In the aftermath of the debt ceiling crisis and as the Joint Committee on Deficit Reduction seeks a second budget deal, many public interest groups are working hard to ensure that even while Congress cuts wasteful spending, it preserves vital public programs and expands smart investments in the nation’s future.  In the energy and climate policy community, a broad range of groups are fighting to defend clean technology investment programs – such as the Advanced Research Projects Agency for Energy (ARPA-E) – that have taken years to establish and offer a glimmer of hope amidst a largely bleak political and policy landscape.

Other organizations are taking a different approach.  This week, two progressive groups – the environmental Friends of the Earth and consumer advocacy group Public Citizen – drew attention when they joined the libertarian Heartland Institute and deficit-hawk Taxpayers for Common Sense in releasing a spending cut plan.  In a report called “Green Scissors 2011,” the groups call for $380 billion in spending they identify as “wasteful government subsidies” and “environmentally damaging.”

These types of collaborations are rare, and the report marked a unique opportunity for traditionally opposed organizations to take a leadership role and break the gridlock on budget, energy, climate, and environmental policy.  Unfortunately, the report not only fails to realize this opportunity, but makes fundamentally misguided choices that would be counterproductive to reducing the budget deficit and could potentially exacerbate America’s climate and energy challenges.

At the heart of “Green Scissors” is a collection of $380 billion in “wasteful [federal] government subsidies that are damaging to the environment and harming taxpayers,” which the groups believe should be targeted for cuts or elimination.  The proposed cuts include:

• Eliminating $61.275 billion in conventional fossil fuel subsidies and tax incentives.
• Eliminating $49.615 billion in nuclear energy programs for R&D, loan guarantees, environmental cleanup, and nuclear waste liability funds.
• Eliminating $95.817 billion invested in renewable energy loan guarantees, corn ethanol subsidies, R&D, the FutureGen carbon capture demonstration project, and fuel technologies development among others.  The report also targets the elimination of the Advanced Research Projects Agency for Energy (ARPA-E).
• Eliminating $56.655 billion in agriculture subsidies.
• Cutting over $106 billion in selected transportation programs and projects including transfer payments to the Highway Trust Fund.
• Eliminating $15.290 billion in selected land and water subsidies and programs.

At first glance, the proposal correctly identifies some unproductive spending that should indeed be eliminated. For example, corn ethanol subsidies do little more than prop up an uncompetitive alternative fuel that offers little to no carbon emission reductions (its initial intended goal) and doesn’t represent a future, robust economic growth opportunity.  In this way, the proposal appears to open a more nuanced budget debate that the United States desperately needs.  Instead of across the board slash-and-burn budget politics, policymakers should be examining the entire federal budget with a fine-tooth comb and differentiate between vital public investments – such as programs aimed at solving our key economic, energy, climate, and environmental challenges – from government spending on unproductive programs.  Like Time Magazine’s Michael Grunwald lamented, “Here’s a crazy thought: Maybe we should spend more on good things and less on dumb things.”

But this potential is never fully realized, and the report ends up making several factually incorrect statements, misguided recommendations, and errors of omission.  These recommendations are often supported by ideologically-driven economic myths and backed by shallow analysis and evaluative criteria. In particular, the report makes three major errors:

1. The report focuses solely on spending cuts and ignores the role of public investment. Reducing the budget deficit and addressing the nation’s key environmental challenges requires both cuts and targeted investments. This is a key distinction lost in the current budget debate.  The U.S. cannot simply cut its way out of debt (let alone cut its way out of a stagnant economy).  In fact, the chief budget-cutting measure the U.S. can undertake is spurring economic growth.  This means targeting advanced technology-based industries and accelerating innovation to lay the groundwork for long-term, ecologically sustainable economic growth.  And this means sustained public investments.

Unfortunately, the report not only fails to recognize this reality, it aims to cut vital innovation-based programs like ARPA-E, advanced nuclear energy R&D, and loan guarantees. These cuts would be counterproductive to the goal of addressing the budget deficit by eliminating needed support for future growth industries.  Further, by focusing solely on spending cuts, the report misses a key opportunity to shift wasteful spending into productive investment. Instead of simply cutting fossil fuels subsidies, we should reinvest the savings in advanced energy technology innovation and manufacturing, especially through programs like ARPA-E, Energy Innovation Hubs, and the Energy Frontier Research Centers.  The report fails to seize this opportunity.

2. The report is dead wrong about ARPA-E. Not only does the report ignore the role of strategic public investment to address our deficit and environmental challenges, it falsely characterizes and attacks one of the single most important federal programs designed to accelerate the transition to a low-carbon economy: the Advanced Research Projects Agency for Energy (ARPA-E).

First, the authors misleadingly characterize ARPA-E as a “giant government-run research and development agency.” In fact, ARPA-E was originally authorized by the bipartisan America COMPETES Act in 2007 and provided a total of $400 million for two years by the Recovery Act.  The recent FY 2012 House Energy & Water Appropriations bill would appropriate just $180 million for ARPA-E – hardly a “giant” budget.  Furthermore, calling ARPA-E a “government-run research and development agency” inaccurately implies that government employees are performing the research, when in fact ARPA-E effectively acts as a public venture capital firm that largely funds small, innovative private companies that are developing promising technology breakthroughs.

The authors proceed to repeat tired conservative neo-classical economic talking points that reflect entrenched ideology more than economic reality, asserting that “this type of applied civilian energy research has historically been done almost entirely at private firms,” that it provides “taxpayer subsidies to develop things that the private sector was already using on a large scale,” and that it “fails to add real value.”  However, if the authors made any serious attempt to understand ARPA-E, they would find that it targets high-risk, high-value, pre-commercial technologies that the private sector is largely unwilling to support on its own.

Instead of simply funding the most basic, blue-sky research that may never create commercially applicable technology, ARPA-E is funding projects that can yield massive economy-wide returns on investment, support U.S. economic competitiveness and export-oriented  industries, and drive high-skilled job creation. This is similar to what the Department of Defense’s DARPA has practiced for years and what drove the Information Technology Revolution.  Opposing this kind of public investment is misinformed and antithetical to a serious U.S. economic growth and debt reduction strategy.

As a recent ITIF report explained, “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.”

3. The report picks technological winners and losers with an ideologically-driven agenda. The report espouses hard-headed libertarian economic doctrine principles, but in reality, it peddles the same kind of failed strategy of picking which low-carbon energy technologies the government should support and which programs should be eliminated.

For example, the report adamantly opposes any and all forms of carbon capture and storage (CCS) technology and advanced nuclear power (even fusion power, for no explicable reason, as well as small modular reactors). In a follow-up post, Friends of the Earth further laments the idea of leveraging any form of nanotechnology or genetic engineering techniques for low-carbon energy technology.  This is why it opposes ARPA-E, asserting that “much of this program harms the environment.”

Yet it is hardly reasonable logic to oppose the entire agency, paint it as largely harmful to the environment, or suggest that it should be defunded, as the report does.  ARPA-E is investing in a broad suite of clean and low-carbon energy technologies, many with the potential for game-changing impacts to dramatically accelerate the U.S. and global transition to a low-carbon, sustainable energy system.  The agency has only invested in the range of $50 million toward advanced CCS technologies – which could in fact eventually reduce carbon emissions from coal plants – out of its total investments of about $450 million.  Only one of ARPA-E’s six primary programs is focused on, as it describes, “revolutionizing technologies that prevent carbon dioxide produced by coal-fired power plants from entering the atmosphere and contributing to global warming.”  The report paints this kind of modest investment in emerging technology in the same way as billion-dollar demonstration and deployment projects, but they are much different.

Opposing these modest investments in general reflects a fundamental lack of understanding about the nature and scale of the global climate challenge and what it demands (the vast majority of energy and climate experts, including the IEA and IPCC, recognize the need to invest in advanced forms of CCS and nuclear).  But even if Friends of the Earth is ideologically opposed to any form of CCS, this is no reason to oppose the entire ARPA-E agency.  Indeed, the same logic could lead these groups to advocate abolishing the entire Department of Energy because it supports particular technologies they dislike.  Instead of taking a balanced approach that creates a level playing field for all low-carbon energy technologies – enabling potential winners to emerge instead of hand-selecting them – the report would not only eliminate any programs related to CCS and nuclear, it would slash or eliminate entire agencies like ARPA-E that engage in any such activities – an extremist and dogmatic approach.

Conclusion: The 2011 “Green Scissors” report offered a unique opportunity to break through the budget gridlock in a way that cut wasteful programs while reinvesting in vital areas for economic and environmental progress.  Unfortunately, it failed to meet this potential.  Instead of taking a balanced approach, the report jumped on the spending cut bandwagon and focused solely on slashing or eliminating public programs, including vital investments like ARPA-E, which has become one of the federal government’s single most important agencies for advancing a sustainable economic future.  In order to justify these cuts, the report peddled false myths about the nature of public investment and innovation policy, even while pushing an ideologically-driven agenda for picking energy technology winners and losers.  In this way, despite some of its strengths, the report offers a misguided strategy for confronting the nation’s budgetary and environmental challenges.

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.

Programs of any nature, whether public or private, will always have a mixed record of successes and failures. It is equally inevitable that proponents and opponents of a given program will focus on certain elements of that program in order to make the strongest possible case for their position. This disagreement can be healthy when it helps policy makers to get a complete and revealing assessment of that program. Once each argument is made in full, a productive debate can begin and the most effective policy can be crafted. However, the increasing polarization between proponents and opponents of government financial support for innovation is, at times, preventing this healthy debate from occurring.

Take the recent debate hosted by Information Technology and Innovation Foundation (ITIF) and Breakthrough Institute (BTI), “To Cut or Invest”. Fred Block of BTI and Robert Atkinson of the ITIF, representing the innovation hawks, held a firm line that government intervention is necessary due to market failures. David Kreutzer of the Heritage Foundation and Jerry Taylor of the Cato Institute supported spending cuts for government investment programs, maintaining that government funded programs were inefficient, tolerant of bad ideas, and prone to bloated budgets and ‘pork’ projects. While Taylor didn’t mention this in the debate, his colleagues at Cato Institute maintain that government funding has a negligible or negative effect on innovation separate from the federal tax dollars wasted. This idea focuses on the adverse effects of driving out private investment and on forcing a non-ideal technology to dominate a market.

While both sides were in agreement that certain regulatory and tax reforms, such as an R&D tax credit, would encourage beneficial research in the private sector, they disagreed on almost every other point. This impasse has become commonplace in the larger debate, as innovation hawks call for massive direct government support for innovation while budget hawks refuse to acknowledge that government intervention has ever had a positive impact on the economy.

A significantly more nuanced debate than ‘cut or invest’ is necessary to arrive at the best policies for stimulating innovation. Certain government interventions have been more successful than others. Government determination and funding was essential in creating the Internet, and there are clear instances of government intervention overcoming market failures such as when AT&T refused to build the initial infrastructure to demonstrate the internet technology – the task was instead taken on by the state-run British Post Office.

On the other hand, the government’s attempt to push synfuels likely involved too much government direction and became an expensive project which failed to address its intended goal of oil-independence. However, innovation hawks deem the synfuel project a moderate success while budget hawks consider the discovery of the internet to be a lucky accident or an example of private industry salvaging an otherwise useless government research initiative.

This total lack of agreement prevents an intelligent discussion on the merits of each program. There are some basic facts not subject to interpretation. At the end of the day, the Internet was developed and viable synfuels were not. It is time for a more nuanced discussion of what worked and what didn’t in each of these programs so that we might learn from past experiences. As Congress debates funding for innovation projects, it should benefit from an historical narrative grounded in reality rather than interpreted to support a party line.

A full and balanced evaluation of the U.S. government’s research efforts is a massive undertaking, and it may be impossible to determine with certainty the effects of each element that contributed to success or failure. It is this ambiguity which allows such disparate interpretations to coexist. But in order to develop intelligent policy for future research initiatives, it is imperative that we better understand what policy elements worked and in what specific situations.

Sematech: A Case Study

Consider the case of Sematech. Sematech was a government-industry partnership founded in the late 1980s to help the U.S. microchip industry regain its dominance in response to a massive threat from low-cost, efficient Japanese manufacturers. It is a particularly interesting case because both camps claim it as a clear example in favor of their position. It was largely successful, and it utilized a combination of the policy elements championed by innovation hawks and deficit hawks. Rather than debate which recommendations were more important to Sematech’s success, this article will look at the situational factors that made these policies effective in this case.

First some of the facts. By the early 1980s, American companies held a dominant position in the microchip industry. During this decade, the Japanese and American industries pursued very different strategies for growth, and in 1985 the U.S. industry experienced a precipitous decline in market share as cheaper Japanese chips began to dominate the market. By 1987, Sandy Kane, an IBM executive, began preparing what he called an “obituary” [14] for the U.S. semiconductor industry, detailing how such a powerful industry was completely wiped out over the course of a decade.

The military feared that, as the microchips necessary to wage modern warfare started to come from overseas, America’s national security would be at risk. Industry experts predicted that the microchip industry would only continue to grow, and furthermore that control of another industry, the computing industry, was dependent on domestic dominance in microchips.

However, despite this gloomy picture, by 1994 U.S. chip makers were once again ahead in global market share, with bright prospects for the future. Furthermore, Sematech, the organization tasked with creating this change, announced in 1994 that it no longer needed government investment, and would become fully supported by its private member companies.

This was an undeniably a success for the United States, but what caused it?

The first important issue is the loosening of regulatory restrictions that allowed U.S. firms to work together without violating anti-trust laws. The 1984 National Cooperative Research Act already allowed cooperation on matters of pure R&D, but did not allow for cooperation on improving manufacturing processes. Sematech allowed these restraints to be relaxed, so that private firms could more easily cooperate on so called ‘pre-competitive’ R&D for manufacturing processes.

While such restrictions were put in place to avoid anticompetitive practices by industrial cartels, such deregulation made sense in this case. Manufacturing increasingly small and complex microchips requires incredibly sophisticated materials and tools. The development costs for this equipment is prohibitively expensive for individual companies, particularly for the small firms that specialized in equipment manufacturing. Japan circumvented this problem by ‘vertically integrating’ equipment suppliers, chip manufacturers and the government in order to pool resources to conduct the necessary research. The result was a sophisticated manufacturing process in Japan that produced higher quality chips more cheaply than in America.

Until the regulations were loosened for the Sematech consortium, American companies were prohibited by law from engaging in the kind of coordination needed to develop these processes. It is important to note that this absolutely critical step in regaining American competitiveness did not in itself require funding from the U.S. government. This was a case of the government needing to get out of the way of industry and by deregulating the chip manufacturers the government was able to reap major economic gains at little cost.

Deregulation is not without risks, however, and the government took important steps to ensure that relaxing anti-trust rules didn’t negatively impact competition. The government understood how important improved manufacturing processes were for American microchip firms. Therefore, they demanded that Sematech quickly make available their discoveries to smaller chip firms through licensing agreements. That way, the small, entrepreneurial firms that couldn’t afford the annual dues of Sematech could continue to compete. This kind of selective deregulation was a deft policy move that ensured maximum economic benefit while protecting competitiveness within the industry.

The second major contribution of the Sematech initiative was the role of government in coordinating the member organizations and helping to direct the research. A conservative criticism of government involvement in private research is that the government doesn’t know as well as private firms what research should be undertaken. By ‘picking winners,’ the government does not force technologies to prove themselves in the marketplace and might waste money on research initiatives that finally fail.

However, several aspects of the microchip industry made government involvement preferable. First, rather than picking a specific technological solution, the government merely outlined a broad objective – to improve American manufacturing processes. This macro level direction focused the research on issues that the government deemed critical while allowing the freedom for private industry to determine the best technological solutions. Furthermore, Japan was already benefitting from such a research initiative, so the government was assured it would be worthwhile and private industry had signaled their approval of the research objective by donating half of the $200 million in funding for the project.

Also, as previously stated, the unique technological challenge of improving manufacturing processes required encouraging cooperation not spurring competition. Coordinating both competing microchip manufacturers and their equipment suppliers was a vast and daunting task. Companies within the microchip industry had relied on maintaining a technological edge over one’s competitors, and therefore each company was reluctant to risk revealing any of their proprietary information. The relationship between chip manufacturers and their suppliers was equally strained. In this hostile environment, the government was able to play an important coordinating and policing role. It both demanded cooperation between these organizations and created financial incentives to do so. The government’s role in creating the necessary trust between organizations cannot be overstated.

Finally, there is the issue of the Department of Defense’s $100 million annual contribution to Sematech. Even if one were to accept that Sematech was beneficial to the U.S. chip industry, and that government involvement was necessary to making it succeed, many of its organizational achievements did not inherently demand a government investment to the tune of $100 million. If the R&D was so essential to the survival of the industry, why didn’t the industry fund it itself?

The answer, innovation hawks would contend, is that many of the benefits of Sematech were externalities and would not be realized by the companies making the investment. First of all, the national security implications of relying on foreign microchips were not relevant to the chip companies, but were of major importance to the government and the American people. Secondly, the economic implications for support industries and the personal computing industry would not impact the bottom line of chip manufacturers (except for firms like IBM that also produced computers), but it would represent a major hit to the wider American economy.

Private firms were expected to contribute because they stood to gain from the innovation. But because the federal government had so much to gain as well, it makes sense that they also contribute.

On a practical note, the specific nature of this technological challenge favored the use of a direct cash investment rather than an R&D tax credit. First of all, a direct cash investment gives government more control over the research initiative. While this might not always be desirable, for reasons previously mentioned it made sense in this case. A cash investment allowed the government to direct research toward an established technological challenge (manufacturing processes). It also gave the government the ability to set ground rules for the consortium, which actually allowed them to be more fair than an R&D tax credit. Not only did this help companies to build trust in one another, but it allowed the government to protect small, entrepreneurial firms that didn’t have the resources to participate in manufacturing research. A purely private consortium (benefitting from R&D tax credits) would have kept manufacturing advancements to themselves to maximize profits, which would have spelled the demise of small chip firms. But because it controlled a large part of the funding, the government was able to ensure that such firms could remain competitive.

Finally, the nature of this problem required a single, focused research effort rather than small, independent initiatives. By directly funding such an initiative, the federal government was able to focus industry efforts whereas an R&D credit could have been used by firms to work on small, independent projects that would not have solved this challenge.

Conclusion

It is important to note that the technological challenge facing the microchip industry in the late 1980s was unique from any research initiative undertaken before or since. I have attempted to outline some of the reasons why above. Therefore, the policy solution that launched Sematech might not be a good model for the renewable energy innovation challenges of today. However, by understanding why various parts of this policy initiative were successful, policy makers can have a basis for debating and designing future policy.

For instance, one might discover that solar photovoltaic companies are still in an early stage of scientific R&D, much like the microchip industry in the 1970s. If this is the case, ensuring that entrepreneurial companies are allowed to compete through R&D tax credits might be the best way to proceed. However, if various solar manufacturers all suffer from a lack of precompetitive technology, such as immature manufacturing processes or the high price of producing silicon wafers, then an investment that cheapens the inputs for all solar PV manufacturers might be desirable. Either way, until both historical and current technological challenges are broken down into their situational factors and policy components, any attempt to develop effective policy will be clumsy and uninformed.

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Tucker Willsie is a Contributor in AEL’s New Energy Leaders Project and his work will be regularly featured on the website. The views expressed are those of the author and do not necessarily reflect the position of AEL.

The primary rationale for continued government support is that EVs can help wean the US off of its addiction to oil.  Each day, the US burns 380 million gallons of gasoline, and more than 60 percent of oil consumed in the US is imported. But with 255 million oil guzzling registered vehicles in the US today, even the most optimistic forecasts predict that it will take decades before EVs meaningfully contribute to a reduction in oil consumption.

EVs have also been touted as a means for creating jobs and stimulating the struggling car industry.  To that end, the February 2009 Recovery Act included $2 billion in grants for battery and component manufacturers, and the DOE’s Advanced Technology Vehicles Manufacturing loan program, passed by Congress during the Bush Administration, has lent $2.4 billion to support the development of EV factories.  Perhaps no state has leveraged Federal money as successfully as Michigan, which is looking to revitalize its auto industry. By offering packages of tax credits in combination with Federal incentives, the state has attracted eighteen companies developing advanced batteries, an effort that the Governor predicts will generate 63,000 jobs.State and local governments have been active too in developing plans to deploy public chargers, buying EVs for their fleets, and clearing regulatory obstacles, such as by shortening the permitting process for charger installations.  Much of the funding has come from Washington, including the $100 million program that will will buy up to 1,000 Nissans and deploy nearly 15,000 EV chargers in select markets.  The Federal government is also handing out tax credits worth up to $9,500 to the first purchasers of EVs and home chargers.

But with most of the Federal funding either expiring or running out, the incoming Congress will have important decisions to make about the near-term progress of EVs.  The recent tax bill signed into law by President Obama extends and reduces the tax credit for EV chargers through 2011, and while the $7,500 tax credit for vehicle purchasers will also run through 2011, it is set to expire once certain sales thresholds have been reached.  Grants to manufacturers were mostly part of the Recovery Act, a one-time funding boost, and the Department of Energy is still accepting applications for the loan program created in 2007.

Ultimately, there is only so much the Federal government can do for the future of EVs.  The pace and scale of EV adoption will be largely influenced by the price of oil and the rate of technological innovation.  Nonetheless, particularly in areas that the market is likely to overlook, there are opportunities for government investment.  For example, Congress was right to continue to fund ARPA-E, an office originally funded by the Recovery Act to support high-risk, high-reward energy R&D.  Public EV charging, which is unlikely to be profitable without a much larger volume of EVs on the road, may also be overlooked by the private sector.  But without additional public charging, consumers may be less interested in driving EVs.

When the new Congress considers whether or not to continue the recent “EV Stimulus,” it should put EVs in the context of a wide-range of recent transportation fuel initiatives. Because it seems unlikely that there will be a single solution to reducing our reliance on oil for transportation, the Federal government is right to also invest in advanced biofuels, natural gas vehicles, and hydrogen fuel cells. With regard to traditional combustion engines, recently updated fuel efficiency standards for light-duty vehicles mandate a 40% improvement in average MPG by 2016 and include a “bonus” for manufacturers that sell EVs.  The Administration also announced its intention to issue more stringent standards for vehicles manufactured after 2016 and proposed the first ever efficiency standards for heavy duty vehicles.

As The Daily Show recently documented, every President since Nixon has talked to about reducing the country’s dependence on foreign oil, and yet US imports have steadily grown. It is tempting to conclude that the government’s support for a transition away from oil is irrelevant, futile, or even counterproductive.  But the issue is too important for government to ignore. The US government, particularly the military, is the largest consumer of oil in the world.  Investing in the future of transportation fuel is simply a good idea for the government’s bottom line.

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Ari Peskoe is a Contributor with Americans for Energy Leadership and currently attends Harvard Law School.

Dr. Arun Majumdar, Director of ARPA-E

The Republican victory in November will create huge challenges for the Obama administration in accomplishing its environmental policy objectives. The Republican “Pledge to America” leaves no ambiguity as to the goal of the new Majority: dismantle the expensive initiatives such as Healthcare set in place during the Obama administration. Yet in the frenzy to cut and repeal Obama initiatives, traditionally bi-partisan support for basic R&D could be the figurative baby thrown out with the bathwater.

One organization that may see its funding cut completely is the Advanced Research Projects Agency for Energy (ARPA-E). The financial security of ARPA-E has been tenuous since its creation. Originally proposed in the National Academies report “Rising Above the Gathering Storm,” ARPA-E was designed to replicate the success of the military’s DARPA program. DARPA is best known for having created the precursor to the Internet, but it is also responsible for technologies such as GPS, the stealth bomber and gallium arsenide, which is a semiconductor used in some solar panels. ARPA-E seeks to advance the American clean tech industry by funding research on high impact technologies that would be ignored by private industry due to their high risk of failure. Current ARPA-E research projects include powerful new batteries for electric cars, capable of 500 miles per charge at a price competitive with internal combustion engines, and grid-scale storage technologies that would smooth out the surges and dips created by intermittent power sources such as solar and wind.

The agency was founded with the passage of the 2007 America COMPETES Act. Signed into law by President Bush, COMPETES received bipartisan support. Still, funding was not appropriated for the organization until the American Recovery and Reinvestment Act of 2009, which allotted $400M. While the nature of the program makes it difficult to judge its performance, ARPA-E passed its congressional performance review with flying colors, and the recently released PCAST report is also very supportive. However, the initial funds have been exhausted and if ARPA-E is going to continue to operate it requires additional funding.

The organization was supposed to gain long-term financial security earlier this year with the passage of the 2010 America COMPETES Reauthorization Act (HR 5116, S3605). However, it was held up in the House by some political acrobatics. Now it has been referred to the Senate Committee on Commerce, Science and Education, but time is running short to get it passed. While Democrats still control the Senate, a failure to pass the bill in this session would mean the bill would have to face the Republican controlled House some time in 2011 and without the protection of the COMPETES act, ARPA-E may be in trouble.

The threat to ARPA-E is twofold. As part of their cost cutting plan, the Republicans have pledged to return non-military discretionary spending to 2008 levels. This would mean particular trouble for organizations that have seen the largest budget increases in the last few years. The Department of Energy Office of Science, which would provide long term funding to ARPA-E, would see a budget cut of $835M, or 18%. In an environment where programs within the Office are bracing to absorb massive cuts, it will be difficult for ARPA-E to make the case for their $300M annual budget. In this environment, the even larger budget authorized under the COMPETES reauthorization act (reaching $1B in 2015) begins to sound pretty far fetched.

The other risk is that ARPA-E will be targeted directly rather than simply left in the lurch. In an Interview with LiveScience, Congressman Holt (D-NJ) worries that ARPA-E will be viewed as a pet project of the Democrats and eliminated “as a matter of principle.” Inevitably, the special attention this program enjoyed from Obama and Secretary Chu makes it a prime target.

The irony of all this is that ARPA-E, along with other research initiatives supported by the COMPETES Act, have the potential to be an area of agreement and cooperation between the parties. During the Bush administration, the original COMPETES act enjoyed Republican support, including from conservative Republicans like Trent Lott (R-Miss.). The purpose of recessionary budget cuts is to slim down some government programs while still supporting those investments that strengthen the economy.

So what is at stake if ARPA-E goes unfunded? China has begun to show us the answer.  Clean tech is shaping up to be a trillion dollar industry, and maintaining a competitive advantage requires that we actively attract talent, file new patents and build up industrial expertise. As long as we let other nations out-spend us on innovation in renewable energy, America will continue to lose competitiveness in the global market. ARPA-E is the kind of bold initiative we need to leapfrog the competition and reestablish our technological edge. It would be a shame if party politics or a budgetary slash and burn policy eliminate what could be the engine of future American growth.

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Tucker Willsie is a Contributor in AEL’s New Energy Leaders Project and his work will be regularly featured on the website. Tucker is a senior at the Princeton University Woodrow Wilson School of Public and International Affairs. His focus is on domestic renewable energy policy, and he is writing his senior thesis on policy options for promoting innovation and international competitiveness in the renewable energy sector.

Chu’s speech also marked the release of a new report by the President’s Council of Advisors on Science and Technology (PCAST).  This report joins a growing call for increased federal investment in RDD&D to around $16 billion per year.  The most compelling of the recommendations is one to create a Quadrennial Energy Review—modeled after the Pentagon’s Quadrennial Defense Review—that could provide increased long term planning and coordination for the federal government’s energy policy.

As reported by CNET, during his speech at the National Press Club, Chu “suggested that the U.S. is reaching a ‘Sputnik moment’ where political leaders and the general population will realize how the U.S. has fallen behind other countries in science and technology.” In response, the U.S. must “fund research in clean-energy technologies in order to stay apace and take advantage of the economic opportunity that cleaner energy technologies represent globally.”

Chu called for creating the right environment, not only for corporations, but for research and innovation in general, noting that ” federal support for scientific R&D is going to be critical for our economic competitiveness.” Excluding the recent ARRA stimulus package, termed a “one-time investment bulge [for] research to invent new technologies, and loan guarantees to scale up existing products,” the share of GDP dedicated to energy research and development has “trended down since 1979.”

And while the Obama White House’s energy agenda may be challenged in the aftermath of the November elections, Chu emphasized that “even politicians who are skeptical of climate change should recognize that investing in green-technology research and development is an economic decision.”

“It is a way to secure our future prosperity,” he declared, echoing Chinese premiere Wen Jiabao.

And while the U.S. is falling behind, all is not lost, according to Chu: “I am hoping that the United States can recognize the economic opportunity that virtually all the western European companies have recognized, that countries in Asia have recognized, and that developing countries have recognized. I am an optimist we will wake up and seize the opportunity.” After all, “the U.S. still has the greatest innovation engine in the world.”

If the U.S. can get into gear, in the way it won the space race — investing in science and education to train a legion of scientists and engineers, and funding the RD&D needed to accelerate projects — then our country can recapture a leading role in the transition to a clean energy future. And unlike a moon shot, there are far more co-benefits for Planet Earth.

Video of Chu’s speech available here.

Slideshow of “Is the Energy Race our new Sputnik moment” available here.

The first ARPA-E summit is currently underway, and as the author notes, despite frequent references to the Apollo Project, the “premise of the U.S. Department of Energy’s ARPA–E is somewhat simpler—emulate its older sibling, the Defense Advanced Research Projects Agency (DARPA)” in spurring the development of new technologies. “Since its founding in 1958 during the Cold War in the wake of the Soviet Union’s Sputnik,” DARPA has given birth to a wide range of inventions, including stealth fighters and the Internet. For its part, ARPA–E “plans to fund multidisciplinary technical ideas that reduce greenhouse gas emissions, improve national security and create jobs.”

Out of some 3,700 applications, “37 technologies qualified for government funds, with each getting an average $4 million.” On the bright side,  ”‘the number of good ideas has been amazing, and we don’t even have all the intellectual horsepower of the U.S. into clean energy,’ [ARPA-E director Arun] Majumdar says. But as he notes, ”‘we need multiple lunar landings, not just one.’”

Unfortunately, ”political realities might short-circuit those ‘lunar landings,’ many of which (according to the ARPA-E director) won’t become manifest for 10 years or more.” Majumdar says, ”We are not short on ideas. The question is, what happens next?”

In any case, things are moving ahead: “$100 million from the American Recovery and Reinvestment Act of 2009 (better known as the stimulus) was made available on March 2, to be awarded via ARPA–E to the best proposals for new grid-scale storage devices, better power converters and more efficient air conditioners.

However, the article’s author worries that ”the bulk of [projects funded by ARPA-E] are old ideas dusted off after years of storage.” He asks if “ARPA–E been too conservative in these early stages, funding ideas that have been around for awhile? … Besides the stimulus monies, the Obama administration committed just $400 million to ARPA-e specifically—and asked for just $300 million in next year’s budget—for an agency intended to remake the multitrillion dollar U.S. energy landscape.”

In contrast, “China is spending $12 million an hour on clean energy, according to John Podesta, president of the Center for American Progress, a politically liberal think tank. And the U.S. lacks what many here regard as the key to driving a transition to clean, abundant energy: a price on carbon. ‘Let’s not take this growth industry [in clean energy] and give it to every other country in the world but the U.S.,’” GE’s Jeffrey Immelt says.

But the article ends on an optimistic note: “ARPA–E’s conservative approach may prove to have been both politically and scientifically smart. In considering Galileo’s breakthrough, ‘he didn’t invent the telescope, he improved the telescope,’ said Chu in his address to the conference. ‘If you find a new rock or a new way of looking at the rock, chances are you can make a good discovery and you don’t even have to be that smart.’