How a Limited and Direct Approach to Energy Innovation Can Deliver Clean Cheap Energy, Economic Productivity, and National Prosperity
It is time to hit the reset button on energy policy, according to scholars with American Enterprise Institute, Brookings Institution and the Breakthrough Institute, who are today releasing a new report, "Post-Partisan Power," which calls for revamping America's energy innovation system with the aim of making clean energy cheap.
The new report calls for increasing federal innovation investment from roughly $4 today to $25 billion annually, and using military procurement, new, disciplined deployment incentives, and public-private hubs to achieve both incremental improvements and breakthroughs in clean energy technologies. The authors point to America's long-history of bipartisan support for innovation.
Today, few issues in American political life are as polarized as energy policy, with both left and right entrenched in old worldviews that no longer make sense. For the better part of two decades, much of the right has speculated darkly about global warming as a United Nations-inspired conspiracy to destroy American sovereignty, all while passing off chants of "drill, baby, drill" as real energy policy. During the same period much of the left has oscillated incoherently between exhortations that avoiding the end of the world demands shared sacrifice, and contradictory assertions that today's renewable energy and efficiency technologies can eliminate fossil fuels at no significant cost. All the while, America's dependence on fossil fuels continues unabated and political gridlock deepens, preventing real progress towards a safer, cleaner, more secure energy system.
The extremes have so dominated mainstream thinking on energy that it is easy to forget how much reasonable liberals and conservatives can actually agree on. Fossil fuels have undeniably been critical to American prosperity and development, but we can gradually move toward cleaner, healthier, and safer energy sources. Indeed, throughout history, as we have become a more prosperous nation, we have steadily moved to cleaner energy sources, from wood and dung to coal to oil to natural gas, hydropower, and nuclear energy. Our goal today should be to make new clean energy sources much cheaper so they can steadily displace fossil fuels, continuing this ongoing process. If we structure this transition correctly, new energy industries could be an important driver of long-term economic growth.
Arriving at a new post-partisan consensus will require liberals and conservatives, alike, to take a renewed look at key facts, which challenge some long-standing assumptions about energy.
For liberals this means acknowledging that today's renewable energy technologies are, by and large, too expensive and difficult to scale to meet the energy needs of the nation, much less a rapidly growing global population. New mandates, carbon pricing systems such as cap and trade, and today's mess of subsidies are not going to deliver the kind of clean energy innovation required. And nuclear power, long reviled by many on the left, is far cleaner and safer than most liberals imagine, and holds enormous potential to displace low-cost but high-polluting coal power.
For conservatives this means acknowledging that fossil fuels have serious health, safety, and security consequences aside from any risks global warming might pose. The biggest obstacle facing nuclear power is not environmental policy but rather public opposition, high construction costs, and associated financial risks.8 And while many faults can be found with ethanol and synfuels investments, the bulk of historic federal investments in energy technology -- from hydro and nuclear to solar, wind, and electric vehicles -- have been an overwhelming success.
This white paper is the product of a more than yearlong dialogue between scholars from three diverse think tanks. Drawing on America's bipartisan history of successful federal investment to catalyze technology innovation by the U.S. military, universities, private corporations, and entrepreneurs, the heart of this proposal is a $25 billion per year investment channeled through a reformed energy innovation system.
This new system is built on a four-part energy framework:
- Invest in Energy Science and Education
- Overhaul the Energy Innovation System
- Reform Energy Subsidies and Use Military Procurement and Competitive Deployment to Drive Innovation and Price Declines
- Internalize the Cost of Energy Modernization and Ensure Investments Do Not Add to the National Debt
(Click here for a full summary of recommendations)
To accelerate energy innovation and modernization, we propose a role for government that is both limited and direct. It is limited because it is focused, not on reorganizing our entire highly complex energy economy, but rather on specific strategies to drive down the real cost of clean energy technologies. Instead of subsidizing existing technologies hoping that as they scale up, costs will decline, or providing tax credits to indirectly incentivize research at private firms, this framework is direct because the federal government would directly drive innovation and adoption through basic research, development, and procurement in the same way it did with computers, pharmaceutical drugs, radios, microchips, and many other technologies.
Time and again, when confronted with compelling national innovation priorities, the United States has summoned the resources necessary to secure American technological leadership by investing in breakthrough science and world-class education. The United States responded vigorously to the Soviet launch of Sputnik by investing the resources necessary to ensure American innovators, entrepreneurs, and firms would lead the world in aerospace, IT, and computing technologies, igniting prosperous new industries in the process. Today, we invest $30 billion annually in pursuit of new cures to deadly diseases and new biomedical innovations that can extend the lives and welfare of Americans. We similarly devote more than $80 billion annually to military innovations that can help secure our borders. We propose a similar national commitment to energy sciences and education, which have languished without the funding deserving of a national innovation priority. At the same, this proposal is based on what we know about successful public-private partnerships to build and strengthen regional hubs of innovation, such as the one that evolved into Silicon Valley. Therefore, we propose investment in a national network of regional clusters of universities, entrepreneurs, private investors, and technology companies.
While the left wants to cut fossil fuel and nuclear subsidies and the right wants to cut renewable energy subsidies, we propose across-the-board energy subsidy reform, disciplining all incentives for technology deployment and adoption to a new framework that rewards innovation -- as measured through real declines in the cost of generating energy -- not simply producing more of the same. Today's federal investments -- whether for solar and wind or ethanol and nuclear -- are structured around scale and quantity, not innovation. The innovation system we propose builds on the successes of military procurement to purchase and prove advanced energy systems while providing competitive markets for emerging energy technologies, which can facilitate mass manufacture, demand progressive innovation, and bring down the real, unsubsidized cost of clean and secure energy alternatives.
These productive investments have the potential to raise America's economic growth over the long term and thus help reduce the budget deficit. America's $1.3 trillion budget deficit is largely a consequence of low growth and the increasing cost of structural entitlement programs, but it can be overcome by a combination of higher growth, responsible entitlement reform, and targeted spending cuts. Achieving higher growth will require continued federal investments in productive enterprises, including health, information technology, and energy. Furthermore, fear of technology failure should not paralyze strategic investments in innovation, since some amount of failure is inevitable and essential to such a disruptive and non-linear process.
To ensure that these limited, targeted new investments do not add to the federal deficit, we propose a suite of options that Congress and the President can use to finance energy innovation. These include cutting existing energy subsidies, charging new royalties for oil drilling, small surcharges on oil imports or electricity sales, and a very low carbon price. While each of these mechanisms may bother some on both the left and right, all should agree that exacerbating the national debt is unwise. Revenues must be found in order to make these productive investments, which have long-term potential to revitalize the economy.
Increasing investment in energy technology and innovation, as we advocate, remains exceedingly popular with Americans of all political stripes. Of all energy policy proposals, from carbon pricing and cap and trade to new oil and gas drilling, expanding production and lowering the price of clean, innovative energy technologies is the most popular approach, regularly receiving support from 65 to 90 percent of Americans in independent news polls, Gallup surveys, and other opinion research. This public support is consistent over time, and reflects the historical willingness of publics to pay slightly more for cleaner and safer energy sources.
In this white paper, we aim to present a practical and bipartisan approach to American energy policy. The time has come for a fresh start that can bring our nation into the future through a pragmatic drive to make clean energy cheap and abundant.
Click here to download the full report.
A short summary of recommendations can be found here.
More on the bipartisan history of American prosperity through limited but energetic investment in technology and innovation can be found here.