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Most of us are familiar with the basic economic principle of supply-and-demand. Economists tend to envision the intersection of the supply and demand of goods and services as the “equilibrium point,” where consumer need for a product meets the ability of producers to provide it. That point is what governs fundamental economic indicators and attributes, especially price and market quantity.

Recently, however, a new supply-versus-demand debate has begun to take shape in the minds of activists and policy-makers alike. Put simply, this new paradigm concerns the supply and demand of clean energy technology.

Conventional wisdom, as it has evolved among global warming activists, tells us that society already has the requisite technology supply to decarbonize the economy. Al Gore has said that “we have all the tools we need to solve three or four climate crises,” and influential climate blogger Joe Romm maintains that “we have all the technologies we need and just lack the political will.” This would suggest that the current supply of clean energy technological is sufficient, and that “political will” should come in the form of demand-side, deployment policies.

But this notion has been increasingly challenged. Energy Secretary Steven Chu, a Nobel laureate, has called for a “second industrial revolution” in clean energy technology, contradicting the perception that political will is the only missing factor on the path to a clean energy future. Chu’s message has become a siren call for many clean energy advocates, but it has not completely dulled the chorus of climate activists who still believe that the technology will materialize once we have fostered adequate demand.

Many of these climate activists have promoted a cap on carbon emissions as their policy-of-choice, ostensibly a mandate that energy companies considerably scale down the burning of carbon sources for energy in favor of cleaner alternatives like solar or nuclear power. However, most governments lack the political will to impose a serious, or “hard”, cap, ending up with a “soft” cap at best, one that allows energy companies to pass on the modestly higher cost of producing carbon energy onto consumers. The theoretical effect of this cap would be to shift consumer energy demand towards cleaner alternatives.

Climate activists point to a similar cap program on chlorofluorocarbons in the early 1990s. But the technological innovations that were required to fix the CFC problem were child’s play next to the mind-boggling challenges of redesigning and deploying entirely new systems for generating, converting, transporting, storing and using energy. In addition, a politically palatable carbon price, like one that would be established by a U.S. cap-and-trade program, would have the approximate effect of increasing the per-gallon price of gas by approximately 10-30 cents—hardly the economic impetus to create a new world.

Subsequently, advocates are now beginning to question the political feasibility of even a soft cap on carbon emissions, following the failure of such a policy to pass the U.S. Senate earlier this summer (the fourth such failure in a decade). A European carbon cap, now in its fifth year of operation, has yet to abate emissions to any considerable degree. Carbon trading schemes are also in the works regionally in the U.S, with the Western Climate Initiative and the Regional Greenhouse Gas Initiative, but these are a far cry from the once yearned-after global cap on carbon emissions. Effort after effort has revealed that nations are unwilling to increase the price of dirty energy, despite IEA projections of a 40% increase in global emissions by 2030. Thus, we see that the chief demand-side effort to reform consumer behavior has met with little success. What, then, is the best path to a clean energy future?

For a more effective and comprehensive solution to our energy problems, we must turn to “supply-side” policies with technological innovation at the forefront. Perhaps the primary obstacle between the status quo and a global clean energy economy is the price gap between clean and dirty energy technology, and a politically palatable price on carbon emissions will do little to bridge that divide. The workable solutions stem from making clean energy cheap, in unsubsidized terms, and available to consumers worldwide.

We can achieve these goals through various supply-side “technology push” policies, such as major public financing of energy RD&D; making the R&D tax credit permanent; and the creation of new public-private partnerships and institutions whose explicit goals are to develop clean technology. These measures must be significant and sustained, and they must complement demand-side industrial policy of which cap-and-trade may be only a small part.

Supply-side innovation policy can be traced to the origins of the Internet, the jet engine, biotechnology, the Manhattan and Apollo projects, and the personal computer. In these and other game-changing technologies, governments played a central role in the initial RD&D processes, to the point where the private sector was able to take full advantage of a technologically transformed economy. We cannot trust the creation of a brand new global energy infrastructure to demand-side policies alone, nor to the assumption that we have all the technologies we need. Partial solutions like cap-and-trade will keep failing until we effectively combine supply and demand approaches towards an innovative mission to build a clean, safe, and sustainable energy future.

By Teryn Norris

When future scholars document the history of global warming, one of the watershed years will almost surely be 2010. For over a decade, the primary goal of U.S. climate policy advocates has been to establish a strong carbon pollution cap and a binding global emissions treaty. Armed with large war chests and major electoral victories, climate advocates had one of the best opportunities to achieve these goals.

This agenda has collapsed. In the aftermath of the Copenhagen climate negotiations and recent developments in the Senate, it is clear that carbon caps in the U.S. and globally will not happen for the foreseeable future. Meanwhile, the IEA projects global CO2 emissions will skyrocket 40% above 2007 levels by 2030, and the EIA predicts China’s emissions will more than double over the next 25 years – which would make its emissions greater than the rest of the world combined.

What happens next? The upcoming lame-duck session in Congress could be one of the last opportunities for national reform before 2013. There are a number of incremental proposals worth pushing, from the American Clean Energy Leadership Act, to Senator Alexander and Senator Dorgan’s Electric Vehicle Deployment Act, to Senator Kerry’s latest Clean Energy Technology Leadership Act. Some still hope for a Hail Mary lame-duck pass on cap and trade, but when asked whether it could be revived, Senator Reid recently said, “It doesn’t appear so at this stage. It doesn’t have the traction that a lot of us wish it had.”

But none of these alternative proposals contain one of the most critical elements for reform: a dedicated revenue stream to fund major federal investment in clean energy research, development, demonstration, deployment, and manufacturing, as well as infrastructure and workforce development. The American Energy Innovation Council, including business titans like Bill Gates and John Doerr, has called for an increase of $11 billion per year in federal clean energy RD&D alone – an idea that could attract serious bipartisan support after mid-term elections. This proposal enjoys broad support from groups like Breakthrough Institute, Brookings Institution, Third Way, ITIF, and many others.

These investments are critical for ensuring the clean energy accomplishments of ARRA aren’t imperiled as public investment falls off a cliff. They’re also critical for establishing U.S. competitiveness and driving down the price of clean energy technologies through innovation. If the price gap between dirty and clean energy technology isn’t bridged quickly, the world has little chance of avoiding climate destabilization as countries like China and India develop at break-neck speed.

Cap and trade could have originally provided this revenue stream, but now that it’s off the table, we must find an alternative. Potential sources include reduced fossil fuel subsidies, offshore drilling royalties, an oil import fee, a small fee on fossil fuel electricity, or even a low carbon tax beginning at $5 per ton. Another source outside the energy sector could be a small fee on financial transactions. This idea has been proposed as a way to fund the $100 billion international climate assistance package, and could be applied domestically to reduce speculative trading and support a new growth industry.

Meanwhile, the possibility of achieving a binding global emissions treaty at the upcoming UN climate negotiations in Cancun is all but gone. The new chairwoman of the United Nations climate treaty body recently put it this way: “I do not believe we will ever have a final agreement on climate change, certainly not in my lifetime.” We must therefore put more emphasis on alternative forums like the Clean Energy Ministerial and Major Economies Forum on Energy & Climate. Instead of endlessly debating emissions targets and timetables, the world’s technology policy leaders can break the logjam by identifying specific technical hurdles, creating coordinated technology roadmaps, and mobilizing the resources for rapid implementation.

Beyond the immediate future, climate and clean energy advocates should take the opportunity to fundamentally rethink our strategy. Will we abandon the prospect of major federal reform, or develop a stronger approach for the next Congress? And will we continue focusing on carbon caps, or will we adopt a new approach focused on technological innovation to make clean energy cheaper? These are just some of the questions that will define the next agenda – and our energy and climate future.

–
Teryn Norris is president and founder of Americans for Energy Leadership.

Subsidies to fossil fuels—a mature, developed industry that has enjoyed government support for many years—totaled approximately $72 billion over the study period, representing a direct cost to taxpayers. Subsidies for renewable fuels, a relatively young and developing industry, totaled $29 billion over the same period… Most of the largest subsidies to fossil fuels were written into the U.S. Tax Code as permanent provisions. By comparison, many subsidies for renewables are time-limited initiatives implemented through energy bills, with expiration dates that limit their usefulness to the renewables industry.

The fact is we are long past the time when the nation’s burgeoning gas, coal, and oil industries needed government help. BP, for example, took in $14 billion in profit in 2009, which was actually down 45 percent from 2008. The oil industry is beyond a doubt the poster child for the inefficiency of fossil fuel subsidies. “I will tell you with $55 oil,” President George W. Bush, an oilman himself, said in 2005, “we don’t need incentives to the oil and gas companies to explore. There are plenty of incentives. What we need is to put a strategy in place that will help this country over time become less dependent.” Since then, U.S. oil prices hit a record $147.27 per barrel in July 2008 and settled at roughly $75 per barrel as of this writing. Of course, the billions of taxpayer dollars spent on oil subsidies over the years have had little effect, regardless of the price of oil: domestic production remains relatively unchanged since the 1950s, as can be seen here.

Pledges to reduce fossil fuel subsidies have been oft-repeated by world leaders – including President Obama – with the G20 committing to doing so at the 2009 Pittsburgh summit, only to reaffirm the commitment at the 2010 Toronto summit after little progress in the intervening year. But governments are finally putting their money where their mouths are. The European Commission, the ruling body of the European Union, recently voted to phase out coal subsidies:

On [July 20], in a preliminary victory for environmental groups and for green-minded regulators, the commission said that cash handouts for loss-making coal mines should end within four years — by Oct. 15, 2014 — rather than being allowed to continue for more than a decade as originally planned. The decision, if approved by the European Union’s 27 governments, would mainly affect mines in Germany, Spain and Romania.

Coal subsidies for German and Spanish mines this year were estimated at 2 billion euros and 1 billion euros, respectively. India, too, is following through on its promise:

The Indian government on [June 25, 2010] reduced popular fuel subsidies, a long-delayed change that will help policy makers reduce a big budget deficit…Policy makers said the government would stop subsidizing gasoline. Diesel, kerosene and natural gas would continue to receive support at a slightly lower level. India spent about $5.6 billion to subsidize fuel in the last fiscal year, which ended in March. State-owned energy companies added the equivalent of an additional $4.4 billion by selling fuel below its cost.

Here at home, President Obama deserves credit for previously proposing to end subsidies for oil and gas companies, as does Senator Bernie Sanders (I-VT), who introduced an amendment to repeal $35 billion in such subsidies and invest the savings in deficit reduction and an energy efficiency program. To be sure, the idea of ceasing fossil fuel subsides has been and always will be met with strident opposition from the recipients of taxpayer largesse – the initiatives of President Obama and Senator Sanders both petered out due to industry pressure. But with Europe and India now leading the way in ending the economic relics of the 20^th century that are fossil fuel subsidies, doing so must also continue to be part of the national debate in America.

Daniel Goldfarb contributed research.

Undersecretary of Energy Kristina Johnson is emphasizing the importance of women in energy fields

On Tuesday, U.S. Department of Energy Under Secretary Kristina M. Johnson announced a new initiative at the Clean Energy Ministerial to promote the participation of women in clean energy science and engineering fields called the “Clean Energy Education and Empowerment (C3-E) Initiative.”  The C-3E Initiative will encourage young women to pursue careers in STEM (Science, Technology, Engineering and Mathematics) fields by supporting workshops and speeches from clean energy leaders to inspire students, and officials in participating countries will lead outreach events and make scholarship funds available for women pursuing advanced degrees in clean energy.

Today, women make up only 20 percent of the professional energy workforce. Many capable and talented women are not joining the effort to promote clean energy technologies due to a variety of factors.  As Under Secretary Johnson stated:

“The clean energy revolution will progress farther and faster if it draws on the brightest minds everywhere. Every young woman who is discouraged from studying science and engineering represents potential innovation lost. The world will be better off — men and women alike — if those who have succeeded in these fields share their own stories, and inspire young women to follow in their footsteps.”

As early as the undergraduate level, top engineering schools suffer from chronic gender imbalances while women form 57 percent of the total US university enrollment.  Cultural factors pressure women out of the science career pipeline at every stage from pre-school to graduate school. Even as children, gendered toys and marketing push more boys and fewer girls towards science.  Once in college, women tend to be in more liberal arts fields such as literature and psychology instead of the STEM fields, especially the physical science and engineering fields. As a result, women make up nearly 77 percent of psychology majors and only 12.9 percent of electrical engineering majors and 21 percent of physics majors.  Johnson’s C-3E Initiative is an important step toward addressing this problem in an area of critical need.

In the world of technology innovation, 86 days is the blink of an eye.  Most companies are looking months or years down the road when they invest in research and development.  But when barrels of oil began pouring into the Gulf from BP’s Deepwater Horizon, the equation changed.  Suddenly, research and development wasn’t optional, it was essential.

BP is the perfect model of what the United States should not do. The American citizen has paid the price for fossil fuel dependence for decades now and we can’t wait for another disaster to strike the US.  Eighty-six days is almost nothing when you talk about technology innovation, but when you are trying to plug an oil spill, rescue workers from a collapsed coal mine, or end an OPEC embargo, 86 days is an eternity.  We need to jump-start the clean energy R&D process now.  We need to invest like we mean it.

It must be the goal of the United States to invest in a broad range of clean energy technologies.  This is necessary not only to replace aging fossil fuel plants and the inefficient vehicle fleet, but also to allow American companies to export clean technologies, systems, and products overseas to the growing international energy market.  In a few years, instead of importing Japanese hybrids, we could be exporting American plug-ins or fuel cell vehicles.

When threatened with safety and environmental regulations, the energy industry usually claims economic hardship, and that regulation will make them uncompetitive.  It is clear now that bad press and lawsuits will kill BP, not regulation.  We see this as a result because BP was unprepared for such a disaster and because it had failed to invest in drilling safety technologies used around the world.

And yet it only took 86 days for BP to design, construct, and put in place a cap that is, as of now, capturing all of the oil spilling from the Deepwater Horizon drill hole.  This serves as proof that despite the grumbling, all it took was the proper resources and the proper motivation to force a stubborn energy giant like BP into innovating the solution to the oil spill.

Today we’re facing a hidden but much more menacing problem. Our continued reliance on foreign oil drives up global oil prices and props up countries like Saudi Arabia, Iran, and Venezuela.  Their collusion with the Organization of the Petroleum Exporting Countries (OPEC) gives them enormous political and economic power over the United States, the 1973 oil embargo proved that, and since then our oil imports have tripled.  Meanwhile, the US energy industry is only investing 0.3% of revenues in R&D of new technologies.  Most industries invest ten times that percentage!

For years, our energy industry has been asleep at the wheel.  There has been no motivation and resources have not been well spent.  We need give our physicists, chemists, engineers, and biologists the resources that they need to develop and deploy clean energy innovations such as fuel cells, advanced nuclear, wind power, next generation batteries, energy-efficient products, carbon capture and storage, among many others.

Global energy demand is going to skyrocket in the coming decades, but the US is not prepared to compete in the global market or achieve energy independence in the world of tomorrow. Our reliance on fossil fuels not only gives strength to our enemies but it literally kills American citizens at home and overseas.  In 2007 alone there were 170 casualties in Iraq and Afghanistan from fuel convoy missions carrying diesel between bases.  Improving vehicle efficiency and developing self-sustainable technologies could help reduce the amount of convoys needed in war zones.  In the US, coal plants emit sulfur-dioxide, mercury, nitrous-oxide, and particulate emissions that cause asthma, pulmonary disease, birth defects, and cardiovascular diseases. Meanwhile, coal miners continue to pay the heaviest price.

While we still wait for the results of the oil cap pressure tests deep below the surface of the Gulf of Mexico we must ask ourselves: what if BP had taken 86 days 10 years ago and developed an effective cap back then?  If, instead of waiting for an explosion, BP had anticipated and preempted disaster.  This whole incident would’ve been over before it had hardly started.  Television crews in the Gulf would have packed up and left on day 5, not day 86, as we all hope they are able to do now.

That is why America needs to act now to rid ourselves of the economic dead-weight of Venezuela, Iran and Saudi Arabia.  By pursuing clean technologies we can introduce competition into a market dominated by energy giants. We can stabilize energy prices, promote public health, and we can break free of the reigns of OPEC.  We need to seize this opportunity and take our economic and energy future into our own hands.  Right now, America has the same mentality as BP: wait for the worst, then act.  If we give our researchers and universities the tools now, then we can prevent the worst and establish a powerful American industry in clean energy technology.

“Yingli Solar at the World Cup“ by Clifton Yin

“China did not participate in this year’s World Cup and has actually qualified for the tournament only once, in 2002. Nevertheless, 2010 saw a solar energy company – Yingli Green Energy Holding Company – become the first firm from that country to secure global marketing rights to the sporting event.”

“Leading the Clean Energy Industry Requires Public Investment” by Yan Zhu

“While carbon pricing has polarized the U.S. energy and climate policy debate, the governments of some Asian nations are investing heavily to develop clean technology manufacturing and form innovation clusters. As a result the United States lags far behind its economic competitors in clean technology manufacturing.”

“Understanding the Energy Innovation Lifecycle“ by Jeremy Cohn

“Understanding the process of energy innovation and investment is an important next step towards taking the necessary actions to ensure energy independence and security.  By recognizing the innovation gap between what is best for a firm versus what is best for all firms we can ensure that American-made products and technologies dominate the marketplace in the years to come.”

Third Way For Energy And Climate Bill

When President Obama and key Senate leaders meet today to reach a compromise on energy and climate legislation, they should strongly consider increasing federal investment in clean energy technology to at least $15 billion annually. This is a comprehensive third way strategy to improve U.S. energy independence, economic competitiveness, and climate security, and it deserves bipartisan support.

We are a Democrat and Republican. One of us campaigned for Barack Obama in 2008, the other as a delegate for John McCain. One of us worked on energy and climate policy for the progressive Breakthrough Institute, while the other worked on similar issues for the conservative American Enterprise Institute. We disagree on a wide range of issues, and we hold different economic philosophies.

Despite our differences, we are strongly united behind a serious federal agenda for clean energy innovation. Regardless of the future of cap and trade, robust federal investment in clean energy technology can effectively tackle both energy and climate policy reform. In addition to reducing our oil addiction, it can help build new export-oriented and manufacturing-intensive industries, seize global market share, drive down the price of clean energy technologies, and accelerate the transition to a cleaner, low-carbon economy.

When the United States aims to overcome a challenge — be it defeating fascism, leading the space race, or winning the Cold War — we make a national commitment and invest the necessary resources. The federal government invests $30 billion per year in health R&D through the National Institutes of Health, and $80 billion per year in military R&D. Energy currently receives $3 to $5 billion — less than our national expenditure on potato chips.

Unfortunately, current Senate proposals such as Kerry-Lieberman fall far too short by only investing $2-4 billion per year, and a utility-only cap would reserve even less. As Mark Muro of Brookings Institution writes in the National Journal, “The trouble with the new utility-only approach to emissions reductions, however, is that none of its proponents are saying anything that makes it seem likely that an adequate slice of the potential revenue the narrower system might generate will be reserved for technology innovation.”

After decades of energy stalemate, in the midst of yet another oil crisis, it is time to make a real national commitment to technology innovation and secure America’s energy leadership once and for all. A new target of at least $15-20 billion per year represents a national “energy innovation consensus” supported by a large and growing number of prominent U.S. business leaders, think tanks, university associations, and dozens of Nobel Laureates.

The American Energy Innovation Council (AEIC) is the latest group to support this approach. Led by business titans Bill Gates and Jeff Immelt, and backed by the Bipartisan Policy Center, the organization is calling for $16 billion annually in federal investment. “Underfunding RD&D is an exercise in gross fiscal irresponsibility,” they wrote. “The country sends $1 billion overseas every day to purchase oil, but publicly funded research in advanced vehicles and alternative fuels totals just $680 million annually – about 16 hours worth of oil imports.”

Federal investment in energy technology can also be a political winner for Congressional Democrats, Republicans, and the White House alike. Even before the Gulf oil spill, a poll by Pew Research in March found that 78% of the public favors increased government funding for research into clean energy technologies. When compared to alternatives such as carbon pricing, technology investment fairs as the most popular energy policy proposal.

For Democratic leaders, this strategy would allow them to meet general public demand for reform while still satisfying their environmental base with a major achievement on clean energy. It would allow Republicans to offer a serious, pro-business alternative to cap and trade and “drill baby drill” that would boost the economy. And it would allow the White House to declare victory on President Obama’s original campaign promise to invest $15 billion per year in this sector.

Of course, Republicans tend to shy away from any proposal to increase government spending, but clean energy is a strategic national resource with too much risk for the private sector to bear alone. Republicans should also remember the strong conservative precedent for these types of public investment. President Eisenhower oversaw the initial science R&D surge after Sputnik and the construction of interstate highways. President Reagan made enormous investments in military technology to maintain U.S. competitiveness.

More recently, it was Newt Gingrich who in 2008 called for the National Science Foundation’s budget to triple from $6 to 18 billion to foster green technologies. Last year, Senator Lamar Alexander (R-TN) introduced the Clean Energy Act of 2009, which would invest $750 million annually for ten years in clean energy RD&D and provide $100 billion in clean energy loan guarantees. And Senator Richard Lugar’s Practical Energy and Climate Plan of 2010 would similarly offer $36 billion in loans for nuclear power plants.

Without cap and trade, the government will need an alternative revenue stream. The AEIC proposes several possibilities, such as a wires fee on electricity, reduced fossil fuel subsidies, fees on offshore oil and natural gas production, an oil import fee, or increasing the gas tax. Regardless, their report notes, “The essential requirements, though, are that we make the basic investment, and that we commit these funds, steadily, over the long term.”

The moment is urgent. As this week’s Time Magazine cover story states, “Clean power could be to the 21st century what aeronautics and the computer were to the 20th, but the U.S. is already falling behind. China, South Korea and Japan are set to invest more than $500 billion combined in clean technology over the next five years, while the U.S. is likely to invest less than $200 billion, and that’s assuming [current] clean-energy legislation makes it into law.”

Federal investment in energy innovation is in line with America’s great tradition of technological achievement, and it can finally tackle our fossil fuel addition, accelerate the transition to energy independence, and boost our economic competitiveness, all in one bold step. This is a bipartisan strategy for energy leadership, and it deserves the support of Democrats, Republicans, and Independents alike.

–
Teryn Norris is Director of Americans for Energy Leadership and Senior Advisor at the Breakthrough Institute. Clifton Yin recently worked for the American Enterprise Institute and is a Policy Fellow at Americans for Energy Leadership.

By Teryn Norris
Published by Huffington Post

The biggest news from President Obama’s  Oval Office address is that cap and trade legislation is probably dead for the foreseeable future, and the administration is seeking new ideas.

Instead of using last night’s prime-time opportunity to push cap and trade in the form of the Kerry-Lieberman American Power Act — as many climate advocates saw as their last hope for “comprehensive” climate reform — President Obama pressed the reset button on energy and climate policy, saying he was “happy to look at other ideas and approaches from either party, as long they seriously tackle our addiction to fossil fuels.” He made no mention of setting a price on carbon or establishing an emissions cap and trade system.

As Andrew Revkin observed at New York Times Dot Earth, the president “signaled that he is leaving open a variety of paths on energy and climate policy and no longer hewing tightly to the idea of a cap and trade system for restricting heat-trapping emissions — which he never wavered from during his campaign.” David Roberts of Grist, one of the few remaining hopefuls for cap and trade reform, wrote “Final thought: Obama didn’t drive the carbon cap tonight, so there won’t be a carbon cap in the energy bill this year.”

Several key Democratic Senators have reached a similar conclusion. “I doubt very much whether those 60 votes exist right now,” said Senator Byron Dorgan (D-ND) yesterday on C-SPAN, referring to the 60 votes necessary for cap and trade in the Senate. “The climate bill isn’t going to stop the oil leak,” said Senator Dianne Feinstein (D-CA), asserting that “The first thing you have to do is stop the oil leak.” Echoing these sentiments, Senator Jay Rockefeller (D-WV) stated, “There’s not a great call for it in the Democratic caucus,” and Senator Ben Nelson (D-NE) called climate legislation “unrelated” to the Gulf spill.

If cap and trade is dead, then what’s next? The only serious alternative that could attract bipartisan support is a comprehensive national strategy for clean energy competitiveness and innovation — including substantial new federal investment in research, development, demonstration, deployment, and manufacturing — to accelerate America’s transition away from fossil fuels, build a strong and competitive clean energy industry, and rapidly drive down the price of low-carbon power and transportation technologies.  These investments could potentially be included as part of a comprehensive energy package, building upon the proposed American Clean Energy Leadership Act.

Cap and trade has long dominated the debate, but a large number of think tanks, business leaders, and academics are rallying behind such an “energy innovation consensus,” which places these federal investments at the front and center of the energy and climate agenda. President Obama cited these experts in his speech, noting that “Others wonder why the energy industry only spends a fraction of what the high-tech industry does on research and development -– and want to rapidly boost our investments in such research and development.”

The energy innovation consensus currently includes dozens of Nobel Laureates, Breakthrough Institute, Brookings Institution, National Commission on Energy Policy, Third Way, Association of American Universities, Clean Air Task Force, Information Technology & Innovation Foundation, Google, and Americans for Energy Leadership, among others. The latest group to join is the American Energy Innovation Council (AEIC), made up of several of the nation’s top business leaders: Bill Gates, Jeff Immelt, John Doerr, Chad Holliday, Norm Augustine, Ursula Burns, and Tim Solso. Last week, these leaders released a new report, “A Business Plan for America’s Energy Future,” calling for major new federal investment in clean energy technology RD&D — at least $16 billion annually, more than triple the current level (see our news roundup).

In fact, such an energy innovation strategy was originally at the center of the Obama administration’s energy and climate agenda. Throughout his campaign and the beginning of his presidency, Obama consistently promised he would increase federal investment in clean energy R&D by $15 billion per year. As one of the administrations “Guiding Principles” on energy and environment, the White House website still states that it will “Invest $150 billion over ten years in energy research and development to transition to a clean energy economy.”  Time Magazine’s Bryan Walsh wrote in response to the speech, “if Obama is really serious about changing some of the insane parts of our energy policy—like the fact that we spend less than $5 billion on energy R&D a year, a number that Bill Gates wants to triple—he could be truly revolutionary.”

Of course, cap and trade once offered an opportunity to fund an energy innovation agenda. However, as the Breakthrough Institute and Americans for Energy Leadership recently documented in our policy brief, “The Power to Compete,” the Kerry-Lieberman American Power Act does not contain a comprehensive innovation strategy and would only increase federal clean energy RD&D investment by as little as $2.2 billion per year. The Waxman-Markey American Clean Energy & Security Act contained similarly low support for innovation.  These proposals focused on capping carbon, not promoting clean energy technology innovation.

Without cap and trade, the federal government will need to identify an alternative revenue stream. The AEIC proposes other possibilities, such as a wires fee on electricity, reduced fossil fuel subsidies, fees on offshore oil and natural gas production, an oil import fee, or increasing the gas tax. Regardless of the revenue stream, the report notes, “The essential requirements, though, are that we make the basic investment, and that we commit these funds, steadily, over the long term.”

Some will argue that the country can’t afford these investments. But as the AEIC also states, “underfunding RD&D is an exercise in gross fiscal irresponsibility. The oil embargoes of the 1970s caused recessions that cost this nation more than a trillion dollars—yet we invest tiny sums in reducing petroleum dependence. The country sends $1 billion overseas every day to purchase oil, but publicly funded research in advanced vehicles and alternative fuels totals just $680 million annually — about 16 hours worth of oil imports… We will not save money by starving ourselves of future options.” Moreover, if the United States fails to make these investments today, the vast majority of future tax revenues, jobs, and exports associated with the growing clean energy industry will accrue to foreign nations like China, as we documented in “Rising Tigers, Sleeping Giant.”

Last night President Obama declared, “Now is the moment for this generation to embark on a national mission to unleash America’s innovation and seize control of our own destiny.”  Indeed, solving the nation and world’s energy problems is most centrally an innovation challenge, one that requires a bold new policy approach.  The president has signaled the need for a new agenda, and comprehensive energy innovation reform offers the best opportunity.

The Collapse of Competitiveness Policy

Last week, the flagship federal legislation for U.S. competitiveness containing broad support for science, technology, and advanced education – called the America COMPETES Reauthorization Act of 2010 – collapsed in Congress after it was blocked from passage through the House, despite already being significantly weakened.

Enter the age of American polarization, where bread-and-butter competitiveness and innovation policy is subject to hyper-partisan politics and obstructionism, even in the face of rapidly rising global competition. America COMPETES, which was originally passed with strong bipartisan support under President Bush, may be yet one more casualty of today’s extreme political polarization, which according to one major study is at the highest level in over a century.

But beyond the issue of partisanship, this is an alarming wake-up call to how anti-government sentiment and neoliberal economic ideology – which seeks to discredit the role of federal investment in promoting technology innovation and growth – could combine forces and seriously damage our national innovation system in the years ahead.

The United States was a driving force behind the global expansion of prosperity and security in the 20^th century, due in large part to our technological leadership. The collapse of America COMPETES is one of the clearest and most alarming examples in recent history of how this leadership is being threatened – not by some foreign entity, but from within our own country. How did we get to this point, and what lessons might this incident hold?

The Rise and Fall of COMPETES

The America COMPETES Act was originally passed in 2007 with major bipartisan support in response to the National Academy of Sciences report, Rising Above the Gathering Storm. It is widely recognized as the most authoritative assessment of U.S. competitiveness in the past decade, commissioned by Congress and developed by a committee of the country’s leading experts in science, technology, and business.

“Having reviewed trends in the United States and abroad, the committee is deeply concerned that the scientific and technical building blocks of our economic leadership are eroding at a time when many other nations are gathering strength,” they concluded. “This nation must prepare with great urgency to preserve its strategic and economic security.”

To meet this challenge, the COMPETES Act aimed to increase federal investment in science and technology research and development, as well as STEM education. It called for doubling the budgets of the National Science Foundation (NSF), Department of Energy Office of Science, and National Institute of Standards and Technology over seven years, and it authorized the Advanced Research Projects Agency for Energy (ARPA-E) and new STEM education programs across the board. The bill passed with unanimous consent in the Senate and overwhelming support in the House (367-57), and it was quickly signed into law by President Bush.

The original Act only provided a three-year authorization, so it requires renewal this year to meet its goals and expand federal support for energy innovation, including the Energy Innovation Hubs, Energy Frontier Research Centers, and RE-ENERGYSE education program. It passed with strong support through the House Science & Technology (S&T) Committee in late April (29-8 vote) and mounted endorsements from over 750 organizations, including the U.S. Chamber of Commerce and National Association of Manufacturers.

The bill was first brought to the House floor on May 12^th and was on track until Ranking House S&T Committee Member Ralph Hall (R-TX) introduced an amendment that linked a “motion to recommit” to an unrelated anti-pornography amendment, forcing many Democrats to join the minority in blocking the legislation. The bill was brought back on May 19^th, yet even after stripping its authorization level by nearly 50 percent and including the anti-pornography amendment, only 15 Republicans joined Democrats (261-148) and failed to reach the necessary two-thirds majority for passage.

Reflecting on the incident, the American Enterprise Institute’s Norman Ornstein wrote in last week’s Roll Call, “America COMPETES reauthorization was done in a bipartisan fashion and involves a bill with little division or controversy… Instead of encouraging a constructive relationship with the serious and fair-minded legislators on the Democratic side, they are adding to the traction of their take-no-prisoners counterparts. What a shame.”

The Power of Neoliberalism

On the surface, the collapse of COMPETES can be interpreted as a byproduct of today’s partisan environment. No doubt this provides a simple and convenient explanation, particularly for the Democratic leadership, and it helps to explain some of the difference between 2007 and today. But there are broader lessons here that can’t be ignored.

One good place to start is the statement of Republican policy on COMPETES, which claims it would create “excessive spending levels, numerous new and unnecessary or duplicative programs… our nation’s budget deficit has increased 50 percent in three years, these numbers are truly unsustainable… technology commercialization activities in the bill could divert money away from basic research and lead to inappropriate market intervention, resulting in the government picking ‘winners and losers.’”

The idea that public investment in developing new technologies and industries is fiscally irresponsible and inappropriate government intervention reflects a broader neoliberal paradigm. Grounded in neoclassical economics, it crystallized during the Reagan administration as a reaction against industrial policy and dominates much of economic policy to this day.

In its most basic form, neoliberal thought claims that the majority of federal intervention in the economy creates inefficiencies and should be minimized. Although more pronounced on the right, these beliefs hold strong sway over the left as well, from Robert Rubin Democrats who helped weaken financial regulation in the 1990s, to many of the country’s leading climate advocates who believe the role of government is to put a price on carbon, step back, and allow the market to solve the problem.

Describing public investment as a “clumsy way to develop technology,” the Environmental Defense Fund (EDF) states on its cap and trade webpage, “Some have suggested subsidizing clean energy producers and manufacturers to stop global warming. But this puts the government in charge of picking winners and losers – something it doesn’t do well… Government investment is important for basic research and development, but government is not nearly as good as the private sector at finding and developing technologies to bring to market.”

Indeed, the dominant cap and trade framework supported by today’s top green groups and Democratic leadership embodies many core neoliberal principles. Cap and trade is grounded in the assumption that climate policy should simply price carbon through tradable emission allowances, return the vast majority of cap and trade revenue to consumers instead of investing in the clean energy industry, and allow the free market to work its magic. For example, seeking to encourage Republicans to support cap and trade and unite behind the magic of markets, Paul Krugman recently wrote, “modern conservatives express a deep, almost mystical confidence in the effectiveness of market incentives… Why do they think the marketplace loses its magic as soon as market incentives are invoked in favor of conservation?”

With such skepticism of public investment in clean energy technology – even among the country’s leading environmental groups – it’s little wonder that the Waxman-Markey American Clean Energy & Security Act would invest so little of its cap and trade revenue in the clean energy industry (it was largely written by the U.S. Climate Action Partnership, of which EDF is a member). Waxman-Markey would only increase the federal energy research and development budget by one or two billion dollars per year, with weak incentives for low-carbon energy technology development and deployment.

“This is a dangerous omission,” concluded Nobel Laureate Burton Richter, who led a group of over 30 other Nobel Laureates in submitting a letter to President Obama last year to decry the lack of technology investment in Waxman-Markey. “This stable R&D spending is not a luxury,” they wrote. “It is in fact necessary because rapid scientific and technical progress is crucial to achieving these goals, and to making the cost affordable.” Unfortunately, most of these voices were lost amidst the political posturing, and in fact the new Kerry-Lieberman American Power Act would provide even less for technology.

The Role of Public Investment

Neoliberal ideology is quickly becoming a form of unilateral American disarmament in the face of growing international competition. The blockage of the COMPETES reauthorization comes when U.S. competitors are making swift advances and massive federal investment in technology development and deployment, unshackled by such politics and orthodoxy. The problems identified in Rising Above the Gathering Storm have gotten worse, not better, in part because many programs authorized in the original COMPETES Act were never funded.

The U.S. is falling behind in a number of strategic sectors and especially the clean energy industry, as we documented in “Rising Tigers, Sleeping Giant.” Along with established clean energy leaders in Europe, Asian nations are prepared to establish first-mover advantage over the U.S. through robust public investments in research and innovation, manufacturing, and deployment. To secure their advantage, the governments of China, Japan, and South Korea are expected to collectively out-invest the U.S. by a more than three to one margin over the five-year period from 2009-2013, if current and proposed policies are fully enacted.

Identifying this clean energy gap between the U.S. and Asia, a recent study by Deutsche Bank noted “generous and well-targeted incentives” in China and Japan, crediting the presence of a “comprehensive and integrated government plan, supported by strong incentives” as key reasons why they have established a low-risk environment for investors and successfully stimulated high levels of private investment in clean energy. According to Pew and New Energy Finance, this totaled $35 billion in China in 2009, nearly double the United States. In contrast, the investment firm noted, we are a “moderate-risk” country since we rely on “a more volatile market incentive approach and has suffered from a start-stop approach in some areas.”

Contrary to many claims, federal investment has in fact played a critical role in developing and deploying a range of game-changing technologies, as we documented in “Case Studies in American Innovation.” And mounting evidence suggests the federal government significantly under-invests in R&D. In an article for The Quarterly Journal of Economics titled “Measuring the Social Return to R&D,” two Stanford economists concluded that “the optimal share of resources to invest in research is conservatively estimated to be two to four times larger than the actual amount invested by the U.S. economy. The extent of underinvestment is substantial, and could well be much larger.”

Federal investment in technology is especially important for sectors like clean energy and health services, which are critical public goods. The National Institutes of Health is a major R&D priority for the federal government, receiving approximately $30 billion per year for biomedical research, and it is regarded as one of the world’s best research bodies. In 2000, a report from a Joint Economic Committee of Congress found a 25 to 40 percent total annual rate of return on NIH investment, and found that public funding was “instrumental” for 15 of the 21 drugs with the highest therapeutic impact on society introduced between 1965 and 1992.

Clearly, public investment in technology innovation is fundamentally different from other types of government spending. The Republican minority claims that American COMPETES has “truly unsustainable” spending levels, yet these investments would lead to new technologies, new industries, and new growth, and therefore greater federal tax revenue over the long-term. This kind of investment is not only a strategy for U.S. competitiveness and security, but also for long-term deficit reduction. Opposing it is fiscally irresponsible.

Building the Innovation Movement

The United States did not win the space race with a tax on cars. We did not invent the Internet by enforcing a cap and trade system on fax machines, nor did we create the personal computer by slapping a price on typewriters. These technologies and many others, from nuclear power to biotechnology, were largely developed by direct federal investment in technology, particularly through the Department of Defense. Those who suggest we can simply rely on indirect market mechanisms to compete in the 21^st century fail to understand the history of technology innovation and competitiveness, and they risk damaging our global leadership.

The neoliberal movement remains powerful on both the right and left. Whether the COMPETES incident is an outlier or trend remains to be seen, but efforts to dismantle the federal innovation system may only grow stronger as concerns about the national debt and entitlement spending rises in the years ahead. What we know is that unless the government improves and expands its investments in science, technology, and advanced education – unless we can reinforce our position as the global innovation nation – our problems across the board will only become worse.

Building the economic and political case for a strong national innovation system backed by major federal investment, and directly challenging the neoliberal orthodoxy that continues to limit effective innovation and industrial policy, must gain renewed attention and urgency. Rejecting a proposal like COMPETES in this manner should be anathema in the United States, and federal investment in science and technology innovation should hold the same privilege as the Department of Defense when it comes to budget priorities.

At the end of the Second World War, President Roosevelt wrote a letter requesting recommendations from Vannevar Bush, the first presidential science advisor and co-leader of the Manhattan Project, for the creation of a new federal enterprise for science and technology. “New frontiers of the mind are before us,” the president wrote, “and if they are pioneered with the same vision, boldness, and drive with which we have waged this war we can create a fuller and more fruitful employment and a fuller and more fruitful life.” Today, in the face of great national challenges, we must defend and strengthen the federal innovation system once more.

Teryn Norris is Director & Founder of Americans for Energy Leadership, Senior Advisor at the Breakthrough Institute, and Public Policy student at Stanford University.