Innovation Files has moved! For ITIF's quick takes, quips, and commentary on the latest in tech policy, go to

Archive for July, 2011

Drilling Revenues: A Funding Stream for Energy Innovation?


One of the major challenges in structuring a large-scale push to accelerate clean energy innovation is figuring out how to fund it in a time of austerity. The International Energy Agency estimates a global shortfall of tens of billions a year in public clean energy research, development and demonstration (RD&D). Domestically, several leading authorities in industry and government have persuasively argued that the federal clean energy innovation budget – now around $4 billion – needs to be tripled or more to have the best shot at producing the kinds of scalable clean technologies we need to displace fossil fuels. So big investment boosts are clearly needed – yet, as the House budget debate has made painfully clear, there’s little interest in even maintaining RD&D at its current meager levels, let alone increasing it. And carbon pricing, which would be a logical place to look for revenues, is also not in the cards this Congress.


In this austere environment, we thus need to be looking for alternative, dedicated revenue streams wherever we can find them – which brings us to drilling revenues. Just last week, Senator Murkowski proposed dedicating

Read the rest

What’s Holding Netflix Back?

Broadband usage fees and limits are back in the news again: the New York Times editorialized against them recently, and the Washington Post’s Cecilia Kang reported that “experts” have concerns about them.  We covered this issue in a previous post on AT&T’s usage limits back in March, but it’s worth revisiting the issue to examine the latest round of complaints.

Broadband usage caps or service tiers follow from the principle that the more of a resource you use, the more you pay. This principle applies to practically every commodity, service, or utility that we use and isn’t the least bit controversial in the abstract. Broadband has traditionally been a flat-rate, unmetered service in the United States, but not so in the rest of the world. This was possible because of infrastructure competition in the U. S. and also because patterns of broadband usage have been very uniform. As Internet applications become more diverse, the patterns are changing and usage-based pricing is a response. It makes no more sense for light consumers of bandwidth to subsidize heavy users than it would to make those who eat salad for lunch

Read the rest

Clean Energy Innovation Policy in Congress: The Battery Innovation Act of 2011

There’s no telling what the future of new U.S. clean energy policy holds.  Congress and the White House are stalled in legislative gridlock over the debt ceiling. And clean energy programs are taking a beating in 2012 budget negotiations.  But even so, some legislators are taking it upon themselves to offer cohesive clean energy innovation initiatives that are an excellent framework for future energy policy debates.  Case in point, Senator Debbie Stabenow (D – MI) proposed the Battery Innovation Act of 2011(BIA) – a comprehensive advanced electric vehicle battery initiative. 

As it stands, affordable, energy dense batteries that can travel long distances on a single charge are a key barrier to widespread electric vehicle adoption.  And as I’ve discussed in an earlier post, the current advanced battery technology strategy at DOE is more disparate than coordinated.  So BIA is a welcomed and excellent first step in addressing this weakness in U.S. energy policy.

BIA addresses the full range of advanced vehicle battery technology development.  The most significant standout in the proposal is its focus on addressing the numerous stages of technology development.  BIA supports battery innovation from basic

Read the rest

Climate Pragmatism: Innovation, Resilience and No Regrets

Cross posted from the Breakthrough Institute’s blog.

Climate Pragmatism, a new policy report released July 26th by the Hartwell group, details an innovative strategy to restart global climate efforts after the collapse of the United Nations Framework Convention on Climate Change (UNFCCC) process. This pragmatic strategy centers on efforts to accelerate energy innovation, build resilience to extreme weather, and pursue no regrets pollution reduction measures — three efforts that each have their own diverse justifications independent of their benefits for climate mitigation and adaptation. As such, Climate Pragmatism offers a framework for renewed American leadership on climate change that’s effectiveness, paradoxically, does not depend on any agreement about climate science or the risks posed by uncontrolled greenhouse gases. 


The new report brings the Hartwell framework into an American perspective, and it is authored by a broad group of 14 international scholars and analysts representing a diverse range of political and ideological positions — from the conservative American Enterprise Institute to moderate Democratic think tank Third Way and the liberal Breakthrough Institute.

Climate Pragmatism is the third paper released by the Hartwell group, an informal international network of

Read the rest

The Healing Power of Greed?

In an earlier post on “software factories”, I touched on the question of why America’s software engineers were not, by and large, working on projects that would enhance American software competitiveness:

…the finest software minds of the current generation are not interested in solving the American productivity problem, but are interested in profiting from what I elsewhere call flash-fads, huge blockbuster moneymakers that last for the comparative blink of an eye but, like the Pet Rocks of my youth, make lots of money.

This is probably rational behavior on the part of these software engineers.  Sacrificing current income to make the income of the nation greater over time is a bit like voluntarily helping to pay down the national debt by giving extra money to the Treasury: patriotic, maybe, but certainly not a mass choice.  (One of my partners told me this morning that some $81M had been contributed to the Treasury in this fashion, versus a national debt service obligation several orders of magnitude greater.)

But how does the rational behavior of individual software engineers feed the public good?  Our market orientation in the U.S. gives us

Read the rest

More on Tax Reform


In yesterday’s posting, I cited Rob Atkinson’s new report on tax reform.  In that report, he argues that there is no evidence of the claim that tax incentives automatically lead to unproductive over investments in the favored sectors.  For example, some investment tax credits may actually boost productivity because of an underlying under investment in certain productivity raising activities.  I am prepared to admit that some tax incentives lead to economic distortions.  For example, I’m not sure the mortgage tax deduction for second homes leading to greater vacation home production is the most productive use of capital.  But I do agree that there is knee-jerk assumption about differential treatment in the tax code. 

Atkinson points to a recent report by the President’s Economic Recovery Advisory Board (PERAB), Report on Tax Reform Options.  That report asserts “Because certain assets and investments are tax favored, tax considerations drive overinvestment in those assets at the expense of more economically productive investments.”

I ran into an example of this thinking specifically with respect to intangibles in the previous Administration’s Treasury Department’s 2007 report on

Read the rest

Tax fairness or a new unfairness

Here is an interesting idea from my friend Rob Atkinson at ITIF: a one-size-fits-all tax code is not one-size-fit-all.  In a new report, (U.S. Corporate Tax Reform: Groupthink or Rational Debate?), he points out that the push for tax simplification will actually harm economic competitiveness.

The current thinking in Washington is that the tax code impedes economic competitiveness because of high tax rates.  In order to lower rates, the tax code should be “simplified”, i.e. eliminate many tax deductions and credits.  Increased revenues from tax simplification would offset revenues lost from lowering the corporate rate.

The other part of tax simplification is a call for fairness.  Many see these tax deductions and credits (aka loopholes) as breaks for special interests.  Others argue that they are expenditures in discipline, not subject to budgetary discipline.

Both of these arguments contain more than a grain of truth.  I have long argued that, contrary to popular perception, the United States has long had a (dis?)functioning industrial policy: the tax code.  It is a de-facto policy hidden from public (and most policymaker’s) sight.

The problem with the tax code is not that it

Read the rest

2012 Federal Budget: House Budget Aims to Gut Energy Innovation Investments

The following is cross-posted with the Breakthrough Institute and was authored by Research Analyst Sara Mansur. For additional coverage of the 2012 budget debate from ITIF, please see our recent posts on ARPA-E’s budget fate and the draft House Appropriations bill.

The 2012 Energy and Water Appropriations bill, passed on Friday by the House of Representatives, would cut federal energy innovation funding by 12 percent of the levels put in place by the FY11 Continuing Resolution, 37 percent below the White House’s FY12 Administration’s budget request. The bill would cut the Department of Energy (DOE)’s budget by $2.5 billion over FY2010 funding levels.

Overall, the House’s plan would cut about $644 million from the combined budgets of the five major DOE offices engaged in energy innovation activities (see Figure 1 and Table 1 below). However, these new cuts are relative to FY11 budget levels, already diminished by spending reductions included in a Continuing Resolution passed by Congress in April to fund the government through the end of the year. All told, the 2012 Appropriations bill would see funding levels for the five core DOE energy innovation agencies tumble $1.4

Read the rest

Disrupting the Disruptors

I’m not going to go into a long tutorial on Clay Christensen’s theory of disruptive technologies and disruptive innovations.  Wikipedia has a decent introduction which, above all, avoids the sin of calling jsut any new technology “disruptive”.

A true Christensenian disruptive technology is a technology inferior to the incumbent but “good enough” to suffice some corner of the market.  Gradually, the disruptive technologies bores from below and eventually the disruptee has to cede the whole market to the innovation.  Southwest Air disrupting the Uniteds and TWAs and Pan Ams of the world is a great example.

One big theme of discussions about disruptive technology is, in effect, “why the h**l did the market leader ‘allow’ themselves to be disrupted”?  Market leaders have it all: resources, customer traction, buzz.  Are they doomed to be disrupted?  Are there any that have fended off disruptive threats?  Is there a theory of “disrupting the disruptors”?

I don’t know if they are all disruptive, but one pattern of successful new product lines in established companies is what we might call the Stealthy Skunkworks.  An internal unit is set up to incubate the innovation, but

Read the rest

PCAST’s Report on Ensuring American Leadership in Advanced Manufacturing a Good Start, yet Misunderstands Industrial vs. Innovation Policy

Last month, the President’s Council of Advisors on Science and Technology (PCAST) submitted a Report to the President on Ensuring American Leadership in Advanced Manufacturing. In general, the report does a good job of explaining the true current state of U.S. manufacturing; articulating the implications of declining U.S. leadership in manufacturing on the country’s ability to produce high-paying jobs, to close our trade deficit, and to ensure U.S. national security; and identifying policy recommendations that can help spur a renaissance in advanced manufacturing in the United States. However, while the report got most things right, it didn’t get the distinction between industrial policy and innovation policy right.

Read the rest