September 17, 2008
Climate Bill Analysis, Part 10: Smart Provisions Could Spur Clean Technology - If They Are Funded
As Breakthrough's analysis of the Waxman-Markey American Clean Energy and Security Act (ACES) has revealed, the climate bill will effectively establish a non-binding "cap" on U.S. emissions while generating a pretty modest price for CO2 pollution. The implication: we can't count on the "cap" and trade provision alone -- nor the now ineffective renewable electricity standard -- to drive deep cuts in U.S. emissions or adequately accelerate clean energy deployment.
To maximize the chances that the emissions reductions aimed for by the bill -- i.e. 17 percent below 2005 levels by 2020 -- are actually achieved, Congress must adopt a proactive set of policies and public investments to accelerate clean energy technology development and deployment and supplement the bill's weakened regulations and price signals.
Several of the bill's provisions aim to do that, but we conclude that most are currently either completely unfunded or critically underfunded. Here we take a look at three smart provisions in the ACES bill that could be key components of a proactive clean energy technology strategy -- but only if they are adequately funded.
- Clean Energy Deployment Administration: this provision would establish a sort of public clean energy bank charged with creating an attractive investment environment for the widespread deployment of a suite of advanced clean energy technologies. Notable for being a deployment policy explicitly dedicated to advancing technology development goals, this provision also enjoys strong bipartisan support on both the House and Senate. However, ACES provides zero funding for this critical component of a proactive clean energy technology strategy. At least $16 billion in initial seed funding should be provided for CEDA, consistent with the Senate version of this provision.
- Energy Innovation Institutes: largely consistent with the recommendations of the Brookings Institution, Breakthrough Institute, Third Way and others, ACES establishes new "Clean Energy Innovation Centers" at research universities, national labs and private research facilities, creating new cross-sector and multi-disciplinary hubs for applied research and development on clean energy technologies. However, these energy innovation institutes are critically underfunded, receiving less than $1 billion/year in funding from the bill's cap and trade allowance value. To bring federal energy R&D programs to a scale sufficient to address the urgent energy innovation imperative and address the needs of a $1.5 trillion annual industry, at least $15 billion in new annual funding should be dedicated to energy R&D, with a significant portion of this new funding dedicated to establishing a robust nationwide network of energy innovation institutes.
- Carbon Capture and Sequestration Demonstration and Early Deployment Program: financed by a micro-carbon fee on all electricity sold in the United States, this program would dedicate $10 billion over the next ten years to promote the commercialization and large-scale demonstration of carbon capture and sequestration technologies for coal plants and other major point-source emitters of CO2. This program is a good example of the kind of direct public investment necessary to bring down capital and technology risk barriers and accelerate clean technology commercialization. But a much better-funded and technology neutral program that would provide competitively awarded funding for the demonstration of a whole suite of first-of-their-kind clean energy technologies is needed, and would be vastly superior to this technology-specific, industry-managed program.
We delve into each of these programs in more detail after the break...
Clean Energy Deployment Administration: added as an amendment overwhelmingly adopted on a 51-6 bipartisan vote during markup, this provision establishes a sort of public clean energy bank to finance and accelerate clean energy technology commercialization and deployment.
Sponsored by Representatives John Dingell of Michigan, Jay Inslee of Washington and Bart Gordon of Tennessee, the provision establishes a new Clean Energy Deployment Administration (CEDA) that will be responsible for creating an attractive investment environment that will spur the widespread deployment of advanced clean energy technologies, including higher risk "breakthrough technologies." The Administration would also support the widespread deployment of critical enabling infrastructure technologies (like new grid technologies), energy efficiency technologies and advanced clean energy manufacturing technologies.
Intended to be a self-sustaining revolving fund, CEDA will leverage federal funds to provide direct loans, loan guarantees, letters of credit, insurance products and other credit enhancement mechanisms to support clean energy technology commercialization and deployment. Funds generated by the repayment of these loans and credit enhancement products will be returned to the CEDA fund to be redeployed.
The new administration would be staffed by professionals experienced in project financing and technology commercialization and would manage a portfolio of projects with various levels of technology risk. This portfolio approach will allow CEDA to maximize the support provided for "breakthrough technologies" -- defined by the bill as clean energy technologies that have a high potential to advance American energy objectives but are not yet "considered a commercially ready technology due to high perceived technology risk or similar factors." In this way, CEDA is designed to provide the patient capital that can help emerging clean energy technologies bridge the infamous technology "Valley of Death" -- the window between R&D and commercialization that many potentially high-impact but high-risk technologies succumb to for lack of financing. Venture capitalists generally look to cash out their investments in 3-5 years, and many technologies struggle to prove themselves in this time frame without the kind of patient capital financing CEDA could provide.
This Clean Energy Deployment Authority provision is notable for two reasons:
First, it was one of just two amendments passed during the marathon four-day Energy and Commerce Committee markup to receive broad bipartisan support from nearly the entire committee, again indicating the widespread support for clean technology development measures.
Second, while the bill is dedicated to spurring the commercial deployment of clean energy, it explicitly views these activities as part of the broader technology development process and includes specific technology development and price improvement objectives in it's operating mission. Technology development doesn't stop at the edge of the lab, and it's high time Congress established a series of clean energy deployment and development policies that were designed as part of a proactive and coordinated portfolio of clean technology development policies aimed at supporting the entire clean energy technology pipeline. This CEDA provision is a smart step in the right direction.
Unfortunately, the Waxman-Markey bill provides NO funding for this critical and potentially high-impact new Clean Energy Deployment Administration. Despite divvying up roughly $1 trillion in allowance value from the bill's cap and trade program between 2012 and 2025 alone (most of which is used to blunt the carbon prices' already modest impact on polluting industries and consumers), the ACES bill dedicates none of this revenue to seed CEDA's clean energy investment fund. Instead, the provision authorizes "such sums as are necessary" to be appropriated at some later date, effectively kicking this critical clean technology program into the tumultuous budget appropriations process to find funding somewhere else.
In contrast, a Senate version of this provision included the energy bill now being marked up in the Energy and Natural Resources Committee, dedicates billions in funding to launch this new program. Like the ACES bill's CEDA amendment, the Senate's "21st Century Energy Technology Deployment Act" has strong bipartisan support and is sponsored by Democratic Senators Bingaman, Dorgan, Stabenow and Shaheen and Republicans Murkowski, Voinovich and Lugar.
Most importantly, the Senate version dedicates $10 billion to set up the CEDA fund and specifies that the roughly $6.25 billion already appropriated for the Department of Energy's troubled loan guarantee programs will be managed by CEDA instead, providing $16.25 billion in start-up funding to kick-start the revolving financing program.
CEDA would be able to leverage this initial funding considerably. Loan guarantees are regularly leveraged at 10 to 1 or more, meaning this level of initial funding would help spur private investment in clean energy technology projects worth more than $160 billion -- and that's before the fund revolves even once -- a clearly high-impact use of federal dollars.
If Congress is serious about spurring clean technology development and strengthening the ACES bill, the Clean Energy Deployment Administration should receive at least $16 billion in starting funding, as in the Senate version of the legislation. CEDA could put this funding -- and probably much more -- to very effective use, driving the deployment of advanced clean energy technologies, strengthening American technological and economic competitiveness and helping achieve needed emissions reductions.
Energy Innovation Institutes: one percent of the ACES bill's cap and trade allowances will be allocated to finance "Clean Energy Innovation Centers" at research universities, national labs and private research facilities, creating new cross-sector and multi-disciplinary hubs for applied research and development on clean energy technologies.
These new energy innovation hubs are largely consistent with the new paradigm for federal energy innovation advocated by the Breakthrough Institute and Third Way in a forthcoming report due out this month and by Breakthrough and the Brookings Institution in a recent column at Yale e360. As we wrote with Brookings (who's Metropolitan Policy Project team has done yeoman's work developing this concept to date), in order to spur a clean energy technology revolution and make clean energy cheap, "federal and state governments, universities, and the private sector must join together to create a network of energy research institutes that could speed development of everything from advanced batteries to biofuels."
However, as much as we are excited to see this new model for energy innovation included in the American Clean Energy and Security Act, we are equally disappointed by the level of funding provided for this critical clean energy R&D program.
Overall federal clean energy R&D funding overall should be raised to $20 billion annually (from around $5 billion today) to bring it to the scale necessary to have a real impact on the $1.5 trillion U.S. energy and transportation industries and provide a level of funding comparable to other national innovation priorities (e.g. health and defense R&D) and historic innovation projects (e.g. inventing the atomic bomb and putting a man on the moon). A significant portion of this new funding would be necessary to establish a robust nationwide network of energy innovation institutes.
In contrast, the ACES bill provides less than $1 billion annually in new funding for clean energy R&D leaving funding for both these new institutes and overall federal R&D budgets inadequate to the meet the energy innovation imperative we face. To adequately spur clean energy innovation and prime the clean technology pipeline, ACES should provide at least $15 billion annually in new clean energy R&D funding, with a sizable portion of this new funding dedicated to establishing new energy innovation institutes.
Carbon Capture and Sequestration Demonstration and Early Deployment Program: added to the bill at the request of influential Energy and Commerce Committee member Representative Rick Boucher (D-VA), this provision dedicates $10 billion in funding over the next ten years to help spur the large-scale demonstration and commercialization of carbon capture and sequestration (CCS) technology for coal plants and other major point-source emitters of CO2.
Funded by what is essentially a micro-carbon tax on all electricity consumed in the United States -- also known as a "wires fee" -- this provision would fund the establishment of a Carbon Storage Research Corporation that would be operated as a division of the electricity industry's Electric Power Research Institute. The Corporation would use this revenue to fund the large-scale demonstration of a variety of CCS capture and storage technologies in order to accelerate their commercial availability.
Funded as it is by a dedicated fee assessed on American electricity consumers -- the fee will average about 50 cents per month for the average American -- and dedicated purely to CCS research, one would be forgiven for seeing this as a pretty sweet deal for coal-reliant utilities.
At the same time though, it's a prime example of the kind of public investment and dedicated programs necessary to overcome the major capital barriers and high financial risk associated with the commercial demonstration of first-of-its kind energy technologies. The question really is: why is CCS the only technology to get this kind of deal? Why no program to spur the demonstration of advanced/engineered geothermal energy or deepwater floating offshore wind turbines?
Why not up the carbon fee to $2.00 a month and provide $4 billion annually to fund a new Clean Energy Demonstration Agency that would invest directly in the commercial demonstration of a whole portfolio of emerging clean energy technologies; or use the funding to create a division within the Clean Energy Deployment Administration to directly finance these programs, expanding the tools CEDA can use to spur clean technology commercialization?
The Carbon Capture and Sequestration Demonstration and Early Deployment Program is a good example of the kind of direct public investment necessary to bring down capital and technology risk barriers and accelerate clean technology commercialization. But a much better-funded and technology neutral program that would provide competitively awarded funding for the demonstration of a whole suite of first-of-their-kind clean energy technologies is needed, and would be vastly superior to this technology-specific, industry-managed program.
See here for the Breakthrough Institute's full collection of ACES analyses (also collected here):