Catalyzing American Ingenuity: the Role of Government in Energy Innovation
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Catalyzing ameriCan ingenuity: the role of government in energy innovation Korea France India China US Japan // American Energy Innovation Council // CAtAlyzIng AmErican IngEnuIty: thE rolE of govErnmEnt In EnErgy InnovAtIon 2 0.00 0.01 0.02 0.03 0.04 0.05 0.06 abcdefghijklmnopqrstuvwxyz1234567890 0.07 0.08 ABCDEFGHIJKLMNOPQRSTUVWXYZ percent Energy Sales as a Share of abcdefghijklmnopqrstuvwxyz1234567890 ABCDEFGHIJKLMNOPQRSTUVWXYZ R&D Spending abcdefghijklmnopqrstuvwxyz1234567890 ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyz1234567890 Korea France India China US Japan 0.00 ABCDEFGHIJKLMNOPQRSTUVWXYZ 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 percent as a Share of GDP R&D Spending // 3 Korea France India China US Japan // American Energy Innovation Council // CAtAlyzIng AmErican IngEnuIty: thE rolE of govErnmEnt In EnErgy InnovAtIon 4 0.00 0.01 0.02 0.03 About the AmericAn energy 0.04 innovAtion council 0.05 www.americanenergyinnovation.org 0.06 abcdefghijklmnopqrstuvwxyz1234567890 0.07 Who we are 0.08 american energy innovation Council (AEIC) members are norm Augustine, ABCDEFGHIJKLMNOPQRSTUVWXYZ percent former chairman and chief executive officer of lockheed martin; ursula burns, chairman and chief executive officer of Xerox; John Doerr, partner at Kleiner gy Sales Ener Perkins; bill gates, chairman and former chief executive officer of microsoft; charles o. holliday, chairman of Bank of america and former chairman and chief executive officer of DuPont; Jeff immelt, chairman and chief executive e of as a Shar officer of GE; and tim Solso, chairman and chief executive officer of Cummins abcdefghijklmnopqrstuvwxyz1234567890 inc. the AEIC is staffed and hosted by the Bipartisan Policy Center. ABCDEFGHIJKLMNOPQRSTUVWXYZ R&D Spending Our mission the mission of the american energy innovation Council is to foster strong economic growth, create jobs in new industries, and reestablish america’s energy abcdefghijklmnopqrstuvwxyz1234567890 technology leadership through robust, public investments in the development of ABCDEFGHIJKLMNOPQRSTUVWXYZ clean energy technologies. abcdefghijklmnopqrstuvwxyz1234567890 Korea France India China US Japan 0.00 ABCDEFGHIJKLMNOPQRSTUVWXYZ About the Bipartisan Policy Center 0.01 Founded in 2007 by former Senate majority leaders Howard Baker, tom Daschle, 0.02 Bob Dole and george mitchell, the Bipartisan Policy Center (BPC) is a non-profit organization that drives principled solutions through rigorous analysis, reasoned 0.03 negotiation, and respectful dialogue. With projects in multiple issue areas, BPC 0.04 combines politically-balanced policymaking with strong, proactive advocacy and 0.05 outreach. For more information, please visit our website: www.bipartisanpolicy.org. 0.06 0.07 0.08 percent as a Share of GDP R&D Spending About Us // 1 AcknowleDgementS the american energy innovation Council (aeiC) gratefully acknowledges the expert contributions and guidance provided by Ken Caldeira, David garman, David Keith and maxine Savitz. in addition, the aeiC would like to express its thanks to John alic, Jabe Blumenthal, larry Boggs, alix Burns, Scott elrod, Karen Fries, alex liftman, Brian mormino, John Pinette and Jonathan Plowe for their important contributions to this report. lastly, the aeiC would like to thank the BPC staff for their hard work surrounding this effort. Acknowledgements 2 // American Energy Innovation Council // CAtAlyzIng AmErican IngEnuIty: thE rolE of govErnmEnt In EnErgy InnovAtIon Table of contentS acknowledgements 1 Prelude 3 executive summary 4 Chapter one: Why does government need to play a role in supporting energy innovation? 8 Chapter two: How should the government play a constructive role in energy innovation? 14 Chapter three: How can the u.S. government pay for energy innovation in a new era of fiscal austerity? 26 Conclusion 34 endnotes 35 Contents // 3 PreluDe the ability to access vital energy services, produced in an environmentally responsible way and at a reasonable price, has a fundamental and direct impact on the economic health of the nation. the american energy innovation Council (aeiC) came together in 2010 around a shared conviction: america has a great deal to gain from smart, ambitious innovation investments in the energy sector. last summer, we released a report, A Business Plan for America’s Energy Future, which called for a more vigorous public commitment to energy technology development and presented actionable recommendations to unlock the ingenuity needed to reach these goals. numerous studies have since confirmed our findings and echoed our recommendations. One year later there have been some signs of progress, but our recommendations remain largely unfulfilled. Drawing on our own experiences leading large businesses in competitive industries, we understand that innovation-based programs are essential to maintaining america’s long-term competitiveness. this is true for businesses; it is also true for the country, especially for its energy interests. even in an era of constrained public resources, we strongly believe that government has a critical role to play in stimulating clean energy technology innovation. Building on our previous report, this update highlights the need for an active government role in energy innovation, recommends ways to improve the effectiveness of government innovation programs, and highlights options to pay for energy innovation investments. now is the time to make smart, aggressive investments to address America’s energy challenges. America has a great deal to gain from smart, Prelude ambitious innovation investments in the energy sector. Korea France India China US Japan Japan // American Energy Innovation Council // CAtAlyzIng AmErican IngEnuIty: thE rolE of govErnmEnt In EnErgy InnovAtIon 4 0.00 0.01 0.02 0.03 0.03 executive SummAry 0.04 0.04 innovation is the core of america’s economic strength and future 0.05 prosperity. new ideas and technological advances fundamentally 0.06 abcdefghijklmnopqrstuvwxyz1234567890 0.07 0.07 shape our quality of life. they are the key to fostering sustained 0.08 0.08 economic growth, creating jobs in new industries, and continuing ABCDEFGHIJKLMNOPQRSTUVWXYZ ABCDEFGHIJKLMNOPQRSTUVWXYZ percent percent america’s global leadership. Energy Sales Ener throughout the history of the united States, the federal government has as a Share of as a Shar played a central role in catalyzing and driving innovation and technology abcdefghijklmnopqrstuvwxyz1234567890 abcdefghijklmnopqrstuvwxyz1234567890 development in a variety of strategic areas — defense, health, ABCDEFGHIJKLMNOPQRSTUVWXYZ R&D Spending R&D Spending agriculture, and information technology, to name a few — and it has often done so with strong results. abcdefghijklmnopqrstuvwxyz1234567890 ABCDEFGHIJKLMNOPQRSTUVWXYZ ABCDEFGHIJKLMNOPQRSTUVWXYZ However, of all the sectors in the economy where innovation has a critical role to play, the energy sector stands out. ready access to abcdefghijklmnopqrstuvwxyz1234567890 Korea France India China US Japan Japan reliable, affordable forms of energy is not only vital for the functioning 0.00 ABCDEFGHIJKLMNOPQRSTUVWXYZ 0.01 0.01 of the larger economy, it is vital to people’s everyday lives. it also 0.02 0.02 significantly impacts the country’s national security, environmental 0.03 0.03 well-being and economic competitiveness. 0.04 0.05 0.06 0.07 0.08 percent as a Share of GDP R&D Spending R&D Spending Executive Summary // 5 unfortunately, the country has yet to embark on a clean society — even where a market for the desired technology energy innovation program commensurate with the scale of exists — because it is difficult for any individual firm to the national priorities that are at stake. in fact, rather than monetize all the benefits of these types of investments. improve the country’s energy innovation program and invest in • the energy sector in particular has suffered from under- strategic national interests, the current political environment investment in research, development and demonstration is creating strong pressure to pull back from such efforts. (rD&D), for three main reasons: increasingly, three principal arguments are being made – Energy is not valued in and of itself, but rather for the against an increased federal role in energy innovation: goods and services it provides. this means that product differentiation does not drive innovation in energy supply ~ Energy innovation should be the responsibility of the options in the same way that it would for other types of private sector. products and services. ~ If there is a role for government in energy innovation, our – Many energy technologies are capital-intensive and current federal government is not equipped to invest taxpayer long-lived, with the result that many require significant dollars wisely and in a way that is likely to yield real results. up-front cash with a slow return. Slow turnover of ~ Even if there is a government role and government capital assets combined with the need for large up-front programs are organized and empowered to achieve investments mean that the sector as a whole is subject success, there isn’t any money to fund these activities in to a high degree of inertia, a tendency to avoid risk, and this fiscal climate. domination by incumbent firms. – Energy markets are not perfectly competitive, due to based on history and on our own experiences leading regulatory uncertainty, market fragmentation, and innovative companies, we don’t subscribe to any of distortions introduced by past policies—all of which