And according to a new report released today by the Brookings Institution Metropolitan Policy Program, the Mountain West has a pivotal role to play in securing our nation's clean energy future.

This latest Brookings' publication adds to a clear and growing consensus among leading policy organizations that new research and commercialization paradigms are needed to overcome the disjointed and overly stove-piped nature of today's national energy innovation system. Last year, the Breakthrough Institute and Third Way proposed the creation of a National Institutes of Energy--an institution with similar goals.

There are numerous bottlenecks that slow or prevent the successful commercialization of advanced, next-generation technologies, according to the report. These challenges include the price gap between new clean energy technologies and incumbent, low-cost competitors; limited private sector capital; spillover risks from research that cause firms to focus on short-term, low-risk research and product development; and a general disconnect between publicly funded research and technology commercialization in the private marketplace.

Combine that with the federal government's anemic support for energy research and development (R&D)--about $3 billion annually and an order of magnitude less than what the government invests in health and defense-related research--and you have a recipe for a stagnant energy sector ill-equipped to meet the nation's climate and clean energy goals.

Fortunately, notes the report, the Mountain West region already offers many existing assets that can help advance the nation's clean energy priorities. These assets include world-leading federal energy research facilities, such as the National Renewable Energy Laboratory (NREL) in Colorado and the Los Alamos National Laboratory (LANL) in New Mexico; leading universities conducting path-breaking research on biomass and biofuels (University of Idaho), nuclear (UNLV), and solar (University of Arizona), among others; and abundant supplies of sustainable energy resources. For example, every Mountain West state ranks within the top ten nationally for solar power potential and all have high-temperature geothermal resources. Three states--Colorado, New Mexico, and Idaho--rank among the top 15 nationally in wind power potential.

To leverage these regional strengths, Brookings recommends creating a network of energy innovation centers, funded at levels similar to the national labs today, intended to facilitate partnerships among leading universities, labs, and industry to conduct translational R&D capable of both addressing national energy priorities and stimulating regional and national economic growth. The centers would leverage existing regional advantages by pursuing research and commercialization activities organized around themes that are largely determined by the private market. For example, southern Nevada and Arizona, already national leaders in solar energy innovation and production, could coordinate with universities and leading private solar developers to host a solar energy innovation center to conduct research on the entire solar energy supply chain.

The new report clearly indicates the innovation potential of the country's regional assets. Last June, Brookings released a similar report highlighting the strong energy innovation resources of the United States' Great Lakes region. Together, these findings show, unequivocally, that nascent clusters of clean energy innovation and production are forming throughout the country, and that with the right type of integrated public-private partnership, these clusters can transform America's energy system and its economy.

In the wake of the United States failed cap and trade experiment, it is time for Congress to get behind this bold new research effort and finally make progress on our climate and energy challenges.

Just hours after cap and trade failed in the Senate in late July, China announced a ten-year energy plan to invest $740 billion (5 trillion yuan) in clean energy. Details on the plan remain limited, but its implications are huge for China's dominance in the clean tech sector.

In Pursuit of Flight On Land

In early August, China announced the record-breaking development of a Maglev train that can travel approximately 620 kph and could one-day travel as fast 1,000 kph, the same speed as a Boeing 747. (H/t to American for Energy Leadership)

The Iron Hand of Energy Efficiency Goals

Earlier this month, Chinese Premier Wen Jiabao ordered the shut-down of more than 2000 energy intensive factories in an effort to meet the country's ambitious goal of being 20% less energy intense this year than in 2005.

However, a news report by Reuters cast doubt on the impact of the new policy, since a number of firms on the government's list had already shuttered the offending facilities, or had replaced them with even bigger ones.

U.S. Clean Tech Looks for Chinese Investment

First, U.S. VC's turned to China for prime investment opportunities, now U.S. clean tech companies are hoping to attract some of China's investment funds.

China Raises the Bar on Electric Vehicle Standards

In an effort to hasten commercialization of electric vehicles, the Chinese government has organized a new consortium of state-owned automakers and related manufacturers designed to improve standards for electric vehicles and offer the Chinese government more control over electric vehicle development. A major goal of the new group is to accelerate electric vehicle technology innovation through coordinated research efforts.

Investing to Tackle Electric Vehicle Market

In mid-August, China announced plans to invest nearly $15 billion to develop electric vehicles over the next few years, "which if true would make it one of the world's most ambitious attempts to develop more energy-efficient vehicles."
...

Stay tuned for continued coverage as we track China's clean technology progress, as well as other rising clean tech tigers, for our forthcoming update to "Rising Tigers, Sleeping Giant."

This article was cross-posted from Reflections on a Revolution

Barack Obama is not stupid. It was probably clear to him from the very start that taking a radically centrist approach would alienate his liberal friends without necessarily bringing him any closer to his conservative opponents. Yet on a range of issues, from health care to climate change, Obama stoically -- or stubbornly, according to some -- continued down his Middle Path.

Granted, his seemingly tepid approach may not be earning him friends. But it is allowing his administration to lay low while it unleashes the most radical transformation of the American economy since World War II. As Michael Grunwald reported in this fascinating article in TIME Magazine yesterday, Obama's Recovery Act is quietly beginning to revolutionize the U.S. energy sector -- the very backbone of the nation's flailing economy -- tearing down an entire economic paradigm in his wake.

[...] the battle over the Recovery Act's short-term rescue has obscured its more enduring mission: a long-term push to change the country. It was about jobs, sure, but also about fighting oil addiction and global warming, transforming health care and education, and building a competitive 21st century economy. Some Republicans have called it an under-the-radar scramble to advance Obama's agenda -- and they've got a point.

About half a year ago, John Judis of the New Republic made a similar observation in relation to Obama's agenda on regulation and the role of the state in the economy -- dubbing it Obama's Quiet Revolution. Countering the sense of betrayal and disappointment felt by most liberals, Judis noted how:

[...] there is one extremely consequential area where Obama has done just about everything a liberal could ask for--but done it so quietly that almost no one, including most liberals, has noticed. [...] he is resuscitating an entire philosophy of government with roots in the Progressive era of the early twentieth century. Taken as a whole, Obama's revival of [the regulatory] agencies is arguably the most significant accomplishment of his first year in office.

While the majority of Obama's "under-the-radar" stimulus program has focused on boosting aggregate demand through tax cuts and a number of shovel-ready infrastructure projects, a very sizable minority is being channeled straight into a large array of clean tech programs. As Grunwald rightly points out, "any of those programs would have been a revolution in its own right." In fact,

[...] the Recovery Act is the most ambitious energy legislation in history, converting the Energy Department into the world's largest venture-capital fund. It's pouring $90 billion into clean energy, including unprecedented investments in a smart grid; energy efficiency; electric cars; renewable power from the sun, wind and earth; cleaner coal; advanced biofuels; and factories to manufacture green stuff in the U.S. The act will also triple the number of smart electric meters in our homes, quadruple the number of hybrids in the federal auto fleet and finance far-out energy research through a new government incubator modeled after the Pentagon agency that fathered the Internet.

The Recovery Act also very specifically addresses a crucial issue that the Breakthrough Institute has been hammering on for years -- namely that the main obstacle to the Green Economy is the fact that clean energy simply remains too expensive to realistically compete with fossil fuels. In order to bring about a lasting transition, we need to make clean energy cheap, which requires unprecedented investments in R&D of breakthrough technologies.

Grunwald hits the nail on the head, noting that:

Today, grid-scale storage, solar energy and many other green technologies are too costly to compete without subsidies. That's why the stimulus launched the Advanced Research Projects Agency-Energy (ARPA-E), a blue-sky fund inspired by the Pentagon's Defense Advanced Research Projects Agency (DARPA), the incubator for GPS and the M-16 rifle as well as the Internet. Located in an office building a block from the rest of the Energy Department, ARPA-E will finance energy research too risky for private funders, focusing on speculative technologies that might dramatically cut the cost of, say, carbon capture -- or not. "We're taking chances, because that's how you put a man on the moon," says director Arun Majumdar, a materials scientist from the University of California, Berkeley. "Our idea is it's O.K. to fail. You think America's pioneers never failed?"

Clearly, what this all goes back to is the role of the state in spurring on long-term economic development. As Stephen Ezell from the Information Technology and Innovation Foundation just pointed out in an excellent article, we should no longer allow ourselves to be misled by utterly discredited neoliberal rhetoric on the predatory nature of the 'Leviathan state' and the dangers of industrial policy. After all,

"Without government, there's no way we would've done this in the U.S.," A123 chief technology officer Bart Riley told TIME. "But now you're going to see the [green tech] industry reach critical mass here."

After three decades of neoliberal ignorance, bringing us the worst economic crisis in over seventy years, what we needed was a leader with the guts to pursue a bold new industrial policy.

That leader, my friends, is Barack Obama -- our Quiet Revolutionary in the Oval Office.

See Also:

• A Needed Debate on Industrial Policy


• In Defense of Andy Grove: Toward a More Effective Industrial Policy


• In Defense of Bill Gates: Investing in Clean, Cheap Energy


• Bucking the Debate: Clean Energy Industrial Policies at Work

Last week's The Economist leader and cover story, "Picking winners, saving losers", painted an insidious picture of governments' increasing intervention in market economies, arguing that the hideous Leviathan of the state was gobbling up one sector after another and warning that "picking industrial winners nearly always fails." Now, put aside the fact that the government was forced into some sectors--such as automobiles and financial services--only after mammoth market failures and pleas for rescues from capitalism's chieftains. The more important fact is that the article feeds a Socialism-is-coming hysteria and ignores how picking winners--within limits--has worked in the past for the United States (and Japan, South Korea, etc.) and is needed more than ever to bolster our long-term competitiveness.

Of course, the debate about the appropriate role between the state and the private sector in market economies has raged for centuries. The debate is marred in part by vague terminology, and The Economist perpetuates this problem by throwing around a slew of terms--"picking winners", "industrial policy", "innovation policy"--without adequately distinguishing between them but while uniformly indicting them as inappropriate manifestations of government economic intervention.

It would be more constructive to envision a continuum of government-market engagement, increasing from left to right in four steps from a "laissez faire, leave it to the market" approach to "supporting factor conditions for innovation (such as education)" (which The Economist endorses, as, certainly, does ITIF) to going further by "supporting key technologies/industries" to at the most extreme "picking specific national champion companies", that is, "picking winners." And while it is generally inadvisable for governments to intervene in markets to support specific national champion companies, ITIF believes there is an appropriate role for government in placing strategic bets to support potentially breakthrough nascent technologies and industries.

Early on, companies were reticent to invest in the nascent field of computer networking because the sums required were enormous and the technology was so far from potential commercialization that companies were unable to foresee how to monetize potential investments. Moreover, such basic research often results in knowledge spillovers, meaning the company cannot capture all the benefits of its R&D investment (in economist's terms, the social rate of return from R&D is higher than the private rate of return), and thus companies tend to underinvest in R&D to societally optimal levels. Of course, this dynamic pertained not just to the Internet, but applies today to a range of emerging infrastructure technologies such as biotechnology, nanotechnology, robotics, etc. As Greg Tassey, Senior Economist at the National Institute of Standards and Technology (NIST), explains it, "the complex multidisciplinary basis for new technologies demands the availability of technology "platforms" before efficient applied R&D leading to commercial innovation can occur." In other words, the levels of investment required to research and develop emerging technologies is so great that the private sector cannot support it alone, and thus, "government must increasingly assume the role of partner with industry in managing technology research projects."

Such was the case with the initial development of the Internet, as government stepped in and provided initial R&D funding, helped coordinate research between the military, universities, and industry, and thus seeded development of a breakthrough digital infrastructure platform, making the Internet a reality decades before the free market ever would have (if ever) if left to its own devices. And this admittedly-successful industrial policy has indeed been a spectacular success. As ITIF documented in a recent report, The Internet Economy 25 Years After.com, the commercial Internet now adds $1.5 trillion to the global economy each year--that's the equivalent of adding South Korea's entire economy annually.

Moreover, the list of technologies in which government funding or performance of research and development (R&D) has played a fundamental role in bringing the technology to realization is long and compelling. It includes: the cotton gin, the manufacturing assembly line, the microwave, the calculator, the transistor and semiconductor, the relational database, the laser beam, the graphical user interface, and the global positioning system (GPS), amongst many others. The National Institute of Health (NIH) practically created the biotechnology industry in this country. And yes, even Google, the Web search darling, isn't a pure-bred creature of the free market; the search algorithm it uses was developed as part of the National Science Foundation (NSF)-funded Digital Library Initiative. (But Google hasn't done much to spur economic growth!) The point is that companies like IBM, Google, Oracle, Akamai, Hewlett-Packard, and many others may not have even come into existence─and certainly would not have prospered to the extent they have─if the U.S. government was not either an early funder of R&D for the technologies they were developing or a leading procurer of the products they were producing. And if you don't get Intel developing the semiconductors, or Cisco building out the Internet, or Akamai securing it, or Google making it accessible, then you don't get the downstream companies like the Amazons or eBays, the latter of which 724,000 Americans rely on as their primary or secondary source of income.

Thus, while governments shouldn't be creating and running such companies itself--that is for the free market to do--the government has a role to play in thoughtfully, strategically, and intentionally placing strategic bets on nascent and emerging technologies--as the United States did with information and communications technologies in the 1960s and 1970s--that have the potential to turn into the industries, companies, and jobs that drive an economy two to three decades hence. We call this innovation policy, as opposed to industrial policy. Today, this augurs the need for smart policies and investments in industries such as robotics, nanotechnology, clean energy, biotechnology, synthetic biology, high-performance computing, and digital platforms such as the smart grid, intelligent transportation systems, broadband, and Health IT. Explicit in this approach is a recognition that some technologies and industries are in fact more important than others in driving economic growth--that "$100 of potato chips does not equal $100 of computer chips." Indeed, they are not because some industries, such as semiconductor microprocessors (computer chips) experience very rapid growth and reductions in cost, spark the development of subsequent industries, and increase the productivity of other sectors of the economy--not to mention support higher wage jobs.

Yet The Economist frets that governments aren't very good at identifying and investing in strategic emerging technologies. In impugning governments' ability to pick winning technologies, the article cites failures such as France's Minitel (a case of a country picking a national champion company) and argues that "Even supposed masters of industrial policy {like Japan's MITI, or Ministry of International Trade and Industry} have made embarrassing mistakes." But this would be tantamount to pointing to the spectacular failure of Apple's Newton and arguing that Apple's no good at innovation. The Economist seems to suggest that if governments failed 80-90% of the time in picking technology winners (and ITIF actually thinks their success rates are much higher), then they must be pretty incompetent at the effort and should stop trying altogether.

But if private corporations followed that advice, then we would have no innovation whatsoever. Indeed, research by Larry Keeley of Doblin, Inc. finds that, in the corporate world, only 4 percent of innovation initiatives meet their internally defined success criteria. More than ninety percent of products fail in the first two years. Other research has found that only 8 percent of innovation projects exceed their expected return on investment, and only 12 percent their cost of capital. Yet companies have to continue to try to innovate, even in the face of these long odds, because research finds that firms that don't replace at least 10 percent of their revenue stream annually are likely to be out of business within five years. The point is that just because innovation is difficult and success rates are low, this does not mean that corporations, or governments, should quit trying--or that their successes, like the Internet, can't be spectacularly successful and have a profound impact on driving economic growth.

But The Economist laments that industrial or innovation policies are subject to capture by industries. What this neglects is that all countries, including the United States, already have de facto industrial policies that favor some industries over others. In the United States, for example, our regulatory and tax system favors agribusiness through farm subsidies, the oil industry through oil subsidies, airlines and highways at the expense of rail, and mortgage and financial industries. In fact, it is precisely because the United States has historically lacked an ability, or willingness, to have a clearly defined innovation strategy and an open dialogue about "making strategic decisions about strategic industries" that we've ended up with a de facto industrial policy ill-suited to supporting industries that will drive economic growth in the future. The Economist notes that "there is no accepted framework for "vertical" policy, favoring specific sectors or companies." True. So let's make one.

Finally, while The Economist criticizes President Obama's new Strategy for American Innovation (released in 2009), it fails to come up with compelling evidence that breakthroughs such as mapping the human genome, unlocking nanotechnology's potential, or achieving the technology-enabled transformations that need to occur in sectors from energy to transportation will occur solely because of the market's ability to allocate capital efficiently. In this, it discounts the need for effective, intentional public-private partnerships to invest in and collaborate in the development and diffusion of these industries and technologies.

This critique is not meant to pick on The Economist, which is usually chock full of solid reporting and informed commentary. Rather it is take on the myth of America's purely free market capitalist system and make the case for an informed innovation policy. It is also to note that countries (like the United States) find themselves desperately turning to industrial policy in a last ditch effort to save stumbling sectors such as automobiles because they have failed to make adequate investments in innovation policies that would support science and technology, R&D, and the development and diffusion of innovative processes and technologies that could have helped keep old sectors like automobiles at the technology frontier while supporting the development of new sectors to drive the economy forward.

Finally, it seeks to rebut the ideological and highly politicized assault on the idea the governments cannot make prudent, targeted bets on the industries of tomorrow. As Greg Tassey has noted, competition among governments has become a critical factor in determining global market share among nations. Indeed, the role of government is now a critical factor in determining which economies win and which lose in the increasingly intense process of creative destruction.

There are appropriate and inappropriate roles for governments to play in this competition. Supporting education, removing barriers to competition, supporting free and fair global trade, opening countries to high-skill immigration, and targeting strategic R&D investments towards the technologies and industries of the future are appropriate roles for governments to play in this competition. Other government policies, such as mercantilist ones which deny foreign countries' corporations access to domestic markets, pilfer intellectual property by stealing it outright or making it a condition of market access, creating indigenous or proprietary IT standards, failing to adhere to trade agreements, or directly subsidizing domestic companies or their exports, are illegitimate forms of global economic competition. The United States--and The Economist--must abandon its fanciful, stylized neoclassical notion of a purely free global economic marketplace unfettered by any form of government intervention whatsoever, and recognize that governments play a legitimate and crucial role in shaping the innovation capabilities of national economies. As between corporations, it's a competition; and, as with companies, the ones that develop the best strategies and skills at fostering, developing, and delivering innovation are the ones most likely to win.

Stephen Ezell is a senior analyst at the Information Technology and Innovation Foundation (ITIF), with a focus on international information technology competitiveness and national innovation policies.

See Also:

• A Needed Debate on Industrial Policy


• In Defense of Andy Grove: Toward a More Effective Industrial Policy


• In Defense of Bill Gates: Investing in Clean, Cheap Energy


• Bucking the Debate: Clean Energy Industrial Policies at Work

Bill Gates has been speaking out publicly over the last few months--first in a blog post on his website, then in a talk at the TED conference, and now as part of the American Energy Innovation Council--for radical energy innovation to drive carbon emissions to zero.

In a climate discourse dominated by emissions targets and carbon caps, Gates has provided a refreshing and clear-eyed look at the first-order importance of direct public investment to develop clean, affordable technologies to replace fossil fuels on a global scale.

In this new interview, Gates discusses why dismissing the difficulty of the challenge is counter-productive, and argues that carbon pricing can never drive the dramatic innovation required to transform the global energy system. Instead of raising the price of fossil fuels, Gates argues that the time has come to shift our attention to raising the revenues necessary to fuel innovation and make clean energy cheap.

Below the fold, you can find excerpts from Gates' interview, which can be read in full here.

For more, the NYTimes Andy Revkin and TIME magazine's Bryan Walsh each spotlight the interview here and here, respectively.

[Bill Gates:] Well, basically not much. The energy market is an absolutely gigantic market, and the price of energy is a key determinant in improving lifestyles, whether for the rich, the middle-income, or the poorest. It seems slightly more intense for the poor: things like fertilizer and transport, or health care, are very expensive for them. You know, things like basic lighting are very expensive. But it's a big enough market that if you come up with cheap ways of making electricity, then that should be done with typical big-firm risk taking, small-firm risk taking. On the other hand, the way capitalism works is that it systematically underfunds innovation, because the innovators can't reap the full benefits. But there's actually a net benefit to society being more R&D-oriented. And that's why in health research, governments do fund R&D.

You are a member of the American Energy Innovation Council, the AEIC, which calls for a national energy policy that would increase U.S. investment in energy research every year from $5 billion to $16 billion. ... I was stunned that the U.S. government invests so little.

Yeah, particularly when you look at the DOE budget, and it looks so big--but the biggest part of that by far is dealing with the legacy of nuclear weapons production at various sites around the country. I was stunned myself. You know, the National Institutes of Health invest a bit more than $30 billion.

...

The irony is that if you actually look at the amount of money that's been spent on feed-in tariffs and you properly account for it--tax credits, feed-in credits in Spain, solar photovoltaic stuff in Germany--the world has spent a massive amount of money which, in terms of creating both jobs and knowledge, would have been far better spent on energy research. But it kind of shows up as "Okay, I'm paying a little more for electricity," which is a very complex, opaque thing. Where you're mixing in low-cost hydro sources or things that have been fully depreciated with new things that are very expensive, it's very complicated; when people are actually subsidizing some deployment, they don't see it as much. Whereas if you say "Okay, we need to raise a tax to fund the R&D," that's more explicit.

I was stunned, when I did the work with the AEIC, to see that if you wanted the U.S. energy industry as a whole to fund this R&D, you'd only have to tax energy 1 percent. That is, the amount of tax you'd need to fund the R&D is an order of magnitude less than the amount you'd need to increase the price of energy in order to start to have a strong price signal in terms of efficiency and tradeoffs in new power plants.

The tradeoffs in new power plants you can do through regulation--just say, "Hey, you have to retire CO2-intensive plants at various dates, and you have to replace them with ones that meet various CO2 standards." So that actually creates a market, in the sense that people have to buy those things.

But it'd take a very small tax to fund even a significant level of R&D increase. And that's using the term "R&D" very broadly, because in that $16 billion total that the AEIC called for, we had several things that are about pilot-plant deployment and financing. About one-third of it was not in traditional R&D. In energy we need to do the basic research. It's materials science, it's modeling, it's storage, there's a lot of things.

It is disappointing that some people have painted this problem as easy to solve. There are actually two articles in Scientific American where they allowed the author to say, "Oh, this is easy. Just go do a bunch of compressed air and sun," or "Just go do a mix of things and it's easy." It's not easy, and it's bad for society if we think it is easy, because then funding for R&D doesn't happen. If it was going to be easy, then that money really wouldn't be necessary. But in my view it's very necessary, and that's despite the fact that if you take the innovation economy in the U.S., broadly defined, now versus 10 years ago, there's a lot more energy activity. There's many examples of that. You've got Silicon Valley, with people like [venture capital firm] Perkins. Vinod Khosla [of Khosla Ventures] was into it early and he's got an amazing portfolio, but now there are many others doing it.

You've talked about the need for "energy miracles." But we've been waiting for such breakthroughs for decades. TerraPower is a traveling-wave reactor, a design that dates back to the 1950s. We've been working on energy miracles--and we've seen nothing. Wouldn't we be better off making the energy technologies we have more efficient?

Well, no, we haven't been working on those things. The nuclear industry was effectively shut down in the late '70s. And so evolutionary improvements on those so-called Gen 3 designs really didn't happen. And more radical designs that were measured according to their economics didn't happen. There's a lot of paper designs under the heading Gen 4, but most of those are going to be very, very expensive. They're kind of cool science, but they're very, very expensive.

But let me get back to the main thrust of your question. The CO2 problem is simple. Any amount you emit causes warming, because there's about a 20 percent fraction that stays for over 10,000 years. That's the way the ocean equilibrates with the air on this planet. So the problem is to get essentially to zero CO2 emissions. And that's a very hard problem, because you have sources like agriculture, rice, cows, that are single-point sources out with the poorest people. So you better get the big sources: you better get rich-world transport, rich-world electricity, and so on to get anywhere near your goal.

And so when people say, "Shouldn't we do X or Y or Z?"--well, if X or Y or Z gets you a 20 percent reduction, then you've just got the planet, what, another three years? Congratulations! I mean, is that what we have in mind: to delay Armageddon for three years? Is that really it? A 20 percent reduction is interesting, and it's on the way to a 40, 60, 80 percent reduction, but most things that are low-hanging fruit are not scalable.

The U.S. uses, per person, over twice as much energy as most other rich countries. (Put Canada and Australia aside, because they are almost as bad as us.) And so it's easy to say we should cut energy use by building better buildings and higher MPG and all sorts of things. But even in the most optimistic case, if the U.S. is cutting its energy intensity by a factor of two, to get to European or Japanese levels, the amount of increased energy needed by poor people during that time frame will mean that there's never going to be a year when the world uses less energy.

In other words, there is absolutely no hope if you just say the world should use less energy. The only hope is less CO2 per unit of energy. It may feel good for people to use less energy, and they should--if individually they can delay Armageddon for about one microsecond, everybody should do that--but you ought to save the political will and the money to make sure you're doing the thing that really has a chance of solving the problem, and that's CO2 intensity. And no, there is no existing technology that at anywhere near economic levels gives us electricity with zero CO2.

Then what kinds of energy miracles do we need?

You know, take wind: it's actually not that far from economical when it makes up the last 20 percent of the energy supply. But almost everything called renewable is intermittent. I also have another term for it: "energy farming." The density is very low. We have no idea how to take those intermittent sources up to 50, 80, 90 percent. ... It just points up that without a storage miracle, you cannot take intermittent sources up to large numbers. In fact, not only do you need a storage miracle, you need a transmission miracle, because the intermittent sources are not available in an efficient form in all locations.

Now, energy factories, which are hydrocarbon and nuclear energy--those things are nice. Well, they have some nice things and some not-nice things. ... Unfortunately, conventional energy factories emit CO2, and that is a very tough problem to solve, and there's a huge disincentive to do research on it. People are willing, but until society decides that the government's willing to certify storage locations and take the long-term risk and do the monitoring of trillions of cubic feet of CO2, it can't happen. The complexity of managing, say, 50 years of U.S. carbon emissions--it makes Yucca Mountain look like the most trivial exercise ever contemplated. I happen to think that if you have the political will, the technical problems could be solved.

Let's talk about policy, then. The prospects for a strong climate bill in the U.S. Congress now look dim. And so do the chances for any binding international treaty. But almost everyone agrees that there needs to be a price on carbon--whether a Pigovian tax [a kind of tax levied on a market activity that generates negative externalities, named after the British economist Arthur Pigou] or a cap-and-trade system. Without a price, there's going be very little incentive to do the kinds of research, or create the kinds of technologies, or build out the kind of infrastructure, that we need.

No, that's not right. It's ideal to have a carbon tax, not just a price on carbon, which is this fuzzy term that includes cap-and-trade.

Well, ideally, you'd do a Pigovian tax--

No, not a Pigovian tax. A Pigovian tax is where you pay for the damage. Here, you're not paying for the damage--you can't pay for the damage. You're using the tax to create a mode shift to a different form of energy generation. You are not paying an amount that allows somebody to suck the CO2 out of the air. Let's just take the electric sector. If you imposed a 2 percent tax, you'd get the money for the R&D. And then you just take all the carbon-emitting plants, you look at their lifetime, and you say on a certain date this one has to be shut down, and when a new one is put in place, it has to be low-CO2-emitting.

That's a regulatory approach, and it's very clear. Remember what this is all about. This is about somebody who buys power plants, and who really buys power plants? Utility commissions really buy power plants. The utilities are really just middlemen who are given permission to actually do these projects. But the decision to get great recovery against rate payers, that's made by utility commissions. These are the people. And a federal law saying you can't buy plants that emit CO2 can force the hand of those utility commissions. This is all about plants, and the framework that exists for the 40 years that an energy plant exists. So when anybody that says that we need a carbon tax, if you really want to affect the behavior of the people that buy those plants, you've got to have certainty from years 10 to 50.

... You have to do it with something that you believe will stay in place. If you said to a utility company executive, which is more likely to stay in place: a cap-and-trade thing, whose price will vary all over the map, that will have some international things [e.g. offsets] that will be shown to be a waste of money? A regulatory thing about plant replacement over the next 50 years? Or something that's trying to work through price? Which looks more black and white to somebody deciding to build power plants? The price will have variability: all these schemes do, because they have escape clauses, and they give away free permits to the politically advantaged and create new requirements for governmental revenue.

So I'm perfectly happy with the carbon tax. We should have a carbon tax. It has the advantage that it also immediately sends a signal for efficiency. What we owe the developing world is this: we're willing to pay high prices for energy plants above coal and drive prices down the curve so by the time they need to buy them, they don't have to pay the high price. What it costs to have them overpay for electricity is measured in lives. We need to invent electricity technologies that they'll be able to buy at super-good prices. There are some technologies that could get there. We need to pursue them all.

That sounds very rational, pragmatically feasible, and humane. It also sounds politically unlikely.

Which is more likely: a carbon tax with all sorts of markets and options and uncertainties about prices, and traders in the middle, and confusion about who initially gets the most advantage? Or a regulatory thing that says you mark every coal plant in the country with when it has to be retired, and a 2 percent tax to fund the R&D so that utilities know they can buy a plant that's emitting hardly any CO2? Because the innovators are designing things for the power-plant buyers 10 years from now, who are looking at the regulatory and tax environment for the next 40 years. So I don't know if anything will happen. I hope something does, but to be frank, there's so much money cycling in and out of Washington that a bunch of it goes to fairly inefficient things. I mean, just look at the House bill in terms of the various groups that got free carbon credits. Raising energy prices by 2 percent and sending it to R&D activities seems easier in a weak economy than raising them 20 percent and cycling it through Washington. Now, 0 percent is the easiest option of them all, but unfortunately that doesn't get us the solution to this problem, which is a long-term problem.

Read the full interview at Technology Review here.

See also:

• In Defense of Bill Gates


• U.S. High-Tech Leaders Call for Tripling U.S. Public Investment in Energy Research and Development


• Innovating to Zero: Bill Gates' push for Energy R&D

The American Recovery and Reinvestment Act has funded breakthrough innovation and new growth industries that are driving down the cost of clean energy and building the foundation for competitive 21st century U.S. industries, according to a new White House report released today on the impacts of the U.S. stimulus bill.

The report, "The Recovery Act: Transforming the American Economy Through Innovation," is notable for highlighting the multifaceted and relatively comprehensive clean economy strategy now underway with stimulus investments, and for the Administration's welcome focus on making clean energy cheap.

Yet while the White House report highlights the considerable clean energy momentum established by the Recovery Act, it also inadvertently raises the specter of an impending clean tech funding cliff which risks sending U.S. clean energy industries into deep freeze as stimulus funds begin to expire over the coming months.

The White House report correctly frames the overriding goal of clean energy investment around making clean energy cheap in real, unsubsidized terms. For solar energy, according to the report, the near-term goal is for solar electricity to be competitive with retail electricity rates, with a long-term goal to compete with central fossil fuel power plants. As the Breakthrough Institute has consistently argued, taking clean energy alternatives to scale and building globally competitive clean energy industries will ultimately depend on such improvements in cost and performance.

Cost reductions and performance improvements in solar technology, advanced batteries, and electric-drive vehicles will be driven by a confluence of factors, according to the report, including direct public support for energy innovation, manufacturing and deployment, and by strengthening the linkages across all three areas.

The White House report notes that the Recovery Act is accelerating solar energy innovation by providing funding for greater solar energy deployment, manufacturing and scale-up, and catalyzing needed technological breakthroughs to create novel and more efficient technologies. All told, these measures may help reduce to cost of solar power by 50% in coming years, according to White House estimates, while building domestic manufacturing capacity and investing in next-generation solar breakthroughs that could form the basis of entire new U.S. industries.

Similarly, stimulus investments have helped transform the United States from a bit player in international advanced battery markets to a global competitor with an estimated 20 percent of worldwide manufacturing capacity online by 2012, all while potentially driving down the cost of electric vehicle batteries by up to 70%. The key to success, the White House says, has been "investments across the innovation chain - from retooling current auto factories to new manufacturing and commercial deployment to research and development of electric drives and batteries."

This multifaceted focus on innovation, manufacturing, and markets, bears a striking resemblance to the comprehensive clean economy strategy the Breakthrough Institute has spent much of the past two years advocating through an ongoing series of reports, policy recommendations, Congressional testimony, and writings.

It is notable, however, how distinct such a strategy is from the dominant cap and trade debate that has consumed essentially the entire Congressional calendar since passage of the Recovery Act in February 2009. The nearly complete focus of the subsequent Congressional energy and climate debate on the primacy of carbon pricing may have ultimately prevented meaningful debate on how to optimize and extend the critical, comprehensive clean energy investments begun under to stimulus and enact a long-term investment strategy to strengthen clean energy competitiveness.

Indeed, while the stimulus was supposed to be a "down payment" on a new clean energy economy, the Congressional cap and trade bills--which would have invested little in clean energy technology--left the country likely to default on long-term clean energy promises.

Meanwhile, our economic competitors are not making the same mistakes we are, and are continuing to publicly invest in their domestic energy innovation systems in a bid to capture the increasing economic rewards inherent to the burgeoning clean energy industry.

China is set to unveil a massive $740 billion, 10-year package of direct investments to secure their economic leadership in emerging clean energy industries. China already dominates global market share for electric batters, wind turbines, and solar panels, and is rapidly boosting its capacity to innovate and produce next-generation clean energy technologies. Japan, South Korea, Germany, Spain, Denmark and a host of other international competitors are also fast at work building domestic clean energy industries with a multifaceted focus on innovation, manufacturing, and markets.

Facing such intense global competition, and with Recovery Act funds poised to expire soon, sending U.S. clean energy markets off a clean tech funding cliff, the U.S. is in dire need of a long-term clean energy investment strategy to regain economic and technological leadership in this new growth sector.

The substantial and successful impact of the public investments in the U.S. stimulus bill point to a way forward, but unless rapidly followed by a long-term, sustained investment strategy, the Obama Administration's clean energy legacy may wind up tarnished by the continued erosion of U.S. clean energy competitiveness.

Jesse Jenkins is Director of Energy and Climate Policy and Devon Swezey is Project Director at the Breakthrough Institute. Both are co-authors of "Rising Tigers, Sleeping Giant" a comprehensive report on global clean tech competitiveness, and "Strengthening Clean Energy Competitiveness," a set of Congressional policy recommendations.

We warned about this last Friday, when we argued that cap and trade advocates would use recent news that Deutsche Bank is moving clean energy investment overseas as evidence that cap and trade would have kept investment in the United States.

According to Restuccia:

"It turns out that an economy-wide cap on carbon emissions really is necessary to spur investment in what President Obama likes to call the "clean energy economy." At least for Deutsche Bank."

Actually, according to Deutsche Bank's own reports, a carbon cap would have done little:

"While emissions targets express an intention and carbon markets might deliver a price signal in the long-term, governments must strengthen underlying mandates and incentives immediately if capital is to be deployed to cover the gap, creating more investment and jobs."

Indeed, in his comments to Reuters, Deutsche Bank Head of Global Asset Management, Kevin Parker, is careful not to mention cap and trade directly. And if he is referring to cap and trade, then he's being disingenuous, as his own reports criticize the "volatile market incentive approach" of the United States.

China planning public investment, not cap and trade

Restuccia also writes that China, which has attracted the bulk of private investment in clean energy, will "begin capping carbon emissions" in the near future. Yet China is not considering absolute emissions reductions targets or an economy-wide cap and trade system, but is considering localized trading systems, similar to the voluntary exchanges we have in the United States. A recent Reuters article on the subject states that China "won't be rushing to launch a national emissions trading scheme or to commit to absolute emissions reduction targets."

The real story that Restuccia and many others miss is the country's planned $740 billion, 10-year investment package expected to be announced soon. Indeed, the reason China has become a hub of clean tech investment is that it's government is very actively promoting the sector through major public investments in R&D, manufacturing, and deployment incentives like procurement and feed-in tariffs.

It's time for clean energy advocates to recognize no congressional cap and trade bill will drive substantial private investment without a targeted, proactive clean economy strategy that prioritizes major public investment in clean energy technology.

See also:

• Deutsche Bank's Parker: Senate Clean Energy Policy Failure Driving Investor Exodus


• A Clean Energy Competitiveness Strategy for America


• Report: Rising Tigers, Sleeping Giant

Over at CNBC, reporter Trevor Curwin has been one of the first to note the significance of the Republican bill, which Nunes' says could "potentially provide hundreds of billions in financing" for renewable energy over the next several decades.

"It's clear and transparent; the people with the best technology will get the help," Nunes says of the bill, dubbed "A Roadmap for America's Energy Future,"

Depending on how much territory is eventually opened up to drilling, research firms estimate the royalties could be worth $10 billion to $50 billion a year.

As Curwin notes, Nunes' plan would rely solely on new revenues from oil and gas leasing to fund the renewable energy investments, including the always contentious proposals to open up areas of the Arctic National Wildlife Refuge as well as the development of oil shale resources and expanded offshore drilling. While more offshore drilling enjoyed bipartisan support just months ago, in the wake of the BP Deepwater Horizon disaster in the Gulf, the prospects for new offshore oil and gas production are uncertain.

But there are other ways to fund the renewable energy investments Rep. Nunes' and his GOP colleagues envision. Curwin quotes my recent suggestion, along with Breakthrough's Yael Borofsky, that a small fee on each barrel of oil sold could do the trick.

A $5 per barrel fee on all oil consumed in the United States, for example, would raise roughly $40 billion annually for critical national investments in clean energy technologies and industries, and would increase gasoline prices by just 12-15 cents per gallon. That's in the regular 'noise' of gas price fluctuations, which have risen or fallen by 15 cents or more on 14 different occasions in the last two years, according to data from the U.S. Energy Information Administration.

Other alternatives include a very modest fee on carbon pollution ($5 per ton would raise roughly $30 billion annually and increase gas prices by less than a nickel per gallon) a wires fee on electricity sales ($10 billion could be raised annually without costing the average household more than $5 per month on their utility bills), the sunsetting of well-worn subsidies for mature energy sources (including oil, coal, corn ethanol and probably even wind power), or some combination of the above.

At the end of the day, the choice of revenue raiser is important, but not the central issue. With representatives on both sides of the aisle now recognizing the importance of national investments in clean, American energy sources, new opportunities for bipartisan progress on clean energy may be possible where efforts to pass contentious cap and trade legislation have repeatedly failed.

As I told CNBC, Nunes' proposal is a positive step forward, a sign that smart investments to boost U.S. clean energy production, spur innovation to reduce the price of emerging clean energy technologies, and strengthen America's clean energy industries and entrepreneurs are all points that can enjoy bipartisan consensus.

On it's own, a program for strategic, competitive deployment incentives to spur clean energy adoption, similar to that proposed by Rep Nunes and his colleagues, could be a key component of a 21st century clean energy strategy.

A comprehensive strategy to make clean energy cheap and abundant and ensure American leadership in clean energy markets would also include key public investments in clean energy research, energy science and engineering education, advanced manufacturing, and enabling infrastructure, each areas that both Republicans and Democrats can support.

Regardless of what you believe about the urgency or importance climate change, we can agree that making more clean, American energy, making it more affordable, and making it right here in the USA are all in the national interest.

See also:

$40 billion for clean tech at 12 cents per gallon? Yeah, why not?

Time to Bury Cap and Trade and Plan Anew

After "Drill, Baby, Drill," Obama Should Embrace Another GOP Energy Plan

There's been some change over at WhiteHouse.gov's energy and environment page, but probably not the kind we had in mind when we heard President Obama's oft-repeated campaign slogan, "Change You Can Believe In."

A number of (as yet unfulfilled) energy and environmental policy pledges have been removed from the WhiteHouse.gov page in recent weeks.

Chief among them: President Obama's pledge to "invest $150 billion over ten years in energy research and development to transition to a clean energy economy," once a central plank in Obama's energy and environment platform, and a feature of his first national budget proposal (in FY2009).

The new page features a short (rhetorical) introduction, followed by a list of White House accomplishments in the realm of energy and environment, and no longer features any forward-looking pledges.

That includes any clear pledge to reduce U.S. greenhouse gas emissions by any particular amount by any particular date, or to establish a cap and trade program to achieve those objectives, other signatures of Obama's earlier policy pledges in the area. Cap and trade legislation is now widely considered dead in the U.S. Senate, after failing to secure anything close to the sixty-vote super-majority needed to clear the chamber.

One could read the changes at WhiteHouse.gov as a simple reflection of where Obama now is in his presidency, with almost two years under his belt and a list of accomplishments to his name to replace a set of campaign-style promises. Equally notable, however, is the list of what has indeed been accomplished, and what, for now, remains an entirely unfulfilled promise.

As of yet, despite strong expert consensus, a clear economic imperative, and the fervent appeals of 34 Nobel laureate scientists, a national ten-year mission to catalyze both public and private sector innovators by investing $150 billion in clean energy R&D remains solidly in that latter category...

Update, 8/19/10: Andrew Revkin at the NYTimes DotEarth blog notes the disappearance of the White House clean energy R&D pledge as well, noting:

Here's the back story. During his election campaign, Obama pledged to invest $150 billion over 10 years in research and development to advance non-polluting energy technologies. That level of federal investment on energy frontiers, after decades of bipartisan disinterest in energy sciences, has been widely seen as a critical component of any meaningful effort to expand the world's energy menu without overloading the atmosphere with heat-trapping gases.

But nearly all of the research money under the Obama plan was slated to come from the revenues generated by auctioning permits for greenhouse gas emissions. So the fate of the new American post-fossil energy revolution was tied to the fate of a cap-and-trade system that was always going to be a tough sell in a polarized Congress and now is on the legislative scrap heap.

Darren Sameulsohn of Politico also notes the disappearance of the climate and clean energy pledges. Samueolsohn writes:

The Web site changes came with little fanfare at the same time environmental groups were pleading with Obama to take a more proactive role in finding the votes for a sweeping climate bill. The president's primetime address from the Oval Office on June 15 drew criticism from activists when he didn't mention the words "carbon," "greenhouse gases," "global warming" or "cap and trade."

The AP describes the continuing presence of coal power in the United States:

Utilities across the country are building dozens of old-style coal plants that will cement the industry's standing as the largest industrial source of climate-changing gases for years to come.

An Associated Press examination of U.S. Department of Energy records and information provided by utilities and trade groups shows that more than 30 traditional coal plants have been built since 2008 or are under construction.

The construction wave stretches from Arizona to Illinois and South Carolina to Washington, and comes despite growing public wariness over the high environmental and social costs of fossil fuels, demonstrated by tragic mine disasters in West Virginia, the Gulf oil spill and wars in the Middle East.

But like everything related to the energy and climate, it is useful to have a sense of proportion. So have a look at the figure above, which comes from a US DOE presentation earlier this year (PDF). The figure shows the coal power build rate - actual and planned -- for the US and China.

The red parts of the bars for 2008 and 2009 (and perhaps part of the yellow for 2010) are what the AP article is describing. The broader context are the blues and greens.

I am a co-author on a new paper on Australian bushfires, just accepted for publication in the journal Weather, Climate and Society of the AMS. Here is the abstract and citation:

ABSTRACT

This study re-evaluates the history of building damage and loss of life due to bushfire (wildfire) in Australia since 1925 in light of the 2009 Black Saturday fires in Victoria in which 173 people lost their lives and 2,298 homes were destroyed along with many other structures. Historical records are normalised in order to estimate building damage and fatalities had events occurred under the societal conditions of 2008/09. There are relationships between normalised building damage and the El Niño-Southern Oscillation and Indian Ocean Dipole phenomena, but there is no discernable evidence that the normalised data is being influenced by climate change due to the emission of greenhouse gases. The 2009 Black Saturday fires rank second in terms of normalised fatalities and fourth in terms of normalised building damage. The public safety concern is that of the 10 years with the highest normalised building damage the 2008/09 bushfire season ranks third, to the 1925/26 and 1938/39 seasons, in terms of the ratio of normalised fatalities to building damage. A feature of the building damage in the 2009 Black Saturday fires in some of the most affected towns - Marysville and Kinglake - is the large proportion of buildings destroyed either within bushland or at very small distances from it (<10 m). Land use planning policies in bushfire-prone parts of this country that allow such development increase the risk that bushfires pose to the public and the built environment.

Crompton, R. P., K. J. McAneney, K. Chen, R. A. Pielke Jr., and K. Haynes, 2010 (in press): Influence of Location, Population and Climate on Building Damage and Fatalities due to Australian Bushfire: 1925-2009. Weather, Climate, and Society.

While it is certainly interesting that we do not find any signal of long-term climate change in the loss record, that finding certainly is not entirely unexpected given the growing body of research in this area. The more significant findings of this paper have to do with issues of land-use planning and the relationship of bushfire damage to the El Niño-Southern Oscillation and Indian Ocean Dipole phenomena.

In due course I'll post up a pre-publication version of the paper.

Amazon.com via its "Click to LOOK INSIDE" has the first two chapters of The Climate Fix (50 pages plus!) available for a free preview here. Have a look and let me know what you think!

A vigorous debate about whether the U.S. government should invest in and help manage clean energy industries to spur economic growth is unfolding among academics, policy makers and business leaders. Curiously, a handful of federal, state, and local government officials are forging ahead in spite of the national discussion and formulating targeted industrial policies to create vibrant clean energy innovation ecosystems that include manufacturing, material suppliers, customers, and R&D. Cases like Rioglass Solar, a Spanish glass manufacturer expanding operations in Arizona, as well as the considerable growth of the wind industry across the US show how the public and private sector can collaborate and, more importantly, how effective industrial policy can create well-paying, long-term jobs.

This past week Rioglass Solar, which provides curved glass sheets used in solar panels, decided to build a $50 million headquarters and a 130,000 square foot manufacturing plant in Surprise, Arizona. The project will create 100 new jobs at the headquarters alone and many more in the manufacturing plant - a welcome economic boost for the town.

The chief incentive for the American operations expansion? Local, state, and federal officials provided almost $12 million in tax credits and fee reductions to (successfully) lure Rioglass to the area.

In fact, as the report explains, the expansion of the wind industry has been national in scope:

"The U.S.'s wind manufacturing ecosystem extends from coast to coast and border to border. There are online or planned facilities in rust belt states like Michigan and Ohio, Midwest states like Kansas and Iowa, where youthful rural populations now have an alternative to moving to urban centers for opportunity, and in Southern states like Texas and Arkansas, where manual labor now has an alternative to unemployment."

The chief incentive for the expansion of domestic wind manufacturing - the $2.3 billion Advanced Energy Manufacturing Tax Credits (AEMC) funded through the 2009 American Recovery and Reinvestment Act -- provided support for 183 individual projects and led to $5.4 billion in private investment.

Both Rioglass Solar and the U.S. wind energy industry are shining examples of how government industrial policy can work. In both cases, specific public investments are being made, not to pursue a narrow technology goal like some skeptics worry, but to ensure that a host of clean technology companies have the ability to innovate, compete, and grow in the global free market.

Thus, the real debate should not be on whether industrial policy is good or bad, but what shape it should take. Local actions in Arizona and the one-time funded federal energy manufacturing tax credit should be just a start.

It's time to kick these policies into high gear and luckily, clean energy industrial policy may have a key advocate - President Barack Obama.

A recent Businessweek article dubbed the President "Clean Energy's Venture Capitalist-in-Chief," thanks to his plans to channel $69 billion in tax credits, low interest loans, grants, consumer tax credits, and R&D to thousands of clean tech companies across the clean energy spectrum through 2011. But while these incentives are critical, their short-term focus will not create the market stability necessary to advance sustained growth in the clean tech sector.

A spokesperson for the American Wind Energy Association (AWEA) explains:

"...effective manufacturing incentives [like the AEMC] need to be coupled with a stable, long-term market and even strong programs like [AEMC] can't revitalize the sector if we don't create a market."

The next step for the so-called Capitalist-in-Chief is to make these policies explicit U.S. industrial policy, not just one-time stimulus efforts. Investments and incentives need to be expanded in the long term and centered around growing the "clean energy innovation ecosystems" that are emerging across the country. A long-term strategy would provide a clear signal to private investors that a clean energy economy is a priority for the U.S.

Even with Congress's failure to pass comprehensive energy legislation, a clean energy economy is still a very real possibility once the national debate internalizes already effective industrial policy advances -- as exemplified by wind industry growth and Rioglass Solar -- and focuses on how best to implement sound national industrial policy. Limited local and state policies along with short-term federal funds can only go so far given the competition from countries like China, which may dedicate as much as $740 billion over the next ten years toward building a clean energy industry. It's time for the federal government to consistently and fully support the progress local and state governments are making in order to ensure a robust green economy.

See Below For More on the National Industrial Policy Debate:

A Needed Debate on Industrial Policy

In Defense of Andy Grove: Toward a More Effective Industrial Policy

In Defense of Bill Gates: Investing in Clean, Cheap Energy

The failure of the U.S. Senate to pass clean energy and climate legislation has caused investment giant Deutsche Bank to take its clean energy dollars elsewhere, according to Kevin Parker, Global Head of Asset Management for the firm.

"They're asleep at the wheel on climate change, asleep at the wheel on job growth, asleep at the wheel on this industrial revolution taking place in the energy industry," said Parker.

Deutsche Bank manages over $700 billion in funds with $6 to $7 billion invested in clean energy markets worldwide.

These blunt comments from the global investment firm have cap and trade advocates renewing the argument that a price on carbon would have made the United States a world leader in clean energy technology.

Yet according to Deutsche Bank's own reports, cap and trade and carbon pricing would have done little to change the investment outlook in the United States relative to its competitors.

By contrast, countries like China, Germany, and Japan were "low-risk" nations for investors because they each rely on "a comprehensive and integrated government plan supported by strong incentives."

Mr. Parker is correct that the Congress remains "asleep at the wheel" as international competition for clean energy markets heats up.

The fact that the Senate got nothing done on climate and energy this year is outrageous, and continued policy uncertainty will ensure that the U.S. will keep lagging further and further behind economic competitors in the global clean energy race.

But let's be clear. The cap and trade legislation that Congress spent the better part of two years debating would have had, at most, a modest impact on America's standing in global clean energy markets, and would have been wholly insufficient to keep the U.S. in the game with economic competitors in Asia and Europe.

Is Carbon Pricing Really the Key?

We issued precisely that warning last November when the Breakthrough Institute and ITIF published "Rising Tigers, Sleeping Giant." The comprehensive report documented that the United States already lagged China, Japan, and South Korea in the production of virtually all clean energy technologies, and was poised to be out-invested three to one over five years by the three Asian 'Clean Tech Tigers,' even if the House-passed cap and trade bill had become law.

Deutsche Bank themselves clearly acknowledge that while carbon pricing may be important in the long-term, it is not what is helping governments around the world attract private investment and build domestic clean economies in the near-term.

According to Deutsche Bank's Parker and Global Head of Climate Change Investment Research Mark Fulton:

"While emissions targets express an intention and carbon markets might deliver a price signal in the long-term, governments must strengthen underlying mandates and incentives immediately if capital is to be deployed to cover the gap, creating more investment and jobs."

Deutsche Bank's conclusions are consistent with other analyses of the impacts of cap and trade legislation in the United States. According to the U.S. Environmental Protection Agency (EPA), under the House's Waxman-Markey bill:

"allowance prices are not high enough to drive a significant amount of additional [deployment of] low- or zero-carbon energy (including nuclear, renewables, and CCS) in the shorter-term, excluding the technologies with specific financial incentives (e.g. CCS)."

Similarly, the EPA concludes that the cap and trade system's impacts on transportation markets would be negligible. With potential carbon prices the equivalent of just 10 or 20 cents per gallon of gasoline, "the increase in gasoline prices that results from the carbon price ... is not sufficient to substantially change consumer behavior in their vehicle miles travelled or vehicle purchases..."

What Really Matters

What really matters to create a new clean energy economy and stimulate private investment in the near-term are policy regimes that employ direct and targeted public investments to cover the cost gap between higher-cost clean energy and fossil fuels.

Indeed, China has surpassed the United States as the largest beneficiary of private clean energy investments without a price on carbon. Rather, China, along with Germany, Japan, and other "low-risk" nations, has implemented generous, technology-specific deployment incentives that reduce regulatory risks and are much more attractive to investors, and are backed by aggressive, long-term national targets for clean energy deployment.

China has targeted procurement policies for clean energy, and a variable feed-in tariff for wind power. In Germany, Deutsche Bank credits the nation's generous feed-in tariff policy, not the carbon markets of the European Emissions Trading Scheme (ETS), for Germany's world-leading solar energy sector. These incentives have "demonstrated their ability deliver renewable energy at scale," according to the bank.

If the United States wants to avoid being permanently relegated to the backwaters of the global race for clean energy investment, it needs a new clean energy competitiveness strategy that, like those of its competitors, prioritizes large and sustained public investment in clean energy technology.

That strategy should include robust and long-term investments in areas such as research and innovation, manufacturing, market creation, workforce training and education, and the development of new, globally competitive industry clusters.

Time is short, and the next several years will see first-movers establish dominant positions across a range of clean energy sectors. Already the U.S. is failing to attract significant private-sector investment in clean energy markets, losing out on a key opportunity to grow American jobs, build new high-tech, export-oriented industries, and capitalize on the economic opportunity of a fast-growing clean energy sector.

If Washington continues to ignore this growing economic imperative, the U.S. will remain behind in clean energy investment and will wind up importing the vast majority of the clean energy products needed to satisfy U.S. markets.

Almost as dangerous, however, would be a continued reliance on cap and trade and the modest carbon prices it would establish as they key to building America's clean energy industries.

The message from clean energy investors like Deutsche Bank and the model provided by our global competitors are both quite clear: what the U.S. needs is not cap and trade but a comprehensive clean economy strategy. And it needs one now.

Devon Swezey is Project Director and Jesse Jenkins is Director of Climate and Energy Policy at the Breakthrough Institute. Both are co-authors of "Rising Tigers, Sleeping Giant: Asian Nations Set to Dominate the Clean Energy Race by Out-Investing the United States"

See Also:

• The Challenge of China's Green Technology Policy


• A Clean Energy Competitiveness Strategy for America


• Report: Rising Tigers, Sleeping Giant


• Report: Strengthening Clean Energy Competitiveness

In the midst of a fragile global economic recovery, governments around the world are taking a new interest in managing their economies and strategically targeting particular industries they hope will form a new foundation for growth.

A vigorous debate is being waged among policymakers, business leaders, and intellectuals about the utility of industrial policy and it's place in the 21st century global economy.

This week's Economist magazine has a set of stories about what it terms "Leviathan Inc."--a new era of government involvement in business and the economy. The Economist takes a decidedly negative tone toward government investment in emerging sectors like clean energy, arguing that this new round of industrial policy will likely produce "some modest successes and a crop of whopping failures."

But the history of industrial policy is much more nuanced, and those on both sides of the argument can point to examples that bolster their case. In a fairly clear-cut example of corporate welfare, the Economist cites the case of Meccano, a French toy manufacturer that was bailed out by the French government after a year of poor sales during the financial crisis. Better to do what we can to "keep the beast at bay" and cut down on bureaucracy than for the state to "pick winners," according to the magazine.

On the other side of the coin, there is a long and rich history of strategic government investment fostering increases in productivity and the creation of whole new industries, which the Economist readily admits.

In the 1950s and 60s, the U.S. government helped create the modern microchip industry by buying virtually every microchip that firms could produce. NASA bought so many purpose-built microchips for its Apollo Project, the price of an Apollo microchip fell from $1000 per unit to $30 per unit in the span of a couple years.

Federal investment of one kind or another was also instrumental for the successful development of countless other technologies that went on to spawn new industries and generate trillions of dollars of wealth, including jet engines, personal computers, and the Internet. Breakthrough has written about these and other "industrial policy" successes in "Case Studies in American Innovation."

With many examples of both "whopping failures" and spectacular successes, it is no longer enough to simply argue against all forms of industrial policy. Rather, the debate must shift to a much-needed conversation about how to structure industrial policy to help boost innovation and productivity in high-value sectors of the economy.

With that debate in mind, the Breakthrough Institute has released two new articles about the need for a new industrial policy for clean energy technology, a position gaining support from many different corners of the business and policy world. The first article, "In Defense of Bill Gates," argues that despite attacks from both the left and the right, Bill Gates was right to call for massive government investments in energy breakthroughs to make clean energy cheap enough to be deployed at scale. The second article, "In Defense of Andy Grove: Towards and More Effective Industrial Policy," defends former Intel Chairman Andy Grove's recent call for industrial policy targeting high-tech manufacturing, and argues that manufacturing must be seen as a core part of the nation's innovation ecosystem.

Stay tuned at the Breakthrough Institute Blog as the debate over a new 21st century industrial policy heats up.

See also:

• Rising Tigers, Sleeping Giant
• A Clean Energy Competitiveness Strategy for America
• Strengthening Clean Energy Competitiveness: Opportunities for America COMPETES Re-authorization
• What it Takes to Pick a Winner
• Winning the Clean Energy Race: A New Strategy for American Leadership