and engineers, which will be particularly necessary if the United States continues to push for more competitive energy manufacturing industries.

Congress Must Reform and Reauthorize the America COMPETES Act

This is where climate hawks can play a role. The COMPETES Act must be reauthorized by the end of 2013 to continue support for many of the funding trends, programs, and reforms that are important to climate policy. It is also an opportunity to introduce or extend effective energy innovation programs that will directly impact clean energy. Climate advocates could lend aggressive support for doing both to help ensure that the foundation of U.S. clean energy innovation — and by definition our ability to address climate change — does not deteriorate after 2013.

ITIF recently released a new report that describes 25 policy recommendations Congress should implement as part of the COMPETES reauthorization. A number of these are expressly important to clean energy, so I’ll highlight three groups of proposals here.

First, the COMPETES reauthorization should put the United States back on a path to double funding for key science and technology programs (e.g. DOE Office of Science, NSF, and NIST) by 2018. If you extend the original baseline for doubling the budgets of these agencies from their 2008 starting point, each are about 23 percent below where they should be to meet their 2018 goal, assuming a straight-line increase. If we factor in sequestration, the short-fall is even worse. This is a good opportunity for hawks to support budget increases in key innovation programs that have received overwhelming bipartisan support in the past and are central to climate advocacy.

Second, the COMPETES reauthorization should add significant public support for U.S. advanced manufacturing. One way this could be done is by designating at least 20 U.S. “Manufacturing Universities” that would revamp their engineering programs to focus more on industry-relevant manufacturing engineering rather than just pure engineering science. Some of these manufacturing universities could be designated in states with growing renewable energy industries and could re-orient their engineering programs to focus on manufacturing issues related to next-generation solar cells, new wind turbine blades, new battery chemistries, and additional clean energy technologies.

Another way to support advanced clean energy manufacturing is to fully fund the National Network for Manufacturing Innovation (NNMI). As proposed by ITIF and supported by the Obama Administration, NNMI aims to create 15 industry-defined regional institutes that would bring together universities, companies, and researchers to develop, test, and implement cutting-edge capabilities and equipment. The Presidentannounced the first clean energy-related institute for power electronics manufacturing, which is central to deploying cheaper, more efficient smart grid technologies, electric vehicles, and renewable power. Climate hawks should aggressively support fully funding the initiative (a one-time investment of $1 billion to create the institutes).

In both cases, climate hawk support could accelerate the deployment of clean energy technologies as well as seed domestic firms with high-skilled engineering talent.

Third, the COMPETES reauthorization should reform the DOE’s National Laboratory system to accelerate the transfer of new clean energy technologies from Lab to market. This could include adding more weight for technology transfer in the DOE’s Lab Performance and Evaluation Measurement Plans (PEMP), the equivalent of the Labs’ report card from DOE. As it stands today, moving clean energy technologies to market is a significantly low priority for the Labs, and the PEMP is one of the reasons. Another is to allow the Labs to invest limited “overhead” funds in early-stage demonstration and other technology maturation activities to move research closer to the pilot and proof-of-concept stages, so that clean energy companies can more easily commercialize these technologies. In absence of additional research investment, projects targeted for these funds would just sit on the shelf rather than making U.S. clean energy companies more competitive.

Building climate advocacy support for foundational innovation policies like the America COMPETES Act just makes sense. It helps protect and expand the clean energy research base, enhances the deployment of clean energy technologies, and builds a robust manufacturing and engineering base that U.S. clean energy companies need. This surely fits Dave Roberts’s bill of a “lift all boats” approach to climate policy and it should be an easy rallying point for everyone.

Originally posted on Energy Trends Insider.

Photo: DOE visits to the Nordex USA wind manufacturing facility in Jonesboro, AK.

The incubator programs would be housed within each of the energy technology offices (except for geothermal) and leverage a small share of existing research budgets. The figure below provides the proposed budgets for the new incubators. (Note, the DOE is also continuing its existing solar incubator program.)

Each incubator is expressly aimed at emerging areas of research and technology development not “supported in any meaningful” way by existing DOE projects.

For example, the Vehicle Technologies Program wants to focus on advanced power electronics and electric motor ideas. The Advanced Manufacturing Program wants to invest in “revolutionary” technology pathways that cut energy-use in production, but also make U.S. manufacturers more competitive. And the Bioenergy Technologies Program wants to support novel thermochemical approaches to producing low-carbon fuels.

The goal is to invest small sums of public research dollars to help overcome barriers to moving a new idea from proof-of-concept to pre-commercial pilot scale. In practice, this means moving new ideas that have proven feasible through laboratory experiments and early small-scale technology mock-ups, but must also be tested at larger scale. If successful, these start-ups could rapidly commercialize and deploy.

Unfortunately, doing so is not as simple as taking a small laboratory experiment and making it bigger. Rather, creating pilot projects of novel technologies often requires new materials, chemical processes, and engineering designs that may not already exist and require significant research the start-ups may not have the unique technical capabilities or funding to do. The incubators can offer solutions to these barriers by collaborating with start-up researchers to use public research equipment and infrastructure at a National Lab, make use of Lab scientists and engineers, and invest in breakthrough research the private sector is unwilling to fund even though it’s required to prove commercial viability.

This model has already proven successful at DOE. In 2007, the DOE created a Solar Incubator Program to accelerate the transition of next-generation solar start-ups to commercial scale with small grants for 12 to 18 month long projects. Since then the program has invested $92 million in 54 projects (and recently announced $12 million in more funding), which helped advance a number of technologies to pilot-scale and spurred $1.7 billion in follow-on venture capital and private sector investment. And while the incubator awards grants, the start-ups are also required to share between 20 and 50 percent of project costs. The eight proposed incubators would be directly modeled after its solar brethren.

As with any high-risk investment, some of these incubator projects may commercially succeed and others may not. The Solar Incubator was no different. On the one hand, the incubator successfully assisted PrimeStar Solar in piloting their next-generation thin-film solar design, which ultimately led General Electric (GE) to purchase the company with plans to manufacture the solar panels. GE eventually scrapped those plans and decided to further develop the thin-film technology after unfairly subsidized Chinese solar panels flooded the market at below-cost prices. Similar market issues derailed incubator graduates Abound Solar and impacted thin-film producer SoloPower. On the other hand, incubator alumni 1366 Technologies is a leading solar manufacturing company, Alta Devices recently demonstrated the most efficient dual junction solar cell in the market, and concentrating solar company Solaflect Energy is moving toward commercial demonstration of its heliostat mirror technology.

In all cases, the projects significantly advanced solar innovation towards cheaper and better technologies by broadening the DOE’s investments beyond the research pathways it is already investing in, commercial success or not. This is a crucial point because with all public funding, not all potential projects can be invested in. Choices must be made because of limited federal dollars. That means only some high-risk research approaches can be focused on at any one time. For instance, ARPA-E receives thousands of high-quality research proposals in response to their funding announcements yet is only able to support a select few because it’s underfunded. The incubator programs would allow the DOE to invest in more high-risk projects without straining its research budgets during times of budget austerity to the benefit of U.S. energy innovation. And it also acts as a vital feedback loop into existing research programs by informing whether new research approaches should be invested in and how best each technology office can invest its portfolio to maximize innovation.

Of course, the energy incubators still won’t make up for the sobering fact that the United States continues to chronically underinvest in innovation. Nor do the incubators aim to. Ultimately, the United States must dramatically increase funding in energy innovation to make a low-carbon future possible. But it’s important to note that even in times of declining research budgets there are still ways to spur more energy innovation. The proposed energy innovation incubators are one of these ways.

Originally posted on Energy Trends Insider.

Photo: Assistant Secretary of EERE David Danielson introduces the Sunshot incubator program in 2012 at the Sunshot Grand Challenge Summit and Technology Forum.

As ITIF argues in Inducing Innovation: What a Carbon Price Can and Can’t Do, pricing carbon by itself does little to support clean energy and carbon reductions. It can be a useful tool for nudging near-competitive low-carbon technologies into the market and spurring modest carbon cuts, but it’s at best a complementary climate policy. That changes if we use a carbon tax as a revenue-raiser to support additional policies aimed at making clean energy cost and performance competitive with fossil fuels. In other words, tying a carbon tax to aggressive energy innovation policy can get us better climate mitigation “bang” for our climate policy “buck.” It’s why I proposed an “Innovation Carbon Price” that ties 20 percent of carbon tax revenue to public energy innovation investments and 80 percent to strengthening corporate tax incentives for training, research, and capital equipment investments.

Friedman most often takes a simpler – albeit misguided – view: a carbon tax is the panacea for U.S. climate policy. In March 2006 he argued that a high enough carbon tax (or fuel tax) that ensures gasoline never falls below $3.50 to $4 a gallon would “make a host of new technologies competitive.” His basic premise is that a carbon tax provides a long-term price signal strong enough to raise the price of fossil fuels, which sparks consumer demand and private sector investment in clean energy alternatives. Recent history tells us this isn’t correct. Gas prices in March 2005 averaged $2.35 per gallon. Today, they’re hovering right around the $3.50 to $4 range Friedman yearned for, or for argument’s sake, a back-of-the envelope de facto ~$115 carbon tax.

Yet, zero-carbon electric cars aren’t competitive, but smaller gasoline cars and hybrids are. The amount of CO₂ emitted for each unit of energy supplied is nearly the same as it was in 1990. In fact, U.S. carbon emissions have modestly fallen in part because of the recession, which cut energy demand, and because of increased use of slightly cleaner natural gas at the expense of coal. Higher energy prices are helping near-competitive technologies expand into the market, but spurring a full transformation of our energy system to mitigate climate change will take much more policy than price signals.

To be fair, Friedman often caveats his support for a carbon tax by mentioning what the United States should do with the revenue it would raise. In March 2005, he proposed using a carbon tax to pay down the deficit. In June 2010, he argued we should use carbon tax revenue to cut payroll and corporate taxes as part of a plan to heal the Administration’s strained relationship with the business community. The following month, he combined the two proposals into a grand energy policy bargain that he suggested Congress could make in the hours before cap-and-trade failed in the Senate. In September 2011 he wanted to use a carbon tax to “balance the budget” in an effort to get budget-hawks onboard. In January 2013, he doubled down on a carbon tax as the solution to reduce the deficit. In March he suggested 45 percent of carbon tax revenue should go to deficit reduction, 45 percent to tax cuts, and 10 percent to low-income households to offset higher energy prices.

For the most part, Friedman’s view is to use carbon tax revenue as a political bargaining chip. His neoclassical economic worldview dictates that the carbon tax price signal is most important. Everything else is expendable. The market will spur all the innovation we need.

But it’s on this point that Friedman has shown the potential for policy evolution. In June 2011, he inherently recognized the limits of price signals, arguing for a carbon tax to pay for “new infrastructure and stimulate clean-power innovation” and a gasoline tax to support a “massive increase in government supported scientific research.” And this month, Friedman upped his support for a more innovation-oriented carbon tax, calling for 50 percent of tax revenue to go towards corporate and income tax cuts, 25 percent into deficit reduction, and 25 percent into new investments in research, education, and infrastructure. Implementing a version of his plan would provide $20-25 billion per year in new funding for innovation – without a doubt a serious jolt to sagging federal support caused by sequestration and budget cuts.

While it’s a stretch to say that Friedman has thrown aside his faulty neoclassical proclivities on the role of price signals and energy innovation, his potential evolution is important nonetheless. Friedman has been one of the most vocal supporters of climate policy and innovation (while often not at the same time). Bringing both together to create a cohesive carbon tax proposal moves the needle towards the type of innovation-based climate policies America needs to be debating and ultimately implementing. It reframes U.S. climate advocates’ near-myopic focus on carbon pricing, mandates, and subsidies and expands the discussion on how we can use those tools to spur innovation. It’s certainly a step in the right direction.

Originally posted on Energy Trends Insider.

This past weekend, I participated in a day-long symposium at Villanova University aimed at discussing what kind of changes need to be made. The conference hook was brought on by Rutgers Law Professor Howard Latin who provided the keynote address based on a book he published late last year titled Climate Change Policy Failures that argues conventional climate policy approaches fought for during the last twenty years such as cap-and-trade, international negotiations, and emission regulations won’t successfully produce deep carbon reductions. Latin contends that these “incremental” policy approaches simply kick the emission reduction can down the road and offer little support for aggressive carbon cuts. It’s worth a read.

An interesting cross-section of economists, environmental lawyers, systems engineers, and policy analysts — including myself — were tasked with responding to Professor Latin’s keynote with their perspective on where do we go from here and how this is playing out in today’s policy debate?  I’m posting a summary of the policy portion of my remarks below as a means to not only keep the discussion going, but also to put into context some of the important policy debates ongoing in Congress.

__________________________________________________________

Overcoming the Iron Law of Climate Change Policy with Innovation
Looking to the future, for any climate policy to succeed one lesson is clear: As long as climate policy solutions impact economic well-being, there will be significant — and I argue nearly insurmountable — barriers to success. University of Colorado political scientist Roger Pielke Jr. calls this the Iron Law of Climate Change Policy and we should heed it. The more quickly we move away from myopically focusing on conventional approaches that don’t recognize this issue, the more likely we’ll address climate change.

Overcoming the Iron Law requires policies that develop and deploy low-carbon alternatives that are a cheaper and better choice for both policymakers and consumers. The most instructive example of this is cheap shale natural gas. For almost 30 years the federal government partnered with the gas industry to develop horizontal drilling installations, hydraulic fracturing, and the mapping technologies that make shale gas even possible. Targeted ‘non-conventional’ gas tax credits sustained development of emerging technologies when no market existed and the government charged a gas ratepayer surcharge to provide consistent funding for early research.

While I recognize that cheap natural gas is not a long-term climate solution, it’s still a good example of how to spur innovation in the energy sector.  The switch from coal to natural gas in the United States shows what happens when cheap, viable energy alternatives are made available. And according to a number of analyses, natural gas has done more to reduce annual U.S. carbon emissions during the past few years than renewables.

Implementing Clean Energy Innovation Policies
In fact, there are a number of important debates ongoing today in Washington that directly impact implementing a climate innovation strategy that shares similar characteristics to the natural gas story. I’ll point out three in particular.

Increase Support for Clean Energy R&D
First, public investments in energy innovation – like those that supported natural gas — are currently plagued by underfunded budgets. According to ITIF’s Energy Innovation Tracker – a public database of all federal investments in energy innovation — the Stimulus temporarily doubled energy research investments to $7 to $8 billion in 2009 and 2010. But this funding has already fallen to $5 billion today and Congress is debating additional cuts in addition to those implemented through sequestration. To put this level of investment in context, many leading organizations and thinkers propose that two to five times as much funding than today. The message here is that the public energy innovation budget is climate policy and it’s woefully underfunded for addressing global climate change.

Tie Innovation Funding to a Dedicated Revenue Source
Second, one way to provide more consistent funding for clean energy innovation is to tie public investments to dedicated revenue streams. For example, there are certainty merits to using a carbon tax as a revenue raiser. My colleagues at the Brookings Institution made a similar proposal last year. I proposed an innovation carbon tax after cap-and-trade failed in 2010. In fact, a modest carbon tax starting as low as $5 per ton of carbon dioxide could effectively fund energy innovation programs with modest budget increases.

But we shouldn’t put all of our eggs in the carbon tax basket. Implementing a carbon tax is nearly impossible in today’s political climate. If it were, the President would have proposed one in his budget this week for instance. Instead, if raising revenue is the goal, there are other opportunities to do so. For instance, Washington is debating using oil and gas drilling royalty revenues to fund a so-called “Energy Security Trust” which would conduct advanced transportation R&D. Though it’s meager in size and scope, it’s a test case for getting something larger passed through Congress.

Reforming Regulations and Incentives to Drive Innovation
Third, carbon regulations and technology incentives like those advocated for by many leading climate and environmental organizations are certainly helpful to driving technology adoption and in some cases even incremental innovation. But I believe we should again recognize the Iron Law here. Significantly regulating industries that don’t have an affordable, viable alternative may result in the same issues that a high carbon tax would create: higher costs to consumers and reduced economic growth. Similarly, relying on blunt technology incentives to deploy clean energy incurs significant costs to tax payers and isn’t a long-term policy option or an option that most developing countries can leverage to deeply cut carbon emissions.

Instead we should expand our regulatory and incentive structures to drive technological innovation. We shouldn’t be providing blunt-force regulatory tools that deploy for the sake of deployment; rather we should structure our policies to drive the development and deployment of better technologies. A good example of this was the short, but recent debate in Washington on how to reform the Production Tax Credit. Instead of giving subsidies to the same wind technologies year after year, the debate briefly focused on ways to advance better technologies and ramp down subsidy dependence over time.

In conclusion, addressing climate change requires reformulating our stale approaches of the past twenty years to drive innovation. Along these lines, a number of energy innovation policies are beginning to emerge in the debate. They need more attention and support. The climate won’t wait any longer.

Originally posted on Energy Trends Insider.

By Roger Pielke Jr, a Professor of Environmental Studies at the University of Colorado. Originally published at the Lowy Institute for International Policy Interpreter Blog

Last week, in a surprise to many, the European parliament defeated a proposal to postpone the auctioning of emissions permits, a move that would have propped up prices in the bloc’s carbon market, known as the EU Emissions Trading Scheme or ETS. The market reaction was quick and brutal, with the price of carbon allowances falling by more than 30%. The political reaction was similar — the Wall Street Journal wrote that the vote was the ‘equivalent of the pope renouncing celibacy‘.

Such proclamations are not limited to those opposed to action on climate. In London, a carbon industry insider explained that ‘We have reached the stage where the EU ETS has ceased to be an effective environmental policy.’ However, the fact that the ETS has fallen short of expectations has much more to do with unrealistic expectations than it does with a surprising decision by the European parliament. After all, the price of EU emissions allowances was €4.50 before the vote, hardly an indication of strength.

Tom Brookes, director of the European Climate Foundation, explained that the EU vote took on even greater significance because climate policy, ‘was an integral part of the brand’ of the European project.

As a brand, the commitment to climate policy has served Europe well, even as it has stepped back from a proposed tax on airline emissions and seen the recent expansion of new coal generation. However, when Europe has faced decisions that appear to place economic growth in opposition to climate policies, no one should be surprised that policy makers have chosen growth. As the Financial Times explains, ‘These days, it is accepted…that global warming has been consigned to a seat in the waiting room while the EU tends to a chronic economic crisis that has threatened the single currency and increased unemployment.’ Expressing a preference for economic growth simply means that Europeans have much in common with people all over the world, who have made similar choices in similar situations.

With expectations that Europe’s economic malaise is set to continue, and continuing concerns among European policy makers, industry and the public over high energy prices, it seems unlikely that the EU will soon revisit the parliament’s decision not to prop up the flailing carbon market in a way that dramatically increases carbon prices, much less the actual costs of energy. So while the ETS is not going away, advocates for action on climate are going to have to look elsewhere for progress.

From this perspective, perhaps the vote of the European parliament could serve as a wake-up call, much like the disastrous Copenhagen climate conference and the failed efforts to pass cap and trade legislation in the US. If climate policies are to succeed in decarbonising the global energy mix, they will have to be designed to work in concert with people’s hopes and dreams, which typically means economic growth in rich and poor countries alike.

Climate policy will be in focus in several elections later this year, including in Germany, which has embarked on an ambitious ‘energy transition’ away from fossil fuels and nuclear power, and Australia where the deeply unpopular Julia Gillard looks set to be replaced by Tony Abbott, who has promised to terminate the recently implemented carbon tax.

Just like Europe, Australia illustrates the perils of elevating branding over substance. Australia is due to join the European ETS in 2015, when the EU carbon price is expected to be in the neighborhood of A$4. This means the price of carbon in Australia would plummet from its current peg at A$23; that’s a price drop of A$19 for which Julia Gillard will be responsible. Tony Abbott, meanwhile, plans to terminate the Australian emissions trading scheme altogether, so he would be responsible the remaining A$4. From my perspective, far removed, it looks like opposing political parties in Australia are working together!

The reality of emissions reductions is that the decarbonisation of the global economy will occur when less carbon-intensive energy alternatives displace dirtier sources. In the US, a revolution in technologies for natural gas extraction has led to an unexpected increase in rates of decarbonisation and significant reductions in emissions, while underpinning economic growth and cheaper energy costs. However, broader expansion of gas technologies faces opposition, as does nuclear power which holds even greater promise for large quantities of carbon free energy, often from those same lobbies pressing for action on climate change.

Decisions about energy technologies matter a great deal: the IEA observed in a report released last week that the carbon intensity of global energy generation has not changed in 20 years, despite the rapid increase in solar and wind technologies.  The lesson here is that markets don’t change carbon intensities, technology does. So long as debates over climate policies focus on trying to reify esoteric carbon markets and their associated politics, it is highly unlikely that the future will see policy outcomes any different than those observed to date.

Europe’s latest setback should nevertheless remind us that people remain generally willing to pay some price for attaining climate policy goals via a price on carbon, a lesson reinforced in Australia, New Zealand, California, my home town of Boulder and perhaps soon in China. We also know that accelerating decarbonisation of the economy requires a substantial commitment to energy innovation. Perhaps we are getting closer to the moment when advocates for action on climate put these points together in the form of a sustainable approach to climate policy.

Photo by Flickr user dmytrok.

Across the board, the FY2014 request boosts key energy innovation offices at DOE by about 15 percent compared to the FY2013 Continuing Resolution and seven percent higher than the President’s FY2013 request. The lion’s share of budget gains are aimed at the Office of Energy Efficiency and Renewable Energy (EERE), which would see a budget increase of 54 percent from FY2013 CR levels, and at the Advanced Research Projects Agency-Energy (ARPA-E),  which would see a budget increase of 46 percent.

Expanding Research Capabilities in Advanced Energy Manufacturing

The largest budget increase target at EERE – 22 percent to be exact – is for the department’s Advanced Manufacturing Office, which invests in transformational research and development of integral clean energy manufacturing technologies and practices. This investment would support and complement EERE’s recently announced Clean Energy Manufacturing Initiative, which aims to aggressively increase the international competitiveness of emerging energy manufacturing. The program is designed to begin reversing a decade’s long decline in U.S. manufacturing – immediate goals include transferring new research, technologies, and industrial education and training to industry through a new research institute under the banner of the President’s National Network of Manufacturing Innovation as well as EERE’s Better Plants Challenge.

Continued Focus on Getting U.S. Transportation Off of Oil

The President’s request also emphasizes the administration’s goal of cutting oil imports in half by 2020. To this end, the budget increases funding for EERE’s Vehicle Technologies Program by 69 percent from FY2013 CR levels, and also specifies that the additional funding requested for ARPA-E would be directed, in part, at developing projects associated with new transportation technologies that will enable the U.S. transportation system to be less reliant on conventional fuels. The budget increase also accentuates the now one year old EV Everywhere Grand Challenge initiative, which coordinates cross-cutting research important to vehicle technology and batteries among DOE office stovepipes and sets performance and cost goalposts for research.

Expanding Basic Energy Science Capabilities

The President’s proposal also pegs the Office of Science for a sizable budget increase, largely to increase research capabilities within the Basic Energy Science Office (BES). The BES invests in fundamental research to understand and control matter and energy, such as studying next-generation materials that can store energy. The budget proposal looks to continue and expand the vital Energy Frontier Research Centers that are working to solve the most perplexing, but potential disruptive research problems in energy today. The increase would also go towards ongoing construction of upgraded Synchotron Light Source II and Advanced Photon Source facilities that will offer world-leading laboratory environments for scientists across numerous disciplines studying anything from crystallography and genetics to drug research and semiconductor analysis.

Budget Proposal Still Miles Away from Fully Funding Energy Innovation

ITIF’s recent report Breaking Down the Federal Clean Energy Budget show that the U.S. clean energy innovation ecosystem is not receiving the amount of support from the federal government it needs to develop, demonstrate, and manufacture clean energy technologies. While the President’s budget does offer significant increases to some programs and boosts R&D overall, it is still far below experts’ average estimates of necessary funding, which are closer to $15 to $20 billion per year.

Correspondingly, the proposal continues to skew the energy innovation budget towards the deployment of existing energy technologies through tax breaks and incentives. While government support for early deployment is important and has been critical, most recently, for the successful emergence of cheap shale natural gas, many current renewable energy deployment policies offer little support for emerging technologies. As a result, the energy innovation budget is divided into two pieces, with only weak linkages between technologies working through the development process that will be competitive in the long-term, and uncompetitive, existing technologies supported by subsidies.

Although the energy innovation budget would remain underfunded compared to other national missions like defense and health R&D even if this budget were passed as it, the President deserves to be lauded for proposing modestly larger energy research budgets in this time of fiscal austerity. Policymakers must continue to recognize the importance of public support for energy innovation – and R&D funding throughout the federal government – as a means to rebuilding the post-recession American economy.

Originally posted on Energy Trends Insider.

ITIF applauds the President’s $1 billion request to create a series of manufacturing innovation institutes that will help propel advanced manufacturing and rejuvenate a sector of our economy that has been hit especially hard over the past decade. The National Network for Manufacturing Innovation will create 15 advanced manufacturing centers across the country that will spur research, development and deployment of next generation technologies, products and processes. As ITIF has shown, improving manufacturing innovation is central to enhancing American competitiveness and furthering economic development and business creation.

On energy innovation, the President’s budget request continues to push for greater public investment in the development of new clean energy technologies. The budget proposes boosting clean energy research to nearly $5 billion, a 15 percent increase compared to the FY2013 Continuing Resolution (CR) and 21 percent more than the CR with sequestration cuts. A significant portion of this increase, about $219 million, is tagged for expanding advanced energy manufacturing research, which ITIF analysts Clifton Yin and Matthew Stepp recently argued is an excellent first step on the path to a robust U.S. energy manufacturing sector and a boon to innovation as a whole. The proposal also seeks to increase ARPA-E’s budget by $100 million to increase investments in more high-risk, high-reward clean energy research.

In addition, President Obama calls for a nine percent increase in non-defense R&D over 2012 levels, and makes permanent tax incentives for research and development. These proposals will expand innovation capacity and spur private sector investment, which will ultimately increase overall innovation growth and development throughout the economy.

Another area the President’s budget addresses is our decaying infrastructure. His proposal calls for $50 billion in additional federal funding for infrastructure projects, as well as the creation of a National Infrastructure Bank and a new bond program to catalyze private sector investment. By expanding and updating our transportation, telecommunications and computing networks we can increase opportunities for innovation and create a better environment for high tech business development.

Despite these generally positive components there is work to be done on several fronts.

Overall investment in R&D will continue to be in jeopardy unless the sequester is reformed. ITIF’s research shows that the current sequestration cuts will reduce federal R&D investment by 7 percent annually and could lead to a $150 billion reduction in GDP by 2021. Obviously, the President is working under severe constraints, especially since Democrats and Republicans have both refused to consider significant cuts to entitlements. However, while the budget deficit and government spending are important issues, we urge Congress and the Administration to properly address the need for sustained government investment in innovation as they conduct negotiations.

The proposal also only represents a modest increase in funding for energy research, which falls well short of the $15 to $20 billion recommended by leading thinkers and organizations. It’s certainly important that the President is pointing energy research budgets in the right direction, but it’s a reminder on how much more public investment is needed.

Also, a midst a budget that otherwise enacts policies that bolster the competitiveness of key U.S. industries it’s disheartening that the proposal includes several provisions that would undermine U.S. trade competitiveness.

Specifically, the President’s proposal weakens intellectual property protections for biologic drugs and restricts certain pharmaceutical patent settlements. Beginning in 2014, brand biologic manufacturers would receive seven years of exclusivity, rather than 12 years under current law. While this is presented as a budget-saving measure, as ITIF has noted, reducing intellectual property protections for American innovators can have significant consequences for our economic future. Worse, if this standard were to subsequently be embodied in trade agreements the United States is currently negotiating, such as the Trans-Pacific Partnership, it will only further compromise the competitiveness and innovation potential of U.S. industry.

Overall, the President’s budget proposal does create a stronger innovation framework that can assist in improving economic development and overall societal health. However, we do call on Congress and the administration to specifically address the above mentioned areas of need as they proceed with negotiations.

Image courtesy of Flickr user Tax Credits