Clarifying Public Investments in Clean Energy Innovation
This is Part 1 of a series of posts analyzing and detailing federal investments in clean energy innovation.
U.S. energy policy is only as good as its innovation-based goals, framing, and emphasis. This is particularly important for climate change policy, which at its core requires public investments in clean energy innovation to spur the development and deployment of cost and performance competitive low-carbon technologies.
Yet a pervasive problem persists in the clean energy policy debate: innovation policy is often misrepresented as only research, or largely ignored by advocates to support rigid economic doctrines or policy goals that divert attention from addressing climate change (e.g. short-term green job creation).
This type of clean energy policy fundamentalism de-emphasizes the need for cheap, new, clean energy technologies and muddles innovation’s foundational role in U.S. clean energy policy. By extension, this process inhibits America’s abilities to drastically cut carbon emissions as quickly as possible.
Providing clarity on what characterizes clean energy innovation policy is critically important. In an effort to do so, ITIF has developed the Energy Innovation Tracker – a detailed public database of federal investments in energy innovation across energy-related technologies, agencies, and innovation stages, down to the project-level if appropriate. It’s a useful tool that provides a comprehensive understanding of the relevant stages of energy innovation to inform better energy innovation policy in the future.
Basic energy science is fundamental scientific research in fields like chemistry, biology, and physics that often don’t have an obvious commercial outcome but could enable a suite of energy solutions. For instance, the National Science Foundation invested $43 million in basic energy science projects through university grants in FY2013 covering a wide gamut of science issues potentially related to energy, such as developing fundamentally new ways to grow nano-crystals which could have significant impact for fuel cells and biomedical technologies. The Department of Energy Office of Science, on the other hand, conducts basic energy research in high-energy physics, nuclear energy, super-computing and chemistry both through University grants, but also through the National Laboratory system. Projects include fundamental research in plasma technology, quantum physics, and the creation of new materials and biochemistries, to name a few.
Research and Development
As basic science progresses in the lab and potential uses and outcomes become more apparent, additional research and development (R&D) is necessary. R&D is specific research that addresses explicit technological needs through creating proof-of-concept prototypes. In many ways this research is still early-stage, but often with more focused purpose and goals. For instance, the Department of Agriculture invests in several different feedstock and conversion process R&D projects in order to target the most cost-effective and efficient combination for creating next-generation biofuels ($11 million in FY2011), while the Department of Transportation’s NextGen Aircraft Technologies program supports the development of alternative jet fuels and low-carbon aviation systems and technologies through early-stage prototyping ($20.1 million in FY2011).
DOE’s Advanced Research Projects Agency–Energy (ARPA-E) offers the most comprehensive picture of laudable public R&D investments; the agency funds early-stage research through prototyping of potentially “transformative” energy technologies that would otherwise be too risky for private investors. ARPA-E was initially funded by the Recovery Act, and was appropriated $143 million in FY2011 and $243 million in FY2012.
Demonstration projects offer the opportunity to show users the practical utility of a new technology, while enabling researchers to collect data on its technical and economic characteristics under realistic conditions and address any remaining research gaps. Because of the capital-intensive nature of energy technologies, demonstration projects are often expensive and are underfunded by the private sector, however despite the high cost of these projects, they are highly valuable because they offer increased access to information to all stakeholders. In fact, for many energy technologies like utility-scale solar, wind, and carbon capture projects, demonstrating its first-of-kind commercial potential is absolutely necessary to gain private sector support for the technology.
Examples of this kind of investment include the American Recovery and Reinvestment Act (ARRA) investment of $685 million in the demonstration of competitively selected, large-scale grid projects to measure performance and cost in a realistic market. The Pacific Northwest Division Smart Grid Demonstration Project installed industrial smart metering, electricity storage technologies, and direct load control devices to distribute power to more than 60,000 customers across five states to validate technology readiness and assess costs and benefits of the enhanced grid system. DOD also supports projects demonstrating advancements in energy technology in pursuit of achieving greater operational capabilities – their Great Green Fleet project equips tanks and other combat vehicles with a variety of energy technologies including fuel cell engines and energy storage and power electronics systems. Investment in the suite of projects contributing to the Great Green Fleet demonstration totaled about $82 million in FY2012.
Siting and Permitting
Support for siting and permitting offers technical and regulatory assistance for planning and management within current policies. Projects focused on siting and permitting often conduct market research for technology commercialization prior to the deployment stage; this kind of research can be as procedural as Department of Commerce research on coastal and marine spatial planning for potential offshore wind locations (which cost $1.5 million in FY2011) or as objective as DOE’s market transformation and systems integration programs within the Office of Energy Efficiency and Renewable Energy (EERE) (which totaled $31 million in FY2011) that research other non-hardware barriers to technology commercialization such as potential regional or industry collaborations, addressing concerns for the wide-spread adoption of emerging energy technologies.
Even after a technology has been demonstrated at full-scale, financing for its full commercialization may not be easily attained because of the nature of the energy industry and the low (often subsidized) cost of fossil fuels. Technology deployment investments can help create economies of scale for technologies by creating an initial customer base, promoting information sharing about the technology, allowing producers to streamline manufacturing processes, and permitting installers to lower costs. Deployment support can directly apply to either commercial “off-the-shelf” technologies that are readily available in the marketplace, or emerging technologies that are not widely available in commercial markets.
The Department of the Treasury is in charge of administering a number of deployment programs through tax incentives that support both clean and conventional energy technologies – the much-discussed Energy Production Tax Credit is one such incentive available to producers of clean energy technologies (wind, solar, biomass, etc.) that provides a subsidy to any eligible clean energy project. In a parallel way the Department of Interior supports the deployment of energy technologies through the department-wide New Energy Frontier initiative, which funds the deployment of renewable and conventional energy on public lands.
An additional way that public investments can promote the innovation of clean energy technologies is through the federal government acquiring technologies. Like deployment incentives, government procurement can create early markets for emerging technologies that are too risky for commercial markets, but show future promise. For example, early government purchasing of the microchip allowed produces to quickly lower costs and eventually take the product to market, revolutionizing the electronic industry. In energy, General Services Administration (GSA) and DOD procurement are the top agencies capable of creating early markets for breakthrough technologies. ITIF’s recent report, Lean, Mean, and Green II: Assessing DOD Investments in Clean Energy Innovation, suggested that DOD’s operational energy challenges drove the department to invest $540 million in FY2012 in the procurement of energy technologies, and about 70 percent of this investment was for acquiring emerging technologies. DOD’s procurement process provides the demand and the capital for the production of these emerging technologies, which in turn offers potential for bringing the technologies to commercial markets.
Last, the future of a competitive clean energy industry in the United States hinges on significant investments in clean energy technology manufacturing. While the previous innovation phases are integral in developing advanced technologies, without a significant manufacturing sector the country continues to rely on the manufacturing capacities of other countries, losing its competitive advantage as an innovator of breakthrough energy solutions. The Section 48C Advanced Energy Manufacturing Tax Credit, for example, awarded funds to energy producers to update or build facilities for the manufacture of advanced wind, solar, geothermal, and other renewable energy technologies.
Improving the pathway towards competitive clean energy in the U.S. lies in improving the quality of our innovation system – but these improvements can only begin with a full understanding of the innovation ecosystem itself. Defining energy innovation at this level of detail exposes the features of a working ecosystem more thoroughly, and defining public investments according to these phases can uncover white spaces that require additional funding, areas of policy weakness, or areas where there may be over-funding. In the following posts, we’ll look more deeply into the public investment profiles of individual innovation phases to give a better sense of what U.S. clean energy policy really looks like, and to provide a sense of how these investments are shaping America’s clean energy future and what additional policy support is needed.