President Obama, Leader of the Clean Energy Innovation Movement?

From the innovation perspective, there was a lot to like in last night’s State of the Union. But particularly encouraging was his take on energy innovation. It wasn’t just part of a laundry list of priorities, and nor was it about curbing emissions alone, but rather it was a central component in achieving his goals for national competitiveness and growth. This is exactly the direction in which the energy debate needs to move, and at exactly the right time.

The significance of this rhetorical pivot shouldn’t be underestimated. The energy debate has for years been hitched to climate change, which for many advocates has meant treating dirty energy like a pollution problem. Even the President’s preferred policy vehicle – cap and trade — was derived from previous regulatory efforts to eliminate acid rain in the 1990s, a problem on a much smaller scale than that which we currently face.

Misguided from the start, this kind of thinking led to a limited vision for our energy future, and consigned Congress to focusing on controversial half-measures that wouldn’t have gotten at the real problem even if they’d succeeded. In reality, while climate change remains a motivator for action, the energy sector requires a far more transformative agenda: it’s not just about stopping emissions, but about fundamentally changing the way we as a nation harvest, generate, and use energy.

This means substantial investment in clean technology development: from basic and applied R&D, to demonstration support, to early market support via procurement and other such policies, and to policies that spur deployment while continually driving new technology performance. Encouragingly, the President’s speech broadly spoke to this need, signaling a key shift. Just as encouraging are the Administration’s bundle of specific proposals, issued concurrently with the speech last night. These include:

Doubling Funding for ARPA-E. The “little program that could” is critically important to driving early-stage, high-risk, high-reward research that could have enormous payoffs in commercial application. It has also been hanging by a thread in budget terms. Doubling funding will give a boost to translational research efforts and help the program grow towards the necessary scale.

Doubling the Number of Energy Innovation Hubs. The hubs are mission-oriented programs that leverage large teams with scientific or engineering expertise to solve technical challenges fundamental to resolving our energy challenge. The Department of Energy originally proposed eight, and to date has launched three: for building efficiency, nuclear energy, and solar power. As ITIF, the Breakthrough Institute, and Brookings have argued, authorization for additional hubs would help to accelerate the quest for key energy breakthroughs.

Reauthorizing the Advanced Energy Manufacturing Tax Credit (48C). The 48C program provided a critical boost to clean manufacturing and leveraged billions in private investment in 183 manufacturing facilities in 43 states. The Department of the Treasury was initially authorized to award $2.3 billion in tax credits, for which requests totaling over $8 billion were received. As ITIF has said in past testimony, boosting this program provides a much-needed shot in the arm to domestic manufacturing competitiveness.

The clean energy proposals don’t end there. The President also called for renewed collaborative public-private endeavors in advanced clean manufacturing and additional boosts to R&D programs at DOE, NIST, and NSF, in addition to the rollback of all fossil fuel subsidies and an aggressive clean energy standard referenced in his speech.

By moving away from the false rhetoric of the past to focus correctly on energy innovation the President is signaling a major shift in the debate and one he appears set to lead. And if others will follow, it will mean a forward-looking discussion about U.S. leadership in a growing economic sector, and about ensuring competitiveness, jobs, and prosperity in the years ahead.

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  • James A. Lewis

    People say that government shouldn’t pick winners when it comes to investment or technology. This means is that markets generally do better at making investment decisions. We could say that markets sometimes fail to invest sufficiently in public goods, so government needs to intervene. Or you could say that markets have been distorted by government policies so that they make the wrong decisions (housing bubble, anyone?). We might agree that the market price of energy does not fully reflect externalities, but correcting this does not automatically correlate iwth growth. In this case, the government has picked a winner – clean technology – that is appealing on normative grounds. The case still needs to be made that it is a good economic decision and will produce growth and jobs It could be ethanol for a new century – something that doesn’t make economic sense, so we subsidize it. The President even recognized there isn’t demand for these products – this is telling. The trend to substitute normative goals in economic policy at the expense of growth is one of the reasons the US is in such bad shape. Eventually we may have the scientific know-how to build clean energy products that are comeptitive, and this suggest that more investment in research would be fruitful, but we arent’ there yet. The interplay between governemt decsion and market is complex – MITI had an investment strategy for Japan in the 70s and 980s, for example, but it was a strategy based on market signals (e.g. demand, prices) from the US. China has used similar practice – centralized economic decsions based on external market signals. If a government identifies a market oportunity and accelerates investment, it can improve growth. If the signals for unmet demand aren’t there however, it’s probably just misspent money.

  • Matt Hourihan

    Well, people say government shouldn’t pick winners, but people say lots of things. The fact is, the government does “pick winners,” but perhaps not in the same sense as you mean. Government isn’t and shouldn’t be in the business of picking “champions,” but it can and should (and indeed, DOES) select an array of strategic industries in which international competitiveness is important, and makes “strategic bets” in investment.This includes, yes, clean energy, but also health, broadband, biotech, nanotech, and others. In fact there’s a solid track record of government facilitating technological development in several of these industries, which creates growth. We’re communicating through two of them now: computing and the Internet. You’ve also got aviation, agriculture, and many of the energy sources we take for granted (fossil and otherwise). The Science Coalition put out a report last April, “Sparking Economic Growth,” that lists over 100 firms that got their start with federally funded research. These include, among others, Google, Cisco, Genentech, SunPower…Markets regularly underinvest in activities like R&D that lead to new products. The trick then is for government to create an innovative environment by investing in knowledge expansion, ensuring relevant taxes are structured properly, facilitating collaborative relationships with universities and firms, and supporting efforts to translate new technologies to the market where appropriate. Collaboration with firms is particularly important to ensure proper feedback from those most familiar with the market.For energy, our favorite of the President’s proposals (as noted in the post) are those that invest in innovation, seeking breakthroughs and cost reductions in emerging technology rather than just focusing on existing tech. This is smart policy, and very much on par with how it works in other fields as well.You also appear to underestimate the future potential in the cleantech sector. For one, take a look at some projections for energy demand growth for the next 50 years, and see where our current system stacks up. And let’s face it, thinking normative goals will ever be removed from economic policy is somewhat naïve.

  • Steve Norton

    By the way, in the process of making “strateguc bets,” the government does pick winners and losers in a way. Not all ideas pan out in this publicly funded R&D – some are “losers”. This is useful because it gets us closer to figuring out the “winners” that can commerciallzed.