Report - Energy Technology Innovation Policy Project, Belfer Center

Tackling U.S. Energy Challenges and Opportunities: Preliminary Policy Recommendations for Enhancing Energy Innovation in The United States


The incoming Obama Administration and the 111th Congress face enormous challenges and opportunities in tackling the pressing security, economic, and environmental problems posed by the energy sector in the United States and worldwide. Improving the technologies of energy supply and end-use is a prerequisite for surmounting these challenges in a timely and cost-effective way.

Accelerating the development and deployment of advanced energy-supply and end-use technologies will require a comprehensive strategy integrating efforts from invention to deployment, including strong leadership, alignment of policy incentives, consistency of policies, and a long-term view. In the following sections we outline our preliminary recommendations for near-term actions to strengthen the U.S. effort to develop and deploy advanced energy technologies. Our analysis is continuing, and we will be publishing long -term policy recommendations later this year. The budget recommendations in this paper are only for fiscal year (FY) 2010. They represent minimum levels based on ramping up from FY 2008 levels where such increases are most needed. They do not take into account the amounts provided in the recently approved economic recovery package.

Increase the Department of Energy (DOE) budget for energy research, development, and demonstration (ERD&D) to $6,060 million in FY 2010 (from $4,173 million in FY 2008), distributed as follows:

Basic Energy Sciences to $1,500 million
Progress in basic energy sciences is essential to developing new energy technologies. The Office of Science has engaged in planning and developed new initiatives which support the call for $1.5 billion in FY 2010 found in the FY 2009 budget request.

Fossil Energy to $1,700 million
Carbon capture and storage has been identified by most analysts as an essential component of any comprehensive plan to reduce carbon dioxide emissions worldwide. This level of funding is required to begin a series of commercial-scale carbon capture and storage demonstrations in various conditions.

Electric Transmission and Distribution to $220 million
Smart grid technologies are needed to ensure reliable and efficient electricity delivery. There should be both a smart grid R&D program and regional demonstration projects.

Energy Efficiency to $770 million
Significant opportunities to improve energy performance exist in vehicle technologies, building technologies, and energy storage.

Renewable Energy to $850 million
Opportunities in the portfolio of renewable energy technologies — wind, geothermal, solar, and biomass — justify a substantial investment increase over FY 2008 levels.

Hydrogen to $220 million
There are more opportunities in fuel cell technology than are being explored, justifying a modest increase in the hydrogen programs.

Nuclear Fission to $350 million
Nuclear fission RD&D should focus on improving the factors that have limited nuclear power's potential as an energy option — cost, safety, security, proliferation-resistance, and waste management. Funding for the Global Nuclear Energy Partnership should be redirected to a portfolio of long-range R&D on improving both open and closed fuel cycles, and support for reactor designs the private sector can carry forward itself should be reduced.

Nuclear Fusion to $450 million
Fusion is a long term prospect that also advances basic science. The U.S. must meet its commitments to ITER and maintain other fusion work.

Develop, publish, and implement a comprehensive U.S. energy innovation strategy
The United States urgently needs a comprehensive energy innovation strategy that integrates the full range of policy tools throughout the innovation chain from basic research through widespread diffusion in order to maximize the efficiency and outputs of the U.S. energy innovation system. The new White House Coordinator for Energy and Climate Change, the Office of Science and Technology Policy, DOE, and other public and private stakeholders should work together to develop, publish, and implement such a comprehensive approach. An integrated approach to energy innovation may well be more important than RD&D funding levels assigned to particular technologies.

Strengthen DOE's capacity to manage an expanded, integrated federal energy RD&D enterprise
Opportunities exist for improved effectiveness of effort. DOE should pursue a portfolio approach with a broad set of technologies at every stage of technological development. The Obama administration should establish expanded information-sharing between different energy-innovation efforts, more effective coordination of programs with the private sector, and full integration with the national strategy for energy technology innovation. Management changes should create greater communication and coherence rather than new layers of bureaucracy.

Create mechanisms for managing both demonstration projects and high-risk, high potential R&D
Both of these classes of innovation call for funding and management structures that do not exist within DOE today. Innovation at the pilot through commercialization stages requires procurement, funding, and decision rules more like that of private enterprise, to generate quality information about commercialized technology. In contrast, realizing opportunities for transformational technology requires stable, long-term funding, tolerance for risk, and the ability to learn from failure. Options include concepts such as a government-owned corporation to manage energy technology demonstration projects in cooperation with private firms, and an Advanced Research Projects Agency — Energy (ARPA-E).

Encourage expanded private-sector investment in energy innovation
Entrepreneurs will react to new rules and laws by innovating. Setting a price on carbon will provoke development of innovative ways to reduce carbon emissions. Government must also elicit private-sector innovation through creating and managing effective public-private partnerships. The federal government should increase its support to private research, development, and demonstration by making permanent and expanding the research and experimentation tax credit, and by providing tax credits for U.S. companies building clean-energy demonstration projects at home and abroad.

Strengthen international cooperation in energy research
The United States should expand international cooperation in energy technologies, to reduce the costs and risks of energy innovation, increase the pace of cost reductions through expanded learning and deployment, and encourage other countries to deploy the technologies developed. At the same time, the Obama administration should put in place mechanisms to manage the coordination and intellectual property issues raised by such efforts.

Target and better coordinate incentives for large-scale deployment of energy technologies Policies aimed at accelerating deployment of energy technologies are often decoupled from key energy policy goals and poorly linked with policies for RD&D. The Obama administration should encourage deployment by setting a price on carbon and strengthening targeted incentives in particular sectors — and should integrate these incentives as one key element of the comprehensive energy innovation strategy recommended above.

The energy challenges facing the United States and the world are daunting. But with a comprehensive strategy for and investment in energy innovation, new approaches to managing the effort, and policies for moving new technology into the market, the United States can meet these challenges and seize the opportunity for leadership in the markets for energy technology.

For more information on this publication: Please contact Energy Technology Innovation Policy
For Academic Citation: Anadon, Laura Diaz, Kelly Sims Gallagher, Matthew Bunn, and Charles Jones. “Tackling U.S. Energy Challenges and Opportunities: Preliminary Policy Recommendations for Enhancing Energy Innovation in The United States.” Energy Technology Innovation Policy Project, Belfer Center, February 18, 2009.