Mass expiration of federal policies warns of a coming clean energy crisis. We can avoid that future by re-thinking and re-designing clean energy development and deployment policies to focus on innovation.
By Jesse Jenkins and Alex Trembath. This post was originally published at the National Journal expert discussion "Is Clean Energy Headed for Crisis?"
"The clean energy industry in the United States is indeed poised for crisis, as the bulk of the nation's major federal clean energy support programs are now scheduled to expire. The lapse of the Section 1705 DOE Loan Guarantee Program, which provided the now-infamous Solyndra loan guarantee, is just the beginning. Over 2011-2014, the federal government will sunset the Production Tax Credit and the Section 1603 Treasury Grants supporting wind and other renewable electricity sources, the Volumetric Ethanol Excise Tax Credit, and the remaining clean energy investments under the Recovery Act. In total, nearly 70% of federal clean energy policies and programs will expire by 2014, according to a forthcoming report from the Breakthrough Institute.
Absent timely action by federal policymakers, the coming mass-expiration of federal clean energy policies and investments virtually guarantees that the boom-times of recent years will give way to an industry bust. In the perilous and challenging journey from basic research to full commercial deployment of nascent energy technologies, several pervasive market barriers require limited but direct public policies to accelerate advanced energy innovation and commercialization. Faced with the collapse of current federal clean energy policies, however imperfect they currently are, private investors will be left largely incapable of picking up the slack on their own.
In a new report from the Breakthrough Institute Energy and Climate Program, we document the challenges facing American energy entrepreneurs seeking to commercialize advanced energy technologies to enhance US energy, economic, and environmental security. Innovative public policy solutions are needed to support private sector innovation and overcome the "valleys of death" that trap too many promising advanced energy ventures.
The United States faces an urgent national imperative to modernize and diversify its energy system by developing and deploying clean, and affordable advanced energy technologies. Domestically, developing new energy supplies and ensuring affordable energy prices will bolster American competitiveness and economic growth. Reducing the cost of advanced energy technologies is the key to finally ending a dependence on volatile global oil markets that holds the American economy hostage, compromises our foreign policy, and bleeds more than a billion dollars a day out of the US economy.
Abroad, the military has already begun deploying innovative clean energy technologies to reduce the high cost, paid in both lives and money, associated with transporting fossil fuels across war zones. Moreover, the impending risks posed by climate change compel the accelerated improvement and widespread deployment of low-carbon energy technologies. Countries around the world are already recognizing the critical need for new advanced energy technologies and are positioning themselves to lead the next wave of energy innovation.
Global energy demand is rising steadily, straining the ability of conventional energy systems to keep pace. For security, economic, and environmental reasons, the global energy system is thus modernizing and diversifying. Developing and developed nations alike are seeking new forms of advanced energy technologies that reduce dependence on foreign nations, insulate economies from volatile energy markets, and are cleaner and thus less costly from a public health perspective. Supplying this $5 trillion global energy market with reliable and affordable clean energy technologies thus represents one of the most significant market opportunities of the 21st century.
Despite this clear energy innovation imperative, the United States and the world remain overly reliant on conventional fuels and exposed to the price volatility and persistent public health impacts that reliance entails. The necessary course of energy modernization remains impeded by the high cost and barriers to scalability of today's clean energy technologies. These are barriers that only innovation can overcome.
However, two obstacles currently block the progress of energy innovation, obstacles which can only be addressed through effective public policy. Due to pervasive market barriers, private sector financing is typically unavailable to bring new energy innovations from early-stage laboratory research to proof-of-concept prototype and on to full commercial scale. This leads to two market gaps that kill off too many promising new energy technologies in the cradle. These gaps are known as the early-stage "Technological Valley of Death" and the later-stage "Commercialization Valley of Death." This pair of barriers is endemic to most innovative technologies yet is particularly acute in the energy sector. As a result, many innovative energy prototypes never make it to the marketplace and never have a chance to compete with established energy technologies. These valleys of death particularly plague capital-starved start-ups and entrepreneurial small and medium-sized firms, the very same innovators that are so often at the heart of American economic vitality.
In effect, the current lack of public policy to address this pair of barriers acts to protect today's well entrenched incumbent technologies from full market competition, while hamstringing American entrepreneurs and innovative ventures seeking to develop and deploy advanced energy technologies. The implementation of creative policies to effectively deal with the Technological and Commercialization Valleys of Death will foster vibrant competition in the energy sector and help drive technological innovation and job creation throughout the economy as a whole.
In the past, the United States has driven immense and far-reaching technological transformations. As the pioneering global innovator of the 20th century, the United States built the world's largest economy because of the ingenuity and creative enterprise of its entrepreneurs and citizens. Each step of the way, proactive public policy has played a crucial role in driving American innovations, from railroads and jet engines to microchips, biotechnology, and the Internet, unleashing long waves of economic growth and shared prosperity. New and advanced clean energy technologies afford the same opportunities to the United States today--if public policy is shaped in a way that allows American innovators to thrive once again.
Energy Secretary Steven Chu will appear today before the House Energy and Commerce Subcommittee on Oversight and Investigation to answer questions on the DOE Loan Program Office. While there are important questions to answer regarding the role of government in technology investment and energy innovation, these questions are unlikely to be the main subject of today's hearing.
What was the original purpose of the Section 1705 loan guarantee program, and what was the expected impact on federal budgets and taxpayers?
In 2009, Section 1705 was added to the DOE Loan Programs Office (LPO), established by the bipartisan Energy Policy Act of 2005. The program was originally appropriated $6 billion in federal funds to provide reserves to cover expected losses on a portion of the loans issued by the agency. This $6 billion would be leveraged to offer a significantly higher loan guarantee volume, unlocking substantial debt finance that would be supplied by private banks. The original $6 billion in funding was raided by Congress to provide funds for the Cash-for-Clunkers program in 2009, however, and ultimately 1705 ended up with a $2.5 billion pool to cover expected loan losses.
Congressional investigators should prioritize clean energy commercialization solutions over political grandstanding and focus on identifying key lessons from the experience of the Loan Programs Office. Congress should put these lessons to immediate use to reform federal involvement in clean energy commercialization and establish a new Clean Energy Deployment Administration.
Step right up to see the latest chapter in the ongoing political circus surrounding the bankruptcy of solar manufacturer and federal loan guarantee recipient Solyndra. Today's main attraction: Secretary of Energy Steven Chu's long-awaited appearance before the eager Republican members of the House Energy and Commerce Committee.
Key questions remain about the ill-fated solar manufacturer's dramatic demise earlier this year. Unfortunately, investigations on the Hill long ago veered into the realm of political point-scoring, rather than a serious inquiry designed to improve federal support for nascent and nationally-critical clean energy technologies.
Taking a step back from the circus on the Hill, let's make two things very clear.
First, the global energy system is modernizing and diversifying. For an array of motivations from public health and climate change to security and economic growth, today's economies demand a 21st century suite of clean and reliable energy technologies to supply the $5 trillion-and-growing global energy market.
Second, the DOE Loan Programs Office was never particularly well equipped to effectively address the "Commercialization Valley of Death"--the persistent lack of risk-tolerant capital that plagues American innovators and entrepreneurs working valiantly to improve the nation's energy, economic, and environmental security.
In the conservation and environmental
communities, technologies like nuclear power and GMOs are usually spoken of as
threats to the environment and biodiversity, or at best as superficial
"techno-fixes" that "fail to address the root cause of problems." In a recently
published paper
in Biological Conservation,
Barry Brook (blog) and Corey Bradshaw (blog) ask if this aversion to technological solutions is tantamount to ignoring a way
of dealing with the ultimate, rather than just proximate, drivers of
biodiversity loss. Conservation might be winning battles, but it's losing the
war. Can this be changed?
Steady-state
economics
as promulgated by the likes of Herman Daly is founded on the belief that the physical
size of the economy cannot grow forever, as it will eventually reach the limits
of the biosphere. An analysis
of UK data
shows that for nearly a decade, UK GDP has been growing whilst resource
throughput, or material consumption, has remained steady or even decreased.
This is the first ever apparent evidence of absolute decoupling between
economic growth and material consumption in an advanced economy, and as such, undermines
the widespread
claims that economic growth is inherently unsustainable. But the implications might not
be as significant as they appear.
In contrast to lingering fears that providing energy access to the world's energy poor will wreck havoc on the environment, the impact on the climate would be negligible.
The urgent need to provide energy access to the billions of "energy poor" around the world is currently making a strong comeback on the international development agenda, but fears linger that the resulting increase in energy consumption will wreak havoc on the environment and many climate change models bank on the continued dependence of a large proportion of people in developing countries on traditional energy sources such as biomass. However, a review of empirical and modeling studies shows that these fears are largely unfounded, and that improving energy access may in fact contribute to both climate change mitigation and resilience.
The International Energy Agency has estimated that achieving universal electricity access by 2030 would have "little impact on energy demand, production or CO2 emissions." Providing electricity to an additional 1.2 billion people and access to clean cooking fuels to 1.7 billion people, over and above business-as-usual, they predict, will result in global emissions only 0.8% higher than the baseline scenario.[1] The World Bank comes to a similar conclusion, claiming that "increasing access to electricity services and clean cooking fuels in many low-income developing countries...would add less than 2% to global CO2 emissions".[2]
In the wake of Solyndra's failure, pundits have latched on to a simple, compelling narrative: government can't do energy right.
From synfuels to solar panels to "clean coal" (written, inevitably, with knowing quotation marks), demonstration projects funded by the Department of Energy are described as one failed white elephant after another. Today the DOE is the agency everyone loves to hate (and, at least in Texas Gov. Rick Perry's case, the agency to forget).
What gets left out (and forgotten) is that virtually every one of today's major energy technologies exists thanks to sustained US government investments in research, development, and demonstration. Consider:
Solar panels were pioneered by NASA, and have seen massive price declines thanks to government research, development, and deployment. Industry leader First Solar is a direct descendant of DOE research as are Nanosolar and GE's thin film solar division.
Rampant partisanship and the polarization of politics point towards ideological exhaustion on the Left and the Right, ushering in a need for a modernized liberalism.
Faced with the prospect of stagnant growth in an increasingly competitive global economy, America's polarized political class offers the nation few credible solutions. Indeed, both parties propose, albeit through diametrically opposed remedies, to stimulate domestic consumption at a time when the economic challenge that America faces is one of production. Conservatives offer knee-jerk opposition to new government spending of all kinds while maintaining a religious faith in the efficiency of the market -- even in the face of a financial crisis that originated with the deregulation of the financial sector and accelerated the collapse of much of America's productive economy. Liberals attempt to redistribute a shrinking economic pie down the income distribution, stimulate consumer demand with government spending, and replace unionized manufacturing jobs, once the means to economic mobility for America's working class, with unionized public sector jobs.
Neither old school redistributive liberalism nor new school neoliberalism are up to the task of dealing with economic stagnation and rising inequality caused by intensifying global competition and the shift to a knowledge economy. The key to greater economic opportunity and social mobility for the poor is a faster rate of economic growth, not wealth redistribution, however meritorious higher tax increases on the rich may be for future fiscal health. Meanwhile, neoliberalism, the dominant successor to redistributive liberalism, has cheered the financialization of the American economy and has had little to say about either the loss of 5.5 manufacturing jobs over the last decade, or the imperative to invest in new public goods, such as innovation.
Stand With Science, a new advocacy group founded by graduate students at the Massachusetts Institute of Technology, is rallying support for public science/engineering funding. In a video released this week, grad students in biology, chemistry, engineering, and other advanced fields of study warn of the coming collapse of federal support caused by impending budget cuts by the Congressional supercommittee. From their website:
Congress and the debt supercommittee are currently looking to reduce projected deficits by more than 1.2 trillion dollars over the next decade. While this will help secure America's finances, these measures will be painful and must be chosen with forethought. We are reaching out to Congress via the letter to demonstrate how federal science funding is an essential source of American prosperity that cannot afford to be cut.However, if Congress and the debt supercommittee do not agree on deficit reduction before November 23rd, there will be mandatory cuts of roughly 9% across the board.
Time is of the essence! Be heard, and improve America's future.
Stand for Science highlights the history of federal investments in technology, from lasers and genomics to cell phones and the Internet. As the Breakthrough Institute documented in our 2010 report "Where Good Technologies Come From," the US government has proved an essential source of groundbreaking technological innovation for over two centuries.
The federal investment deficit is also the topic of the brand new report "Taking on the Three Deficits," released this week by Breakthrough and the Information Technology and Innovation Foundation. The report calculates the dangerous shortfall in federal investment in science, technology, education, and infrastructure, and warns of the combined threat of America's investment, trade, and budget deficits.
As we wrote in "Three Deficits," if post-war federal R&D had been sustained at 1960-1980 levels, these investments would be approaching $230 billion annually today--instead, they are currently at about $150 billion. Since 1980, the United States has accrued a nearly $1.5 trillion R&D investment deficit (see figure below). If current investments continue with no change, that R&D investment deficit will grow to $2.6 trillion by 2021.
Public funding for American higher education and technological innovation has been a cornerstone of American success and prosperity for decades. Widening the investment deficit in the name of reducing the budget deficit is a foolish and dangerously short-sighted non-solution to endemic national challenges.
The students at Stand With Science clearly understand how valuable these national investments are. To learn more about Stand With Science, visit their website or watch their video below.
A new report was released this week from authors at the Breakthrough Institute and the Information Technology and Innovation Foundation (ITIF). The report, "Taking on the Three Deficits: An Investment Guide to American Renewal," acknowledges the threat not just of America's budget deficit, but its trade and investment deficits as well. The cumulative effect represents a profound existential challenge to the United States, and the authors of this new report offer a pragmatic policy framework for America to emerge as a global leader in the 21st century.
America faces three cumulative deficits, each of which must be addressed to ensure continued economic prosperity:
The Budget Deficit is the difference between federal revenues and spending. The budget deficit for FY2011 stands at over $1.2 trillion, and the cumulative national debt will reach $10.4 trillion this year. The debt may rise to more than $18.3 trillion by 2021, according to Congressional Budget Office (CBO) estimates.
The Trade Deficit is the annual difference between U.S. exports and imports. For years, the United States has imported more than it exports, leading to large and persistent trade deficits. In 2010, the United States generated a $500 billion trade deficit. Since 1975, the United States has accumulated a total trade deficit of $8 trillion, and the cumulative trade deficit could grow to $18 trillion in 10 years. The trade deficit creates a drag on economic growth and represents a hidden tax on future generations of Americans who will have to pay it off by running trade surpluses that stem from expanded exports and/or reduced consumption of goods and services.
The Investment Deficit is the shortfall of investments in scientific research, education, productive infrastructure, and new technologies that are needed to maintain our current standard of living and provide a critical foundation for long-term economic prosperity. These investments drive economic growth by accelerating innovation and boosting productivity, yielding positive returns on investment for the entire economy. Yet public investment in these building blocks of national prosperity has declined for decades, leading to stagnating growth and a widening investment deficit that may increase to over $5 trillion in the next decade.
Overall, America's three deficits total almost $21 trillion and are projected to grow to over $41 trillion in 10 years. The budget deficit alone makes up less than half of the total combined deficit, and both future economic growth and government revenues are influenced by the magnitude of the trade and investment deficits. Thus, addressing all three growing deficits is critically important to ensuring continued economic prosperity. Figure 1: Estimate of America's three deficits in 2011 and 2021 projection
America's fiscal problems are worse than merely our budget deficit. In a preview of a report due next week from Breakthrough and ITIF, we document the three deficits facing the United States -- the budget deficit, the investment deficit, and the trade deficit.
What is the political and policy landscape in the debt/deficit debate? Unfortunately these haven't changed much at all in recent months, which will hurt our ability to address America's energy and environmental issues.
That's one of the key messages from a forthcoming report by the Information Technology and Innovation Foundation and the Breakthrough Institute titled, "Taking on the Three Deficits: An Investment Guide to American Renewal." The report argues that what's needed is a fundamentally different framework that counters the predominant approach that all government expenditures are "on the table" to close the budget deficit, estimated to grow to $18 trillion by 2021. While such a strategy makes policymakers appear bold in their approach, in practice it would actually be counterproductive. Across-the-board budget cuts would ultimately reduce economic growth and lead to a higher budget deficit over time.
The reason is simple: America isn't tasked with eliminating just one deficit; it actually faces three interrelated deficits. In addition to the worsening budget deficit, America faces a persistent and growing trade deficit, representing a hidden tax on future generations who will have to pay it off with reduced consumption of goods and services. America also faces a deepening shortfall in public investments in the building blocks of innovation such as R&D, education, and infrastructure. All told, America isn't challenged with just an $18 trillion cumulative budget deficit by 2021 - it's challenged with an estimated $41 trillion three deficits by 2021.
