Clean Energy Innovation Policy in Congress: The Smart Energy Act of 2012

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The next ten and half months hold little promise of Congress producing a coherent national clean energy strategy.  The same legislative gridlock over the federal budget that stalled debate on key issues last year looks to come back in force this year as well. But that doesn’t mean high-impact clean energy policy can’t be implemented.  Take for example, Congressman Charles Bass’s (R-NH) recently introduced Smart Energy Act – a bipartisan bill aimed at leveraging the federal government’s 445,000 buildings to act as a “first adopter” of innovative, new energy efficiency technologies.

For many new technologies, once it’s been conceived, developed, tested, piloted, and demonstrated one thing is usually standing in its way: a customer willing to take the initial risk of purchasing the first round of product.  In many industries, this “first adopter” issue is dampened by relatively low cost.  Millions took a chance on the first generation of Apple’s iPod because the risk – in this case cost to consumers – was modest.  Spending a few hundred dollars on a first generation iPod isn’t a personal budget altering decision for enough consumers that it creates a robust, initial market for the technology. Because there were enough first adopters, it allowed Apple to create subsequent generations, improve the technology, and lower costs over time.

But in the case of far more complex and capital intensive products like innovative clean energy technologies, the risk is significantly much greater. Utilities are largely unwilling to take a chance on a next-generation clean technology because of higher costs when given the choice between it and, say, building a natural gas-fired plant.  Building owners are largely unwilling to renovate their heating and cooling systems with advanced, super energy efficient alternatives because of significant costs. And implementing new demand-response technologies to provide consumers more control over energy consumption is often considered too costly to be considered.

The Smart Energy Act is a good first swing at mitigating this problem.  At its core, the bill aims to use new financing streams and the federal governments “footprint” to create initial markets for clean energy and energy efficiency technologies in partnership with industry.  It does so in three ways:

Expands Options for Energy Savings within the National Energy Conservation Policy Act (NECP). The NECP requires federal agencies to reduce energy consumption by 30 percent by 2015, followed by a new reduction schedule to-be-determined through 2025. The law lists a number of energy efficiency alternatives that agencies can use to meet these goals. The Smart Energy Act simply expands the options available to federal managers by including the purchase of innovative electric vehicles and the necessary charging infrastructure and demand-response programs.  This is in addition to implementing clean energy and energy efficiency technologies, which were already listed in NECP. Both additions are key, innovative technologies that could benefit from a large first adopter.

Expands the Use of Energy Savings Performance Contracts (ESPC).ESPC’s are an innovate financing tool for federal managers that allows agencies to purchase energy savings projects – be that clean technologies or energy efficiency – not with Congressional appropriations, but with the cost savings incurred through energy reductions up to 25 years after the project is completed.  The Smart Energy Act expands the technology and efficiency options that can be included in ESPC’s, providing agencies a key financing tool to purchase innovative new technologies.

Coordinates Federal R&D Programs with Industry. While falling short of creating a SunShot-like program within DOE (EfficiencyShot?), the Smart Energy Act requires the Secretary of Energy to establish collaborative R&D partnerships among the Advanced Manufacturing Office, EERE, EDER, and the Office of Science (so assumingly, ARPA-E). The goal is to leverage the full wealth of innovative R&D ongoing within DOE to accelerate the development and deployment of new technologies to U.S. industries.

The bill also offers additional policy changes to drive energy savings, such as data center consolidation, creation of a strategy to meter energy consumption at federal buildings, as well as the creation of a loan guarantee program for building retrofits of energy efficiency technologies.

But at the end of the day, it’s the above three policy changes that would go a long way to accelerating clean energy and energy efficiency innovation.  It also is complimentary to the President’s recent announcement at the State of the Union to open up public lands for the development and demonstration of innovative new clean technologies as well as the Department of Defense’s procurement power to act as a first adopter for advanced battery, microgrid, and biofuel technologies to power their bases, vehicles, ships, and aircraft.

The federal government’s footprint and procurement investments are key “smart deployment” policies that can help truly innovative technologies make it to market and the Smart Energy Act is a great step in trying to unleash that potential.

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About the author

Matthew Stepp is a Senior Analyst with the Information Technology and Innovation Foundation (ITIF) specializing in climate change and clean energy policy. His research interests include clean energy technology development, climate science policy development, transportation policy, and the role innovation has in economic growth.