“If the U.S. fails to invent new technologies and create new markets and new jobs that will drive the transformation and revitalization of the $5 trillion global energy industry, we will have lost an opportunity to lead in what is arguably the largest and most pervasive technology sector in the world,” they stated.

The seven-member group, called the American Energy Innovation Council (AEIC), also includes Jeffrey Immelt, CEO of General Electric; Norman Augustine, former CEO of Lockheed Martin and undersecretary of the U.S. Army; John Doerr, a leading venture capitalist; Ursula Burns, CEO of Xerox Corp.; and Tim Solso, CEO of Cummins Inc.  The group gained national recognition in 2010 in releasing its first report, A Business Plan for America’s Energy Future, which called for a three-fold increase in federal energy innovation budgets.

This week, the group released a new report called Catalyzing American Ingenuity: The Role of Government in Energy Innovation. In a rare move for high-profile business leaders, the report directly challenges the notion that government should cut investments in technology and calls energy innovation spending “a top national priority.”

“In these debates, some argue that government serves little essential role in innovation… Based on history and on our own experiences leading innovative companies, we disagree,” states the report. “In a time of austerity, the last thing one should do is under-fund R&D and high technology priorities… to do so is the equivalent of removing an engine from an overloaded aircraft in order to reduce its weight.”

The new report contains three chapters: (1) Why does government need to play a role in supporting energy innovation?; (2) How should the government play a constructive role in energy innovation?; and (3) How can the U.S. government pay for energy innovation in a new era of fiscal austerity?

The first chapter documents the successful role the government has played in promoting technology innovation and outlines several reasons why this role is necessary today in energy: “The federal government has played a central role in catalyzing and driving innovation and technology development throughout the history of the United States… All of these factors together create a clear and compelling justification for direct government support of energy innovation, particularly given the economic, national security, and environmental interests at stake.”

The second chapter offers recommendations for the federal government to support energy innovation, including overarching principles and specific policy reforms. The five policy recommendations are:

1. Develop and implement a comprehensive, government-wide Quadrennial Energy Review (QER) that seeks to align the capacities of the public and private sectors. The QER should pinpoint key market failures and technology chokepoints in order to better orient federal programs and resources.

2. Support “innovation hubs” that concentrate resources and knowledge and thereby accelerate the development of new technologies. We strongly support the direction of U.S. Department of Energy (DOE) Innovation Hubs, Bioenergy Research Centers and Energy Frontier Research Centers and believe they should receive full funding.

3. Support and expand the new Advance Research Projects Agency-Energy (ARPA-E). As we have noted previously, ARPA-E challenges and empowers innovators across a range of technology pathways. By nearly all accounts, it appears that ARPA-E is being managed as a highly efficient, risk-taking, results-oriented organization. At a minimum, ARPA-E should receive at least $300 million per year. Going forward, investments in ARPA-E should be prioritized and increased.

4. Make DOE work smarter along the ARPA-E model. DOE has a critical role to play but needs to evolve beyond its current program structure and culture to be maximally effective. We argue for “ARPA-izing” a larger portion of DOE and the national labs by expanding some of the new authorities, tools and processes that are embodied in ARPA-E to other parts of the agency.

5. Develop a first-of-a-kind technology commercialization engine along the lines of the proposed Clean Energy Development Administration (CEDA). Previously, we called for a new government-backed institution dedicated to overcoming financing hurdles for new advanced, commercial-scale energy technologies. We believe the CEDA legislation aligns with our original recommendation and would mobilize significant private-sector capital to bridge the transition from demonstration to commercialization.

Finally, the third chapter offers several constructive ideas for how the federal government can fund these investments: “In short, we see an urgent need for a new energy innovation funding regime that accounts for current budgetary realities, but still ensures that our nation makes targeted investments in its energy future… For too long, federal energy innovation investments have been plagued by unpredictable funding patterns. Uncertain annual appropriations, short-term tax credits, and one-time spending injections are all unsuited to creating the sustained, predictable funding stream needed to bolster the country’s innovation infrastructure.”  Potential dedicated revenue streams from within the energy sector include:

• Diverting a portion of royalties from domestic energy production: “With continued, and likely expanded, off-shore oil and gas exploration, shale gas production on federal lands, and enhanced oil recovery in the coming years, reorienting a portion of the current suite of domestic energy production fees – including royalty payments, lease sales, bonus bids and other charges – presents a real opportunity to raise new revenue for the federal government that could fund innovation in new energy technologies.”

• Reforming and redirecting energy industry subsidies: “subsidies to incumbent industries and mature technologies should be reduced or reformed. The market provides ample incentives for these players to deploy technology without public support… Going forward, a portion of revenues liberated by eliminating, reducing or reforming energy subsidies should be directed to clean energy innovation.”

• Collecting a charge on sales of electricity: “The term “wires charge” (also sometimes referred to as a “public goods charge”) refers to a small fee imposed on each kilowatt-hour of electricity delivered to consumers. It is a fairly common levy at the state level where it is typically used to promote energy efficiency, fund research and development, or pursue other public purposes… Substantial revenues could be raised to fund energy innovation programs with fairly modest consumer impacts.”

• Levying fees on other energy or pollution sources: “there are a number of ways to levy a small fee on various energy sources that could generate significant revenues to fund new technology development. A gas tax, oil import fees, energy export fees, and even perhaps a carbon dioxide (CO2) fee are all options that could be considered… Energy and emissions fees together have the potential to raise more than $80 billion per year.”

• Streamlining DOE: “Policymakers will need to explore ways to streamline, and perhaps even cut, DOE programs that are non-essential in order to free up funding for technology investments that have significant potential… policymakers should examine options to trim other high-dollar programs in order to fund the country’s energy innovation activities.”

If there is any group of high-level messengers who can credibly make the case for energy innovation investment in the current political and economic environment, this is it: America’s most renowned and successful private-sector leaders, job creators, and innovators.  In a largely bleak landscape for U.S. energy and innovation policy reform, the American Energy Innovation Council offers an important glimmer of hope and inspiration to continue fighting for sensible policy reform.  As they put it: “We know the federal government has a vital role to play in energy innovation… There are no excuses. As a country, it is time to put aside partisan differences and embark on a clear path to achieving our clean energy goals.  We call on Congress and the President to act.”

The report also quotes his book as saying, “Spending our energy dollars here for domestically produced energy while also funding research, development, and production of new sources of energy creates jobs, strengthens the dollar, and reduces our exposure to supply risks and volatility.”

More specifically, points #38 and #39 of Romney’s economic plan are “Concentrate alternative energy funding on basic research” and “Utilize long-term, apolitical funding mechanisms like ARPA-E for basic research,” respectively.  Of course, ARPA-E doesn’t simply engage in “basic research” only, but the plan’s general thrust toward increased focus on energy R&D and innovation is clear.  These points are summarized on pages 95 and 96 of the report:

RESEARCH AND DEVELOPMENT
Government has a role to play in innovation in the energy industry. History shows that the United States has moved forward in astonishing ways thanks to national investment in basic research and advanced technology. However, we should not be in the business of steering investment toward particular politically favored approaches. That is a recipe for both time and money wasted on projects that do not bring us dividends. The failure of windmills and solar plants to become economically viable or make a significant contribution to our energy supply is a prime example.

Focus on Basic Research
There is a place for government investment when time horizons are too long, risks too high, and rewards too uncertain to attract private capital. However, much of our existing energy R&D budget has been devoted to loan guarantees, cash grants, and tax incentives for projects that might have gone forward anyway. As president, Mitt Romney will redirect clean energy spending towards basic research. Government funding should be focused on research and development of new energy technologies and on initial demonstration projects that establish the feasibility of discoveries. This approach offers the best opportunity to promote innovation without distorting the market.

Design Long-Term Funding Sources Free from Politics
From the perspective of creating new jobs and strengthening our economy, the main line of policy should be directed toward technologies that will replace imported oil with domestically produced fuels or electric power. Mitt Romney believes the Defense Advanced Research Projects Agency (DARPA) model—ensuring longterm, non-political sources of funding for a wide variety of competing, early stage technologies—holds the most potential for achieving significant advances in the energy sector. Investment should be channeled through programs, such as “ARPA-E,” that seek to replicate DARPA’s success in energy-related fields.

“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 authors include scholars from Oxford University, London School of Economics, Pacific Northwest National Laboratory, Arizona State University, McGill University, University of Colorado at Boulder, Information Technology & Innovation Foundation, American Enterprise Institute, Breakthrough Institute, and Third Way.

Energy innovation policy is the first and foremost area the paper identifies for progress.  The authors note (emphasis added):

“Both incremental and radical innovations are therefore required across the full suite of low-carbon technology options. Without such innovation and improvement, the rapid pace and massive scale of low-carbon energy deployment required to meet global energy demand while averting potentially catastrophic climate risks will prove all but impossible to achieve. This central innovation challenge must be tackled directly and proactively.

Fortunately, with a diverse array of emerging technologies at hand, the energy sector holds huge potential for innovation, and the United States is well poised to drive this clean energy transformation. The United States has led the world in energy technology transformations in the past just as it has led in most other domains of technological innovation. Indeed, the US innovation system — its key institutions, as well as its human resources and vibrant private sector — are assets that can make America a global leader in developing the affordable,scalable, low-carbon energy sources needed to fuel the world.

…Put simply, we must make clean energy cheap. For emerging and immature energy technologies, deployment subsidies therefore need to better reward innovation and price improvements, not simply production of more of the same. At the same time, the nation must ramp up today’s paltry national commitment to energy innovation to the scale of a true national priority — from just $3-4 billion annually today, to reach $15 billion or more annually.

Furthermore, whatever the level of investment, policymakers must reform and strengthen the energy innovation system, including more productively focusing on commercial-oriented innovations; supporting more high-risk but high-reward research; effectively linking the various stages of the innovation process through better institutional arrangements; and fostering collaboration between public and private sector researchers, universities, technology companies, manufacturers and suppliers, and investors.”

Time Magazine’s Bryan Walsh reports (emphasis added):

“The challenge will be to develop low-carbon alternatives that can compete with fossil fuels on price. (Subsidies are limited — already, even ultra-green countries like Germany are cutting back aid for renewable power because of the rising price tag.) In some places and some conditions, renewables are already winning — for example, in rural areas of Cameroon, where I’m currently traveling, it’s often cheaper to support off the grid solar than run power lines to remote villages. But if alternatives are going to win they need to get a lot cheaper and a lot more efficient, and that’s going to require vast increases in the amount of basic R&D spent on energy. The American Energy Innovation Council — a heavyweight lobbying group that includes Bill Gates — has suggested that the U.S. should increase funding for energy research around $3 billion a year to at least $15 billion annually. Some of that money could come from a small price on carbon, just as the federal gasoline tax raises money for highway construction and maintenance.

…Most of the proposals put forth in the “Climate Pragmatism” paper aren’t new — which in some ways is their virtue. Nationally and internationally, climate politics are deadlocked, even as carbon emissions keep rising and the most of the U.S. sweats through a summer that feels like a trailer for global warming to come. What’s needed in this long hot season is an oblique approach to climate change, one that sidesteps the roadblocks by taking advantage of popular, no-regrets actions that are worth doing even if global warming wasn’t real. It’s not as simple or as elegant as one global deal — but it might actually work.“

The full paper deserves review here.  Climate Pragmatism is an important and welcome contribution to the debate and will surely spark much-needed rethinking among energy and climate policy advocates.

Department of Energy Announces Funding for Nationwide Student-Focused Clean Energy Business Competitions Competitions Will Encourage Entrepreneurship in Clean Energy Nationwide

Washington, D.C. – As part of the Obama Administration’s effort to support and empower the next generation of American clean energy entrepreneurs, U.S. Energy Secretary Steven Chu today announced $2 million in available funding for the National University Clean Energy Business Challenge. This nationwide initiative will create a network of regional student-focused clean energy business creation competitions whose winners will compete for a National Grand Prize at a completion held at the Department of Energy in Washington, D.C. in early summer 2012. The funding will support up to six regional competitions that will inspire, mentor, and train students from across the country to develop successful business plans to create a new generation of American clean energy companies. These regional competitions will take place before May 1, 2012. This national initiative will enable student participants to gain the skills required to build new businesses and transform promising innovative energy technologies from U.S. universities and national laboratories into innovative new energy products that will to solve our nation’s energy challenges, spur business creation, create American jobs, and boost American competitiveness.

“Fostering innovation at America’s universities and producing our nation’s next generation of clean energy entrepreneurs is vital to ensuring our nation’s competiveness in the clean energy economy of tomorrow,” said Secretary Chu. “This investment will train a new generation of scientific and technical leaders and support the Administration’s continued effort to ensure that America has the workforce we need to secure our energy future, create jobs here at home, and win the future.”

This funding opportunity announcement (FOA) will consider applications that propose annual U.S. university-based business creation competitions for student entrepreneurs with business ideas in energy efficiency and renewable energy. Student teams that participate in the competitions will work with experienced mentors from the energy industry and start up community, along with university and national lab-based researchers, to develop creative business plans for transforming ground-breaking energy technologies into high impact market solutions. The FOA has been posted to FedConnect and is available under the reference number “DE-FOA-0000570.” Applications are due on August 22, 2011. Selections are expected to be made before the end of September 2011.

This initiative, facilitated by the Department of Energy’s Office of Energy Efficiency and Renewable Energy (EERE), aims to increase the number and quality of start-up businesses created with university-based energy technologies and to promote a new generation of energy entrepreneurs. The Office of Energy Efficiency and Renewable Energy invests in clean energy technologies that strengthen the economy, protect the environment, and reduce dependence on foreign oil.

The report offers a plethora of data and analysis, and several commentators have already weighed in with various interpretations (see Bryan Walsh at TIME). But one of the key conclusions worth highlighting is that the driving force behind the U.S. “clean economy” over the last decade has been emerging energy technologies –- not in other “green” sectors related to buildings and home weatherization, energy-saving consumer products, or efficient appliances (as some advocates predicted). In other words, emerging energy technologies appear to have the greatest job and export growth potential, and this carries important implications for U.S. policy priorities — a conclusion recently echoed in Google’s energy innovation report.

Brookings defines the “clean economy” as a very broad range of goods and services that provide environmental benefit, including everything from electric vehicle technologies to organic foods and waste management (see list below). As it explains, the report is “the first study of the U.S. clean economy to provide timely information that is both comprehensive enough in its scope and detailed enough in its categorization to inform national, state, and regional leaders on the recent employment dynamics of the U.S. low-carbon and environmental goods and services super-sector…”

According to the data, the highest job growth and export intensity in the overall clean economy between 2003-2010 was primarily in emerging energy technologies. Out of the 39 measured sectors, the top eight with the greatest relative job growth were all energy-related: wave/ocean power, solar thermal, wind, carbon storage and management, solar PV, fuel cells, biofuels, and smart grid.   In terms of export intensity, seven of the top eight sectors were energy technologies: biofuels/biomass, electric vehicle technology, battery technology, wind, solar PV, and fuel cells. The most export-intensive “category” of sectors was renewable energy technologies, at $64,884 in exports per job, compared to only $20,129 for the aggregate clean economy.

(Click to view larger images)

The report highlights this growth trend in its second conclusion:

“The clean economy grew more slowly in aggregate than the national economy between 2003 and 2010, but newer “cleantech” segments produced explosive job gains… 78 percent of all job gains between 2003 and 2010 came from establishments born in 2003 or later… Along these lines, four of the five fastest-growing segments during this seven-year period were in renewable energy… Young, technology-heavy segments were also adding jobs at elevated rates each year over the period.”

The concluding section similarly notes (emphasis added):

“Already the aggregate clean economy employs more people than the fossil fuels and biotech industries. More importantly, a dozen or so “hot” segments – mostly dynamic renewable energy categories like wind energy, solar photovoltaic, and smart grid – doubled and tripled in size in the last decade, answering the hype that has surrounded them despite extremely difficult recent market and finance conditions.”

This rapid growth in clean-tech contrasts with building-related and other sectors (emphasis added):

“The slowest growing segments, by contrast… took place in older building- and building infrastructure-related segments… including, for example: water efficient products (e.g. plumbing and bathroom equipment); green chemical products (house paint); appliances; and energy-saving consumer products (office equipment, glass, home weatherization services). Hydropower and nuclear energy also experienced weak growth, with the former actually losing jobs.”

The implication is this: if the U.S. wants to prioritize job and export growth in the “clean economy,” it should put primary emphasis on new, technology-intensive, energy-related sectors. U.S. federal and state policies to advance the aggregate clean economy should focus especially on energy innovation – on the research, development, manufacture, demonstration, and commercialization of new energy technologies, as well as supporting infrastructure and advanced human capital. Indeed, on the latter item, the report also finds that “the clean economy employs a higher percentage of scientists, architects, and engineers (10.1 percent) than the national economy (5.4 percent),” which points to need for a national energy science and engineering education program, such as RE-ENERGYSE.

The report offers three overarching policy recommendations to advance the clean economy – categorized as market creation (i.e. support for deployment), finance, and innovation – which are largely consistent with this assessment. In terms of innovation policy, the report drives home the existing consensus on the need to increase federal energy RD&D from its current level of only $3-5 billion up to $15-25 billion annually. In the near-term, it suggests incremental growth in DOE’s new energy R&D program budgets – the Energy Frontier Research Centers, ARPA-E, and the Energy Innovation Hubs – “including a tripling of the ARPA-E budget, the creation of new hubs, the creation of a water sciences innovation center, and the establishment of a regional clean economy consortium initiative.” It also recommends that states expand their RD&D and cluster development programs, pointing to the New York State Energy R&D Agency (NYSERDA) and Ohio’s Nortech as models.

In terms of finance, the report emphasizes the needs to reform existing subsidies to prioritize innovative technologies, similar to the recommendations in “Post-Partisan Power” (a 2010 report by American Enterprise Institute, Brookings, and Breakthrough Institute). Its primary recommendation is the creation of an emerging technology deployment finance entity to address the “commercialization Valley of Death,” between the demonstration/scale-up and commercial roll-out stage of new technologies.  It goes on to recommend “a push to rationalize and reform the myriad tax provisions and incentives that currently encourage capital investments in clean energy projects… Such reform might well pair selective extensions of key production, investment, and manufacturing tax credits as well as the Treasury grant cash-back program with staged, technology-specific phase-outs, which would at once provide new industries support, predictability, and a nudge toward innovation and cost-reduction.”  It also suggests creating more state-based finance programs, such as revolving loan funds like California’s Infrastructure & Economic Development Bank.

Staying true to Metro Program’s mission, the report calls for all these policy reforms — in innovation, finance, and deployment — to be crafted in the context of regional cluster development.  This will require renewed attention and research into the details of local industry dynamics and regional growth strategies: “Regional actors, meanwhile, should take the lead in using data and analysis to understand the local clean economy in detail; identify competitive strengths; and then move to formulate strong, “bottom-up” strategies for overcoming key clusters’ binding constraints.”

Beyond these recommendations, another area for further exploration is the role of advanced manufacturing and its policy implications. The data shows that the clean economy is particularly manufacturing-intensive — 26% of clean economy jobs are in manufacturing establishments compared to just 9% in the broader economy — but the report recommendations don’t contain much on manufacturing policy. Growing evidence suggests that manufacturing is a vital stage in the innovation process, and R&D dollars will follow manufacturing capacity overseas if the U.S. doesn’t compete for these facilities. (For example, see ITIF’s recent report, “The Case for a National Manufacturing Strategy.”)

Of course, the Brookings report contains much more information and certainly merits a full review. But this key finding on the importance of energy innovation for driving the overall clean economy warrants particular attention from energy, climate, and growth advocates. This conclusion aligns well with the policy priorities of Americans for Energy Leadership and our allies, and it plays well to the United States’ comparative advantage in innovation. With the right policy support for advanced and emerging energy technologies, the U.S. can continue to unleash the potential of the clean economy — and regain our global leadership.

Americans for Energy Leadership was proud to support this effort, joining dozens of universities and high-tech companies in signing a letter supporting ARPA-E. Now we move on to the Senate appropriations bill, where we expect to achieve a larger budget and eventually come out somewhere inbetween the House and Senate version at conference.

Yet even while we “celebrate” salvaging a $180 million budget for ARPA-E in the House, we recognize this amount falls fall short of what ARPA-E needs to achieve its potential.  Indeed, ARPA-E merits a much larger budget for its investments, which can spur the development of entirely new industries and technological breakthroughs, create high-skilled jobs, support small businesses, improve U.S. energy security, and enhance our competitiveness in the advanced energy industry.  As the Information Technology & Innovation Foundation recently concluded in a report, “A Model for Innovation: ARPA-E Merits Full Funding“:

“In many ways, [ARPA-E] represents public-private innovation at its finest, both for what it does and how it does it: this is not your grandfather’s politicized bureaucracy. It’s a fresh and nimble organization that operates at the intersection of fundamental and applied research, bringing science research and technology development together under one roof. And we’re already beginning to see early returns: ARPA-E projects, worth approximately $360 million in public funding, have to date obtained $285 million in follow-on private investment and led to 17 patent filings, and the program is still very young. But ARPA-E has only just started to spur successful innovation—and we have yet to see what this innovation engine can really do.”

Yet the $180 million House budget appropriation falls far short of the $1.5 billion recommendation from the American Enterprise Institute, Brookings Institution, and Breakthrough Institute; the $1 billion National Academies recommendation; the administration’s $550 million budget request; and the $300 million Congressional authorization for FY2011.  It is even less than the Heritage Foundation’s recent $300 million recommendation, in a report which essentially called for dismantling the Department of Energy (which we critiqued in two counterpoint memos with ITIF and Breakthrough Institute: “Counterpoint: Heritage Foundation Backgrounder” and “The Misconceptions of Heritage’s Energy Proposal“). The Heritage Foundation proposal noted:

“Although the mission of ARPA-E may be a laudable one, the $650 million budget request for FY 2012 should be cut to $300 million (the amount the President requested for FY 2011), especially since the American Recovery and Reinvestment Act of 2009 includes $400 million for ARPA-E. This cut would save $350 million.”

Even while we continue fighting for ARPA-E today, this should serve as yet one more sign that the energy innovation community needs to get much better organized over the long term, especially as we look for opportunities in the post-2012 landscape. Americans for Energy Leadership looks forward to continue working on that effort in the months and years ahead.

A few years ago, the high-tech giant Google helped reframe the national energy and climate policy debate when it launched its “RE<C” program, or “renewable energy cheaper than coal.”  The idea was clear: instead of primarily focusing on making fossil fuels expensive through climate policy, Google believed the U.S. should focus on driving down the price of clean energy through technological innovation — or

Today, in the midst of a raging national debate about energy and economic policy, Google took its analysis a big step further by releasing a new report and interactive website that offers one of the most comprehensive assessments ever performed on the economic impact of clean energy technology innovation.

The key conclusion? Achieving breakthroughs in energy technology could have a “transformative impact” on United States, offering major benefits for economic growth, job creation, lower energy costs for American families, and reduced oil consumption and carbon emissions. By 2030, the economic analysis finds that key energy innovations alone could provide the following benefits over business-as-usual:

• Grow the US economy by over $155 billion in GDP/year
• Create over 1.1 million new net jobs
• Save US consumers over $942/household/year
• Reduce US oil consumption by over 1.1 billion barrels/year
• Reduce US total greenhouse gas emissions (GHG) by 13%

The report, “The Impact of Clean Energy Innovation,” (PDF) was developed using McKinsey & Company’s U.S. Low Carbon Economics Tool, a sophisticated set of models that estimate the economic implications of various policies.  The main purpose was to model the impact of achieving various cost reductions in key energy sectors, including clean power generation, energy storage, electric vehicle, and natural gas technologies.  It also examined the impact of (1) comprehensive federal incentives and mandates, called “Clean Policy,” and (2) a power sector-only $30 per ton price on CO2 emissions.

Other key conclusions from the report include:

• Delaying innovation significantly reduces benefits: the longer the United States waits to achieve these technology breakthroughs, the fewer economic benefits it will capture.  According to the report, “a mere five year delay in starting aggressive cost curves could cost the economy an aggregate $2.3-3.2 trillion in unrealized GDP gains, 1.2-1.4 million net jobs, and 8-28 gigatons in avoided greenhouse gas emissions by 2050.”
• Technologies that develop fastest will dominate: the clean energy technologies that become cheaper than fossil fuels most quickly will dominate the future U.S. energy system.  Google notes that an “‘innovation arms race’ between clean technologies will encourage healthy competition, while benefiting consumers.”
• Breakthroughs in electric vehicle (EV) batteries could be transformative: cheaper and denser battery technology could enable mass adoption of electric vehicles and unlock much of the potential economic benefits.  The report notes, “This leads to EVs, Hybrid Electric Vehicles (HEV) and Plug-In Electric Vehicles (PHEV) achieving 90% market share for light duty vehicle sales, reducing oil consumption by 1.1 billion barrels per year by 2030 — or more than Canada’s entire 2009 oil production.”
• Smart policy can enhance economic benefits and achieve further emissions reductions: Beyond the public-private investments necessary to achieve the core energy technology breakthroughs, modest deployment mechanisms such as a clean energy standard and/or $30 per ton carbon price can significantly enhance the benefits.  The analysis found that when the “All Tech Breakthroughs” scenario was combined with a $30/ton carbon price, by 2030 GDP growth increased to $182 billion, job growth to 1.5 million, and emissions were reduced by 22% (compared to 13% under “All Tech” alone).

The full report contains many more details and important findings.

In order to focus its analysis, Google intentionally avoided making policy recommendations or prescriptions.  But the implication is loud and clear: U.S. policy should seek to unleash clean energy technology innovation as rapidly as possible.  And while the exact mix of policies can be debated — and deployment policies are essential as well — there’s one tried and true method for the federal government to drive breakthroughs in technology: major investment in research and development.

That’s why a growing bipartisan group of think tanks and business leaders — including groups like the American Energy Innovation Council, American Enterprise Institute, Breakthrough Institute, Brookings Institution, Information Technology & Innovation Foundation, Association of American Universities, Third Way, President’s Council of Advisors on Science and Technology, New England Clean Energy Council, and many others — have been calling on the federal government to increase its investment in advanced energy research and development from approximately $3 billion to $15 billion per year.

As David Leonhardt wrote in the New York Times last fall, “To put it another way, the death of cap and trade doesn’t have to mean the death of climate policy. The alternative revolves around much more, and much better organized, financing for clean energy research. It’s an idea with a growing list of supporters, a list that even includes conservatives — most of whom opposed cap and trade.”

Google’s report is a much-welcomed addition to the debate that opens up a whole new lens for evaluating various energy policy proposals, and it offers a message that clean energy and climate advocates across the board would be wise to take seriously.  Google concludes: “Energy innovation is a powerful tool capable of simultaneously addressing society’s goals of economic growth, enhanced energy security, environmental health, and de-carbonization… Getting there will take the right mix of effective policy, a major sustained national investment in innovation by public and private institutions, and the increased mobilization of the private sector’s entrepreneurial energies.”

The ecosystem that encourages technological breakthroughs and their application does not develop in a vacuum. It requires great universities, vibrant companies that devote time and energy to research and — yes — large amounts of government funding. The latter may be a controversial topic in theory, but in practice, the rise of technology was clearly fueled by government.

…

In the rest of the world, the role of the state is not controversial. While Americans continue to debate whether government should have any role in fostering innovation, the fastest-growing economies are all busy using government policy to establish commanding leads in one industry after another. Google’s [Eric] Schmidt points out that “the fact of the matter is, other countries are putting a lot more money into nurturing new industries than we are, and we are not going to win unless we do something like what they’re doing.”

Zakaria cites a report by the Breakthrough Institute to demonstrate the remarkable efficacy of government procurement in the technological innovation process. Following recent pronouncements from the likes of Vice President Joe Biden and Bill Gates, Mr. Zakaria is an encouraging addition to the campaign to renew American prosperity through innovation policies.

At home, the government isn’t doing enough to invest in basic research and development and should more than double it, Gates said. A few good things have been done, including the founding of the Advanced Research Projects Agency-Energy, or ARPA-E. But even that doesn’t get much money and almost had it all cut, Gates said.

Last year, Gates, venture capitalist John Doerr and General Electric CEO Jeff Immelt and a few others founded the American Energy Innovation Council, which lobbied the federal government to spend $16 billion a year on renewable energy development. It didn’t pan out and, in face of a conservative House, probably won’t for a while.

Still, Gates was adamant that research and development can only come from government. He said he’s shocked that there’s virtually no current bipartisan support for it… The energy sector is going to be underinvested in unless the government promotes research and encourages investment by making its policy positions on incentives and regulations clear, Gates said.

Over the last year, Gates has significantly ramped up his energy R&D advocacy.  It began with his winter 2010 TED talk, when he declared that if he were granted “one wish” for the next fifty years, it would be to develop low-carbon energy technology at half today’s price, which he claimed would have the “greatest impact” on the world.

Later in the year, he helped organize a group of CEOs under the  American Energy Innovation Council, which released a report calling on the federal government to increase energy R&D up to $16 billion annually.  This week,  Gates said he was “stunned” that more bipartisan developments haven’t happened on energy R&D, but he was hopeful that progress could be made over the next two to three years:

“In my view, you need a portfolio of investments, but the thing I think that’s the most underinvested in is basic R&D. That’s something that only the government, really, is going to do… The innovation piece really is so important, and I do see good things happening, but the federal government should more than double what it’s spending on that piece.

…The amount that you have to tax energy in order to fund this R&D piece is pretty modest. Like, say, a half percent if you go after the entire energy economy, more like a percent if you go after just the electricity part of it… I’m kind of stunned that we can’t get a bipartisan view on this R&D piece, because it’s about jobs and innovation. It’s the kind of thing the world counts on America to do well, and very key to how this country stays unique. Maybe two, three, four years before we get it done.”

Bill Gates’ endorsement of increased federal energy R&D builds on a growing expert consensus spearheaded for years by think tanks like the Breakthrough Institute and dozens of Nobel Laureates, and recently endorsed by groups like the Brookings Institution, Information Technology & Innovation Foundation, American Enterprise Institute, Third Way, and the President’s Council of Advisors on Science and Technology.

As David Leonhardt, the New York Times‘ Pulitzer Prize-winning economics reporter, wrote in late 2010, “[T]he death of cap and trade doesn’t have to mean the death of climate policy. The alternative revolves around much more, and much better organized, financing for clean energy research. It’s an idea with a growing list of supporters, a list that even includes conservatives — most of whom opposed cap and trade.”

In response, Americans for Energy Leadership joined the Information Technology & Innovation Foundation and the Breakthrough Institute to publish a detailed counterpoint that documents the fundamental inaccuracies of the Heritage proposal.

Download: “Counterpoint: Heritage Foundation Backgrounder” [PDF]
By Matthew Stepp, Alex Trembath, Daniel Goldfarb, Jesse Jenkins, and Devon Swezey

The Heritage proposal calls for: (1) fully eliminating the Office of Energy Efficiency and Renewable Energy, slashing the $3.2 billion budget, and eliminating proposed advanced nuclear energy technology programs from the Office of Nuclear Energy; (2) eliminating the Innovative Technology Loan Guarantee Program and reducing other applied programs like the Office of Nuclear Energy; (3) cutting $1.59 billion from the Office of Science, including the elimination of two of the four Energy Innovation Hubs, elimination of the 46 Energy Frontier Research Centers (EFRCs), elimination of the Workforce Development for Teachers and Scientists Program, and a broad range of other cuts to basic energy sciences; (4) eliminating the power marketing administrations; and (5) cutting the administration’s FY2012 budget request for ARPA-E from $650 million to $300 million.

As the counterpoint memo documents, the justification for this extreme proposal contains numerous inaccuracies and inconsistencies, such as:

• Heritage cites several ventures as evidence of independent private sector efforts to develop next generation energy technologies that in fact each received public support.
• The report wrongly suggests that DOE budget expenditures are prime targets for substantial deficit reduction.
• The report uses out-of-context figures to exaggerate the relative magnitude of DOE’s budget.
• The report is inconsistent in its support and understanding of the DOE’s role in enhancing energy security.
• The report assumes a zero-sum competition between government and private investors rather than acknowledging the long and successful history of public-private partnerships.
• Selective and prejudicial history is applied to suggest that government research has little to no commercial aim or value.
• The report relies on the unfounded assumption that the private sector is, and should be, largely responsible for energy research, commerce, and infrastructure.
• Heritage acknowledges the role of government in advancing a national interest not met by the private sector, yet claims that the government is not equipped to do so.
• Heritage is inconsistent in applying their support or opposition to federal programs supporting clean energy innovation.
• Heritage wrongly suggests that the private sector invests sufficiently in energy innovation.

For more, download the counterpoint here.