It was Canadian Prime Minister Pierre Trudeau who once announced, “Canada is a country whose main exports are hockey players and cold fronts. Our main imports are baseball players and acid rain.”  Yet the head of state’s wry humor belies the significance of the U.S-Canadian relationship, and how this relationship is destined to shape – and to be shaped – by the posture that the United States takes towards the explosion of unconventional oil production occurring because of the Canadian oil sands.

Conventional wisdom would suggest that the prospect of a nearly 2,000 mile long pipeline between Canada and the United States, the TransCanada Corporation’s “Keystone XL” project, should be welcomed as a harbinger of closer ties and safer energy supplies.  Under the surface, however, lies a complex geopolitical and commercial logic that suggests it is Canadian producers – not American consumers – who stand to gain most from the project.

Our neighbor to the north will hardly ever receive the bursts of attention or scrutiny that Saudi Arabia or China garner in present times, but it is this bromidic consistency on Canada’s part which places it squarely, albeit quietly, as a foundation of US energy policy.  The US has been Canada’s largest market reaching back to the beginning of the Cold War, and the two are currently the world’s largest trading partners.  Canada has the world’s second largest oil reserves – after Saudi Arabia – and is the United States’ number one source of oil imports, almost doubling the volume of its closest competitor – Mexico.  In 2008, Canada provided 90% of US natural gas imports, and also boasts one of the world’s largest reserves of high-quality uranium.  Were the country anything other than a stable Western democracy sharing a similar colonial heritage with the United States, our deep interdependence with such an energy superpower might prove alarming.  Instead, it is often cited as a source of strength.

Increasingly, the oil that Canada extracts and exports is of the unconventional variety – much of it comes from the Athabasca oil sands in Alberta that are rich in bitumen (a form of extremely heavy crude oil).  Using open-pit mining technology the bitumen-rich earth is dug up and transported to separation facilities where bitumen is extracted from other clays, water and sand.  After a series of cleaning and processing procedures, the bituminous heavy oil is transported to refining facilities where it can be turned into gasoline, diesel and other petroleum products.  The process is more emissions and energy intensive than conventional oil production, although much debate has taken place over just how much dirtier oil sands really are.  Recent estimates have ranged from “around 6 percent” to “at least 20-40 percent” greater GHG emissions than normal oil production.  Depending on the exact method employed, extraction of oil sands crude can also involve significant quantities of natural gas.

Such is the backdrop for the proposed “Keystone XL” pipeline, a 1,980 mile long piece of infrastructure that would move crude from Alberta’s oil sands to refining and export facilities along the US gulf coast.  The pipeline is currently awaiting State Department approval before it can go forward, and the politics surrounding this process has been quite contentious.  The storyline being presented for the $7 billion project is primarily one of energy security, as the pipeline would eventually add 500,000 barrels a day into the US market from the north.  This represents a significant upgrade over the existing “Keystone” pipelines, a sister network that currently carries 400,000 barrels a day to the Midwest.

A recent study commissioned by DOE found that in the long term, the pipeline could help to “virtually eliminate” Middle East crude imports.  The report also offered qualified support to the argument that the energy-and-GHG-intensive production of oil sands crude will continue to expand regardless of whether the pipeline is built, endorsing industry growth projections that envision a near doubling of the industry by 2020.  One investment bank has also recently stipulated that uncertainty about the future of offshore drilling regulations in the United States could accelerate investment in the Athabasca region.

Source: Canadian Association of Petroleum Producers

The DOE report also addresses the so-called “Asian threat”, an oft-repeated “use-it-or-lose-it” warning from Keystone advocates that if the growing supply of oil sands crude is not permitted to enter US markets it will instead be transported to the Canadian west coast and subsequently shipped to Asia to satiate burgeoning demand, with Asia constituting 75% of the world’s refining capacity growth between now and 2030.  Potential pipelines to connect the Athabasca oil sands to West coast shipping terminals include Kinder Morgan’s TMX 2 and 3 projects, which would increase capacity along the company’s existing TransMountain pipeline, as well as the Enbridge Northern Gateway project, requiring completely new right-of-way and infrastructure.

Although the Northern Gateway project recently received some publicity for its revelation that Sinopec, one of China’s increasingly assertive national oil companies (NOCs), was amongst the members of a Chinese-Canadian consortium that has contributed $100 million so far to the project and stands ready to line up further financing, many remain skeptical of the pipeline’s viability in the near future.  The DOE report highlights the right-of-way challenges that Enbridge has encountered due to strong opposition from native peoples living along the pipeline route, and the Northern Gateway’s commercial viability has come under scrutiny as well.  Traditionally, no shovels will be brandished on a costly pipeline project unless the “shippers” – those companies actually producing the oil – have signed long-term supply contracts guaranteeing that the pipeline capacity will be utilized.  Enbridge has not yet signed any supply contracts, meaning that even if the project is approved by the Canadian government at some point next year, the targeted completion date of 2016 may still be overly optimistic.

In contrast, Keystone XL has so far secured long-term contracts for 380,000 barrels/day of oil sands crude with an average contract length of 17 years.  Just last month, TransCanada – the company behind Keystone XL – also agreed to terms with oil producers in Montana and North Dakota to bring 65,000 barrels/day from the states’ shared Bakken oil formation through the pipeline alongside Canadian crude.  The five-year contracts, which will also require the construction of an additional $140 million pipeline to feed in the Bakken production, may help to quiet vocal opposition from landowners who have filed legal challenges to TransCanada’s plan to appropriate property along the proposed pipeline route.  These additional contracts also bring committed capacity from 75 percent to just under 90 percent.  However, despite the deft maneuvering of TransCanada, one must be careful not to assume that Keystone XL has successfully navigated the economic and environmental shoals of constructing a major new international pipeline.

Source: Canadian Association of Petroleum Producers

In fact, the momentum of the Keystone XL pipeline for U.S. energy policy appears less and less definite the deeper one digs into the project’s promises and pitfalls.  Putting aside the likely “paper tiger” of Enbridge’s Northern Gateway, thus far TMX 2 and 3 look to pose the greatest threat to Keystone XL, as they would connect to greater existing shipping capacity further south in Vancouver and would require smaller capital investments.  If constructed, the 400,000 barrels/day of Asia-bound capacity they would add is large enough to possibly affect the quantity and/or price of any crude moving through a hypothetical Keystone XL pipeline.  Furthermore, the inclusion of domestic U.S. Bakken crude may not be sufficient to placate a plurality of Keystone XL critics, as recent news cycles have brought word of a Nebraska state bill that would increase the regulatory burden in an attempt delay the project, outright hostility from Texas landowners and oil workers, and, in Oklahoma, what is  believed to be the first legal challenge to the use of eminent domain to secure U.S. right-of-way for a proposed oil sands pipeline.

Perhaps most salient, however, is the possibility that the pipeline will only marginally increase the overall supply of Canadian oil while delivering significant benefits to producers by boosting the market price of Canadian heavy crude.  Currently, existing markets for Canadian crude are oversupplied, a dynamic that is set to become even more exaggerated in March once TransCanada completes an extension of its existing pipeline system to pump an additional 165,000 barrels/day into Cushing, Oklahoma.  Cushing, of course, is a major oil hub and the physical delivery point of all NYMEX futures contracts, and the problem is that nearby storage capacity for commodities traders who wish to take physical delivery and then store their oil has been increasingly strained in recent years.

This dynamic, referred to by many as “Cushing syndrome”, is partially responsible for the growing spread between WTI and Brent crude prices and means that the incoming shipments of Canadian crude will only add to the glut and put more downward pressure on prices.  The significance of Keystone XL, then, is that it would allow oil to flow to the DOE administrative district known as “PADD 3”, including the gulf coast, where it then has the ability to be refined and/or shipped onwards to other markets.

The long-term effect would be for Canadian oil producers to see a price increase of at least $3/barrel.  According to figures included in a TransCanada report submitted to the Canadian government in 2009, this could boost annual oil sands producer revenues from the current $2 billion to $3.9 billion in 2013.  Depending on how much of the added price is absorbed by refiners who purchase the oil and how much is passed on at the pump, consumers could see an increase of up to around 7 cents per gallon as a result.  In sum, the price discontinuities currently brought about by the “Cushing syndrome” are advantageous to U.S. consumers in the near future, a dynamic that the Keystone XL pipeline would mitigate significantly were it to begin operation in 2013.

The decision, therefore, becomes highly contingent upon the likelihood that the necessary infrastructure will be put in place in the near future to ship Canadian oil sands crude to Asia.  If Northern Gateway or TMX 2 and 3 struggle to materialize, then “crude export dispositions from Western Canada and levels of imports to the USA would be similar to those which would [be obtained if Keystone XL] were built,” in the words of the DOE report.  Indeed, the report believes that the spare capacity exists to increase imports from Canada even without Keystone XL, and that if it were built the US would still have tar sands pipeline overcapacity until at least 2020.

The same goes for GHG emissions – if oil sands production is to stay relatively consistent regardless of whether the new pipeline is built, then Keystone XL would not of itself have major impacts on emissions.  In other words, the Keystone XL drama is much more of a routing – rather than production – decision.  As with any complex system, this is vulnerable to change – especially if Canadian supply quickly finds a means to link to Asian markets. Until then, however, there does not seem to be a compelling rationale for laying down pipe for the sake of allowing our northern neighbors to earn more for the oil that they already plan to sell.

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David Livingston 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 or those of his employer, the Carnegie Endowment for International Peace.

As my colleague Teryn Norris has argued here, the Obama Administration’s commitment to U.S. innovation – especially in the clean energy field – is a wise decision, and we can only hope that legislative victories follow. But while energy innovation can indeed boost U.S. economic leadership, it won’t be enough if we also hope to address the further problems of energy independence and climate change. In other words, technological innovation shouldn’t become the only focus of our energy discussion.

With repeated disappointments in climate and energy policy in recent years, it is indeed tempting to give up on conventional policy mechanisms and hope that a new technology will solve the problem. Some thinkers, such as Time magazine’s Bryan Walsh have argued recently that “putting a price tag on pollution isn’t solving our climate-change woes. It’s time to invest our muscle—and money—in breakthrough innovation.” Although I would be the last person to question the benefits of technological breakthroughs, I believe we shouldn’t overlook how policy, economics and human behavior ultimately determine how much we’re able to take advantage of these breakthroughs.

A Technological Push Alone Isn’t Enough – We Need a Clean Energy Pull

Yes, achieving a real technological breakthrough would take us a long way forward in addressing energy independence and the fight against climate change. But technological inventions don’t magically turn into commercially successful products. Unless there is a clear demand pull for clean energy breakthroughs, it’s unlikely that even the most groundbreaking technologies will make it past the laboratory or the pilot stage.

Don’t get me wrong. The world is going to need the most efficient solar cells, the smartest electrical grids, and the most advanced vehicles in the race against rising sea levels and other potentially catastrophic impacts of global climate change. We need to put our brightest minds to the task if we are to stand the challenge.

But the truth is that new technologies are always more expensive at first, and that sticking to the old infrastructure will always be simpler than switching to a new system. Without a financial carrot (i.e. a dollar to be made) or a legal stick (i.e. standards, regulations at the federal or state level), the big actors in the energy industry are unlikely to adopt new technologies, and innovation firms are unlikely to invest billions to bring to market a new widget for which no clear demand exists.

In other words, the energy innovation pipeline is not really a pipeline. The U.S. Government cannot simply push money into one end of the energy innovation system and somehow expect new technologies to come out of the other end. Without a real clean energy pull, exceedingly few breakthrough technologies will make it past the prototype phase and gain wide acceptance in the marketplace.

Without Proper Management, Technological Innovation Can Sometimes Go to Waste

Although technological innovation has steadily made our renewable energy cheaper, our cars more fuel-efficient and our power plants cleaner, there is a real risk that these advances might not translate into real improvements for the planet.

Economists usually refer to this problem as the “rebound effect”: technological improvements often lead to an increase, not a decrease, in the consumption of resources like energy. This especially clear for ‘incremental’ improvements: consider how gasoline consumption from U.S. vehicles has stagnated in recent few decades, even as technology enabled increasingly more efficient engines. The figure below shows how the fuel economy (in miles per gallon) of U.S. vehicles improved by almost 50 percent since 1973. But better mileage also means cheaper commutes, and partially as a result of this, Americans started driving significantly more. Therefore, the technological progress brought about by more efficient cars has only led to a 25 percent (instead of 50 percent) reduction in the fuel consumption of the average U.S. vehicle in the past fifty years.

All in all, behavioral patterns in the U.S. have largely negated the benefits of improved car technology in the past fifty years. What a shame!

While fuel efficiency is an example of incremental improvements in existing technology, there is also reason to believe that the success of radically new breakthroughs in energy technology will also be contingent on changes in human behavior. There are many reasons for this, from rapid population growth to nations’ consistent ability to develop unsustainable practices out of cleaner technologies since the Industrial Revolution. Breakthrough technologies require new supply chains as well as new policies, and they often create a new demand for materials (think of rare earth minerals). In the medium to long run, technology won’t be offering us a silver bullet. As long as overconsumption triumphs in people’s personal lifestyles, as long as we’re unable to successfully steer individuals and corporations towards more efficient, leaner and cleaner behaviors, technology alone won’t be enough to solve our energy problem.

So what do we do now? While we’re left with a picture that isn’t terribly optimistic, the following recommendations stand out as the most urgent:

Sub-national action. Until we can pass comprehensive energy and climate legislation, clean energy initiatives at the state and regional levels (like California’s AB-32 or renewable portfolio standards) will be needed more than ever to pull promising technologies to market.

Integrate basic research with applied R&D. The U.S. can maximize the impact of its energy research by making sure the right channels are in place to transform fundamental discoveries into market-ready technologies. This means creating stronger tech transfer offices in U.S. universities, allocating more funding to interdisciplinary collaborations between basic science and applied engineering, and facilitating more partnerships between nonprofit research institutions and private industry.

Avoid technological dead-ends. From corn ethanol to the hydrogen economy, the past decade is full of examples of technology initiatives that ended wasting taxpayer dollars, policymakers’ time and R&D resources without living up to their promises. By expanding the role of agencies with diverse portfolios (like the Department of Energy’s ARPA-E program) and of expert panels for project evaluation, we can reduce the odds of running into technological dead ends.

The U.S. is going to need as much breakthrough energy innovation as it can possibly get. But policy factors beyond technology, from human behavior to economics to the health of the innovation pipeline, have a crucial role to play as well. Lets make sure we enact the policies necessary to get the most out of these innovations.

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David Cohen-Tanugi is a Policy Fellow in AEL’s New Energy Leaders Project and will be a regular contributor to the website. The views expressed are those of the author and do not necessarily reflect the position of AEL.

Marketplace Volatility

The world stands at a crossroads when it comes to market volatility. Historically, market volatility has largely been a result of anthropogenic influences, such as geopolitical conflicts (e.g. the 1973 oil crisis) or abrupt surges in supply or demand as new reserves are discovered or nations rapidly industrialize (e.g. China’s recent rise to power). However, in the 21st century, these historic drivers of market volatility may be dwarfed by a growing player on the world stage, natural disasters. Certainly, natural disasters have always caused market fluctuations, but as climate change escalates and increases the frequency of extreme weather events and shifts global weather patterns, these events will have an even greater effect on the world’s economy.

The effect of the recent floods in Australia provide a perfect illustration of this claim. First and foremost, while true that climate change has not been (and perhaps cannot be) linked to the floods, the Intergovernmental Panel on Climate Change (IPCC) nevertheless found that the likelihood of heavy precipitation events becoming more frequent over most areas is “very likely”. Thus, although climate change may be entirely unrelated to this instance of flooding, it almost certainly will drive other instances in the future. Furthermore, floods are not the only severe weather event that will be impacted by climate change; tropical cyclones, droughts, heat waves, and fires will most likely all be exacerbated as well. In other words, expect to see considerably more naturally-induced disturbances to supply chains as in Australia earlier this month.

According to the Energy Information Administration (EIA), most years Australia is the world’s largest exporter of steam coal, which is used for heating and electricity, on a Btu basis. The Australian Coal Association estimates its nation exported 132 million tonnes in 2008, about 96% of which went to Asian nations, particularly East Asia. This year, though, a sizable shortfall is projected in coal exports due to the recent bout of floods. A report released by the Australian government found that coal exports will be 15 million tonnes lower in first quarter 2011, a drop of 20%, than previously anticipated. This unpredicted, sudden deficit in coal trade led to a two-year high in steam coal prices on January 11 as Asian utilities and steelmakers, the largest recipients of coal from Australia, scrambled to find other supplies. As climate change progresses, similar scenarios – wherein unforeseen natural disasters cripple crucial supplies of energy feedstocks and set off global price escalations – will only become all the more common.

Renewables as a Hedge Against Price Volatility

In such a world, renewable energies can provide much-needed succor to governments and businesses alike. Most obviously, widespread adoption of renewable energies would curtail climate change via reduced CO2 emissions, preempting any need to adapt to a world of treacherous weather. In addition, though, renewables could serve as a hedge against market volatility by providing a local source of energy that does not depend on a supply of feedstock prone to disruption at any point in its journey.

Consider, for instance, two corporations, one that is completely reliant on coal from Australia for electricity and one that employs a diversified electric portfolio and obtains 50% of its energy needs from renewable resources like geothermal, solar, and wind. When weather conditions around the world are placid and supply chains operate smoothly, the former corporation would in all likelihood obtain cheaper electricity than the latter, at least given current technologies. However, during extreme weather events like the Australian floods earlier this month, the same corporation would face steeply-rising electricity costs and, in the event of a prolonged supply crisis, be in a much more uncertain position than the latter corporation, only 50% of whose energy supply would be subjected to the induced volatility. Indeed, as calamitous weather events increase in frequency and severity, the benefits reaped by the diversified corporation will rise concurrently and eventually give it a competitive advantage.

The above example highlights a new front in the campaign to increase renewable energy implementation that is particularly important given recent political developments, such as the defeat of cap and trade and the resurgence of the Republican party. Previously, renewable energy advocates have intensely lobbied governments to increase nationwide adoption of solar, wind, geothermal, and other energy sources. However, the aforementioned shifts in the political landscape have shown this tact to be extremely difficult, if not impossible in the near future.

Fortunately, this mega-scale approach to promoting alternative energies is not the only alternative available; explaining and demonstrating the competitive advantages of liberating energy supplies from weather-induced global instability could nudge all sizes of businesses towards installing alternative energies. That is not to say, though, that federal policies and actions don’t matter. For instance, the government could facilitate demonstration projects, either through monetary incentives or expedited permitting, across a representative sample of businesses in order to prove the merits of renewables. Additionally, incentives like the Production Tax Credit – slated to expire in 2012 – would assist in nudging the cost-benefit analysis in favor of renewables.

Further Technical Issues

Beyond efforts aimed at passing legislation that could encourage businesses to install renewable energy on a more rapid time scale, other technical issues exist that weaken, or at least complicate, the promise of renewable energies. For one, it’s unclear how extreme weather events will interact with renewable energies (with the exception of biomass, supplies of which can be greatly affected by flood or drought as aptly illustrated by the fires that ravaged Russia in 2010). Solar panels can withstand storms, but what about superstorms? How will shifting weather and wind patterns affect wind energy production? Can wind turbines withstand increasingly intense storms? How much will offshore wind production decrease as sea levels rise?

Another technological problem facing renewable energies that must be addressed is their intermittent production of electricity. For a corporation to truly reduce its reliance on energy feedstock like petroleum or coal, it must have a reliable, i.e. constant and on-demand, alternative source of energy, a requirement that renewable energies besides geothermal cannot currently meet. To this end, battery technology must be improved in order to provide an effective means of smoothing out electricity production from renewables. Fortunately, intense R&D efforts on batteries are already underway, but additional investment and government assistance in this area are needed.

At least in the short term, all indications are that global greenhouse gas emissions will increase and, as a result, so too will climate change. With climate change comes increasingly frequent and severe weather events that could very well make the once in a lifetime floods that ravaged Australia a relatively-quotidian event. Thus, as said floods recently illustrated, volatility in global energy feedstock markets will greatly increase as supply chains become more unstable, making energy independence a more pressing issue. For progressive businesses, hedging against this shift by preemptively installing renewable energies represents an excellent opportunity to boost their bottom-line, certainty in future success, and competitiveness. Ultimately, as the climate becomes more volatile, renewables will become more valuable not only as a deterrent but also as a means of mitigating the supply chain impacts of increasingly frequent natural disasters.

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Michael Craig is a Policy Fellow in AEL’s New Energy Leaders Project and will be a regular contributor to the website.  The views expressed are those of the author and do not necessarily reflect the position of AEL.

The term ‘energy efficiency’ usually brings to mind better-insulated homes and smart power meters. But emerging thermoelectric technology could give energy efficiency a whole new meaning by tackling the huge energy waste that happens before the watts even reach our homes.  Yet, to reach market, thermoelectics will have to overcome a number of technological and policy related barriers.

The Promise

Thermoelectric devices, which enable the conversion of heat into electricity, are still at an early stage in the energy innovation chain, but the principle behind how they work can help to highlight a crucial aspect of energy waste across the world that is often ignored in the policy realm.

You may have heard that homes in developed countries waste 25-35 percent of their energy due to insulation problems and inefficient devices. But the lion’s share of energy waste actually comes at the early stages when the electric power is generated in power plants and carried across transmission lines.

Traditional fossil fuel plants create extremely high temperatures by burning or reacting their fuel, which they use in turn to run a steam engine that generates electric power while also rejecting heat at a lower temperature. The low-temperature output typically goes to waste, often tapping precious stream water resources in the process. So not only is the output heat a waste of energy, it also causes more environmental harm by consuming large quantities of water and disturbing neighboring ecosystems. Even cleaner solar panels waste precious energy by releasing heat. Experts estimate that for every 100 kWh of primary energy that are consumed in the United States, as much as 60 kWh goes to waste before ever reaching our factories, our offices or our homes.

Thermoelectrics could become a game-changer in energy efficiency by drastically reducing this energy waste at power plants – but only if we manage to address important scientific and policy barriers first. By tapping the waste heat from power plants, thermoelectric devices could generate additional electricity for the grid while helping to reduce the environmental footprint of water-hogging thermal plants.

The Technical Barriers

Unlike high-performance glass windows and insulation materials for homes, thermoelectrics is not a market-ready technology and is still at an early stage in the laboratory. Because the science behind the devices is so complex, specialists are even debating whether or not thermoelectrics can ever become a viable technology.

Basically, a thermoelectric device works just like an engine: it converts a certain temperature difference (say, a waste heat source at 500 degrees Fahrenheit compared with room temperature at 70 degrees) into an electric potential to generate power (you can find a great review here). For a given temperature output, a very efficient system will generate a high voltage, while a low-efficiency device will only create a modest voltage. In order to achieve real energy savings, the world would need thermoelectric devices with very high efficiency.

At present, this efficiency remains discouragingly low: even state-of-the-art thermoelectric devices can only convert 10 percent of the energy from a waste heat source at 500 degrees. This is why thermoelectrics have only met success for limited ‘niche’ applications, like powering telescopes in space for NASA and marginally increasing the mileage of BMW vehicles – hardly the energy efficiency revolution we have all been awaiting.

Fortunately, this efficiency is only limited by the basic laws of thermodynamics, and there is considerable room for progress. New advances in nanostructured materials, resonant modes, insulating materials and other state-of-the-art physics could help boost thermoelectrics’ contribution to energy efficiency throughout the world.

But technology is only the first step. Suppose now that R&D efforts manage to produce a new thermoelectric technology in a few years that is scalable, economically attractive and that can efficiently tap the waste energy from power plants, what’s next?

The Policy Barriers

In the realm of clean energy, it’s been shown that energy efficiency is the most attractive investment with the shortest payback time. But even with the most proven, market-ready technologies, individuals are still slow to adapt, often at the expense of higher energy bills. How would we get power plants to use thermoelectrics, if such a technology were available?

If past experience is any judge, the wide-scale implementation of a (hypothetical) high-efficiency thermoelectric technology would be a considerable challenge. Unlike private homeowners, electric power utilities are extremely risk-averse and their learning curve is slow. And in contrast with programs such as DOE’s Home Star, there are currently no subsidies or government incentives for utilities to take advantage of their waste heat. Not to mention the fact that even residential energy efficiency has a long way to go, with 20-30 percent energy savings still untapped in the United States. In short, there is a huge energy waste in the power sector and no policy mechanisms to tackle it.

Although it’s difficult to speculate the policy implications of an unproven technology, a few policy themes deserve serious attention. First, industrial plants would think twice about releasing waste heat into the atmosphere and rivers if they could put a price on it. In particular, putting a price on water usage for power plants and factories across the United States would make an enormous difference for the economics of waste heat, as well as for the environment. Second, one could envision a series of requirements for new and existing plants, similar to the Best Available Control Technology (BACT) requirements in the Clean Air Act of 1990, that would be aimed at widening the use of energy-efficiency technology in the power and industrial sectors.

In Conclusion…

At present, the technology behind thermoelectrics isn’t mature enough to play a significant role in economy-wide energy efficiency. Some even argue that this day will never come, and that it would be a waste (no pun intended) of resources to bet on thermoelectrics as a climate change mitigation technology.

It is too early to tell whether thermoelectrics can live up to their full potential, but the basic purpose of thermoelectrics also points to other promising options, such as combined heat and power (also known as a cogeneration plant). As water becomes an increasingly scarce resource, some emerging desalination technologies might also succeed in tapping waste heat from power plants to convert seawater into clean water.

The magnitude of the energy waste problem in colossal: the example of thermoelectrics illustrates how energy efficiency extends far beyond the reaches of our homes. A more mature debate on innovative policy ideas, combined with ambitious technological research, will play a crucial role in bringing about a paradigm shift in the world’s energy landscape.

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David Cohen-Tanugi is a Policy Fellow in AEL’s New Energy Leaders Project. He writes a column on some of the most promising and game-changing clean technologies that are coming out of laboratories in Cambridge and across the United States, providing an in-depth look at the role that innovation policy for clean technologies will play in our energy future.

David is a Ph.D. student at MIT in materials science & engineering.  His research there will focus on computational approaches to clean energy technology. Prior to joining MIT, David served as the China-US climate and energy policy liaison for NRDC.

Disclosure: Several members of the author’s research group at MIT are working on advanced thermoelectric technology. The views expressed are those of the author and do not necessarily reflect the position of AEL.

Given the urgent imperative to reduce carbon emissions, the diffusion of ideas, components, and processes across the globe is a modern day “Icarus” whose trajectory must be delicately plotted.  Protect IP rights too stringently, and the promise of a widespread clean-tech revolution is stymied by the torpid pace of technology diffusion.  Yet maintain too loose of a regime and we risk melting away the financial incentive to innovate in the heat of our haste.  In avoiding both the sun and sea, the world community should expand the role of actors that stand apart from, or at least above, the contentious politics of bilateral trade disagreements.

Just as Icarus had Daedalus to guide him, so the developed and developing countries of the world should look to multilateral institutions such as the IMF, World Bank, G20, WTO, and the existing Kyoto Protocol mechanisms to help leverage the $100 billion promised as part of a prospective international “Green Fund”.  By enhancing the capacity of these entities to enforce existing IP regulations and expand the conduits of technology transfer, the world can begin to share clean technologies in the least politically contentious manner.

For the proliferation of clean-tech and green-tech to be sustainable, it cannot primarily result from “giveaways.”  Developed nations have been lobbied to share with developing ones by means of climate “reparations” or through the extrapolation of “compulsory licensing” language introduced in the 2001 Doha Declaration, which granted developing nations relatively unmitigated access to privately-owned copyrights on life-saving drugs for pandemics such as HIV/AIDS.  However, the diversity of clean technology exceeds that found within the pharmaceutical sector and the requirements of infrastructure, advanced manufacturing processes, and human capital that must exist in the recipient country for proper domestic implementation to be successful are often far higher than in the case of drug patents.  Furthermore, while “compulsory licensing” may make sense on a country-by-country basis, its broad application would continue to foster inequities.  China, for example, recorded almost six times more private and public investment in clean tech than the United States in 2009, and will increasingly be expected to assert greater responsibility than many poorer nations – such as those in Sub-Saharan Africa, for example.

As an alternative to more “conciliatory” arrangements between private innovators and developing nations, multilateral institutions should play a much greater role.  The Kyoto Protocol’s “Clean Development Mechanism” (CDM) is promising on this front, as it creates a new incentive (the future income of ERU offset credits) for firms and investors to introduce technologies and methodologies in developing countries where these solutions would otherwise be financially unfeasible.  Unfortunately, a collection of bureaucratic inefficiencies and opaque protocols has prevented this process from even beginning to realize its full potential.  Firms are reluctant to share technology in areas with weak IP-enforcement regimes, there is little capacity to match potential projects with the requisite technology, the completion of the project and subsequent allocation of valuable offset credits is far from guaranteed, and financing for the technology-acquisition that enables such projects is limited.

An already-active carbon market interlocutor such as the World Bank could expand its role to encourage such investment.  A nascent marketplace or clearinghouse for green technology would help link up project proposals with the requisite technology needed to consummate them.  By working with local authorities in the host country of such a clean development project, the Bank could help the innovator expedite the “due diligence” process of soliciting a guarantee that the technology in question will have ample “room to operate” in the host country without infringing on domestically-protected IP rights.   The Bank could provide transparency, transaction-enforcement, and partial financing to facilitate the agreement.  To allay uncertainty within the still-young carbon markets, the World Bank might also act as a reinsurance entity, catalyzing private-sector actors to step in with expanded insurance products through which innovators and investors can hedge the risk inherent in deploying capital towards a technology-intensive project in a less developed nation.  Should IP rights not be respected in accordance with a contract, the host government would be expected to intervene appropriately or risk the cut-off or term-tightening of future World Bank project financing within its borders.

Of course, the tenuous outlook for robust carbon markets and the offset mechanisms that accompany them demands examining the sale of technology on a broader basis than individual projects.  For example, a company could decide to sell its technology rights to a peer company, local project developer, or municipal government.  This would ensure that the technology is employed in multiple projects, offering economy-of-scale benefits.  It would also encourage responsible care-taking of the technology by the purchasing entity in order to protect the competitive advantage in its own home market for which it has paid a premium.  To buttress the expansion of such transactions, financing facilities such as the IMF’s Clean Technology Fund (CTF) or the World Bank’s various Climate Investment Funds (CIFs) should grow in size and sharpen in mandate.

For example, the CTF has been criticized for spending a large percentage of its funds financing new coal-based power plants that offer only small emission reductions over existing facilities.  This money could be better allocated toward the adoption of technologically-intensive, cleaner processes in developing countries.  The CTF should begin to include a “carbon accounting framework” in its investment decisions, and should expand its powers to include the “buyout” of vital patents, including those which an innovator has thus far refused to sell on the open market.  In this way, bottlenecks in the technological diffusion process due to monopolistic behavior will be reduced, and innovators will still receive compensation for their intellectual property.  To further satisfy the private sector in developed countries, loan adjustment mechanisms could link up to WTO trade dispute adjudication, so that the terms of a World Bank or IMF loan used to finance technology acquisition could be tightened if the foreign entity illegally disperses the technology, resulting in low-price penetration of the original home market.

The measures outlined here do not represent a silver bullet, nor do they guarantee that international institutions can overcome the recalcitrance of inflexible government.  What is clear, however, is that to address a “global commons” challenge such as clean energy generation, we must embolden those entities that promote cross-border cooperation and mutual gains.  Only by letting a “Daedalus” guide our efforts at balancing IP rights and technology access can we keep Icarus in his fragile but crucial flight.

David Livingston is a Contributor with Americans for Energy Leadership (AEL).  The views expressed are those of the author and do not necessarily reflect the position of AEL.

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.

Non-OECD nations will be responsible for 93% of increased energy consumption between 2008 and 2035.  China will remain the focal point of the international energy landscape; in the report’s models China “contributes 36% to the projected growth in global energy use, its demand rising by 75% between 2008 and 2035.” Without cheap alternatives, these nations will largely turn to fossil fuels.  In an international context, it is imperative that OECD nations work not just to limit their own CO2 emissions, but to create cost competitive clean energy technologies which can help fulfill non-OECD nations’ rising demands.

The following are notable excerpts from the report:

“’Renewable energy can play a central role in reducing carbon-dioxide emissions and diversifying energy supplies, but only if strong and sustained support is made available’, Mr. Tanaka said. In the New Policies Scenario, government intervention in support of renewables (electricity from renewables and biofuels) increases from $57 billion in 2009 to $205 billion (in 2009 dollars) by 2035. The share of modern renewable energy sources, including sustainable hydro, wind, solar, geothermal, modern biomass and marine energy, in global primary energy use triples between 2008 and 2035 and their combined share in total primary energy demand increases from 7% to 14%.”

“WEO-2010 estimates that a universal phase-out of all fossil‐fuel consumption subsidies by 2020 — ambitious though it may be as an objective — would cut global primary energy demand by 5%, compared with a baseline in which subsidies remain unchanged. This amounts to the current consumption of Japan, Korea and New Zealand combined. Oil demand would be cut by 4.7 mb/d by 2020, or around one-quarter of current US demand.”

“In the New Policies Scenario, Non-OECD countries account for 93% of the projected increase in world primary energy demand. China – which IEA preliminary data suggests overtook the United States in 2009 to become the world’s largest energy user despite its low per capita energy use – contributes 36% to the projected growth in global energy use. ‘It is hard to overstate the growing importance of China in global energy. How the country responds to the threats to global energy security and climate posed by rising fossil-fuel use will have far-reaching consequences for the rest of the world’, Mr Tanaka added.”

“In analysis that builds on the IEA’s ongoing work for the G-20, WEO-2010 reveals that fossil-fuel subsidies amounted to $312 billion in 2009. “Getting the prices right, by eliminating fossil-fuel subsidies, is the single most effective measure to cut energy demand in countries where they persist, while bringing other immediate economic benefits”, said Mr Tanaka.”

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.

Apollo Alliance: “Winning the Race: How America Can Lead the Global Clean Energy Economy,” March 2010

Center for American Progress: “Out of the Running? How Germany, Spain, and China Are Seizing the Energy Opportunity and Why the United States Risks Getting Left Behind,” March 2010

The Breakthrough Institute and Information Technology & Innovation Foundation released a major report in November 2009 on this topic called “Rising Tigers, Sleeping Giants,” which provides more analysis on China, South Korea, and Japan compared to the United States.

(However, as previously noted by this blog, the Senate bill in its current form has far less federal investment in clean energy technology development and deployment than what many experts, and the White House, have called for.)

Some of the reasons Congressional action cannot wait? In addition to concerns about climate change (which only continue to mount in severity), the editorial cites issues of national competitiveness at stake:

• China is “moving aggressively to create jobs in the clean-energy industry. Beijing not only plans to generate 15 percent of its energy from renewable sources by 2020, but hopes to become the world’s leading exporter of clean energy technologies. Five years ago, it had no presence at all in the wind manufacturing industry; today it has 70 manufacturers. It is rapidly becoming a world leader in solar power, with one-third of the world’s manufacturing capacity.”
• The U.S. faces a “question of credibility.” At COP15, the US pledged to “meet at least the House’s 17 percent target. Success in the Senate is essential to delivering on that pledge. Failure would undo many of the good things [Obama] achieved in Copenhagen, and it would give reluctant powers like China an excuse to duck their pledges.” [Not sure about this last sentence with regard to China, which agreed to a voluntary carbon intensity reduction unilaterally ... and they probably mean to keep it.]
• Finally, the editorial notes, “the ‘jobs argument’ should impress the Senate … The climate change bills pending in the Senate would not begin to bite for several years, when the recession should be over. The cost to households, according to the Congressional Budget Office, would be small. A good program would create more jobs than it cost.”

Unfortunately, things look a bit hazy, despite Harry Reid’s earlier announcement that the climate bill was on the agenda for March. The editorial worries that “many Democrats as well as Republicans seem willing to settle for what would be the third energy bill in five years—loans for nuclear power, mandates for renewable energy, new standards for energy efficiency. These are all useful steps. But the only sure way to unlock the  investments required to transform the way the country produces and delivers energy is to put a price on carbon.” (This presumably refers to investment from private capital markets and not government-sponsored programs or federal investment.)

A couple other relevant notes:

1) Tree Hugger asks: Could Scott Brown’s Victory Be Good for Clean Energy Reform?

2) As we saw at COP15, international action on climate often seems to hinge on U.S. domestic politics.

As Reuters AlertNet reports, “It’s hard to imagine an upset in one U.S. Senate race could derail plans for a new international climate change treaty.” But “the U.S. Democratic party’s loss of a long-held Senate seat in Massachusetts this week, to Republican Scott Brown, means getting key climate change legislation passed in the United States just got a lot harder. And without willingness by the U.S. — the world’s historically largest carbon emitter — to commit to ambitious cuts in emissions, few other nations will feel pressure to be ambitious in their own plans.”

Canada, for example, is concerned about the legislative stall in its southern neighbor and what it will mean for their own energy system.

There are real worries that a minority in the Senate – 41 people — can simply hold the entire world’s efforts hostage, either by preventing action at home by the world’s second-largest emitter (reduces incentives for others to act, makes agreement harder to reach by not living up to “common but differentiated responsibilities”) or simply refusing to allow the U.S. to take part in an international regime.

It should be noted that those 41 senators would not all be from the same political party, as support for climate action is coming from both sides of the aisle. John Kerry (D), Lindsey Graham (R), and Joe Lieberman (I) recently visited the White House to discuss a bipartisan climate bill, and a coalition may be in the works that will be able to pass it. (Boston Globe)