State of Green Business

Funding Innovation, not Taxing Coal, Makes Clean Energy Cheaper

Funding Innovation, not Taxing Coal, Makes Clean Energy Cheaper

Wind turbines - CC license by Flickr user Scott Ableman

 A coalition of think tanks — the Breakthrough Institute, Brookings and the American Enterprise Institute, along with the Information Technology & Innovation Foundation (ITIF) — recently organized a conference of policy makers, scientists and business people in Washington to talk about a big issue: How to stimulate energy innovation.

The backers of Energy Innovation 2010 want to do nothing less than reframe the national conversation about energy. They’d like to see less talk about the question of how to make dirty fuels more expensive (the goal of cap-and-trade or carbon taxes) and more about ways to make clean energy cheaper, largely by driving innovation.

“We need much more radical innovation — scientific breakthroughs — in order to replace fossil fuel power,” said Michael Shellenberger, the president of the Breakthrough Institute. In an excellent essay published this week called "The New Energy Conversation," Shellenberger, his colleague Ted Nordhaus and Rob Atkinson of ITIF write:

The new conversation about energy innovation begins from the recognition that the cost and functionality gap between today’s fossil energy and its alternatives remains wide, and that any serious effort to move away from fossil energy requires closing it – not through unsustainable subsidies to reduce prices, but through innovation that will drive down the real cost of clean energy.

This idea of a new conversation is appealing on its face. Goodness knows we’re all sick and tired of the old one. And who can be against innovation? It’s not a red state-blue state issue, thank goodness, although it will cost money. In a report cleverly titled "Post Partisan Power" released last fall, Breakthrough, AEI and Brookings called for:

increasing federal innovation investment from roughly $4 billion today to $25 billion annually, and using military procurement, new, disciplined deployment incentives, and public-private hubs to achieve both incremental improvements and breakthroughs in clean energy technologies.

But the question, how?

How should that money be spent, and who gets to decide how to spend it?

How should it be allocated between basic R&D and commercialization, between stimulating the demand for clean energy (through policy like renewable portfolio standards or tax breaks) or stimulating the supply (through policies like loan guarantees for solar-panel factories or nuclear power plants)?

How, most of all, can we muster the political leadership to shake America out of what Andrew Revkin, the Dot Earth climate and energy reporter and a conference moderator, called America’s long, and bipartisan, slumber party on energy innovation? (You can read Andy’s take on the event here.)

Those questions hashed out during the conference, which produced lots of good talk, as such events do when you bring a bunch of smart people together. Most everyone agreed that markets alone won’t drive a clean energy revolution, and most lamented the absence of sustained leadership around energy issues.

“The only way we’re going to get a change is, we need an Energy Party instead of a Tea Party,” said Burton Richter, a Nobel laureate and physic professor at Stanford.

Said Cathy Zoi, the assistant secretary for energy efficiency and renewable energy at the DOE: “Even though times are tight fiscally, we need to continue to invest in R&D.”

Nathan Lewis, a Caltech chemistry professor who manages a Sunlight Energy Innovation Hub that is funded by the DOE, noted that energy, as a well-established $1.5 trillion-a-year industry, won’t be easily transformed. He said: “You can’t do it on $5 billion a year. You have no chance. We have to get serious.”

Right now, we’re not serious about energy. That was an unmistakable theme of the day.

But even assuming we do get serious, lots of thorny questions will remain. Whenever the conversation got down to specifics, divisions surfaced. Someone said we need to invest in clean coal, particularly in ways to capture and sequester carbon dioxide. But that technology makes no sense without a steep price on carbon, others noted. Someone else called for 10 big energy innovation projects, but will they selected by members of Congress or scientists? Is a federal bureaucracy the best place to stimulate innovation? And while scientists called for high-risk, high-return R&D, business people like Brian Sager, the co-founder of Nanosolar, talked instead about traditional subsidies for commercialization, like loan guarantees for clean energy firms or federal backing for long-term warranties for solar panels.

“This is surely the toughest technology implementation problem the country has ever faced,” said William Bonvillian, director of MIT’s Washington office and co-author of a book called Structuring an Energy Technology Revolution. He said the government is getting better at promoting energy innovation, citing the new ARPA-E research agency, whose impressive director, Arun Majumdar, spoke at the event.

Another intriguing supporter of the innovation agenda is the Pentagon, which was represented by Dr. Jeffrey Marqusee, the director of something called the Strategic Environmental Research and Development Program (SERDP) at the DOD. The DOD is “clearly the largest energy user in the world,” he said, and it’s willing to invest in efficiency, renewables and smart grid. Small nuclear power reactors were cited as a low-carbon technology that could migrate from the military arena into civilian use.

But, as if to underscore the yawning gap between environmental science and political reality, a sobering email arrived in my inbox during the meeting with the news that the $858 billion compromise tax package approved by the U.S. Senate includes a one-year extension of a tax credit for corn ethanol.

That’s a technology with little support from climate scientists or environmentalists — notably Nathanael Greene of the NRDC — but considerable backing from farm-state politicians.

A coalition of opponents to the ethanol subsidy say it will cost $6 billion, more than the entire R&D budget for clean energy.

By the way, to put spending on energy innovation in context, here’s a chart from an excellent new website called the Energy Innovation Tracker, which looks at government spending on energy R&D. You can see how spending on health and space (especially post-Sputnick) has dwarfed R&D on energy for decades. That’s one reason why we are where we are.

Wind turbines - CC license by Flickr user Scott Ableman