If Washington wants to enable the growth of American’s clean energy economy, it must think globally and act regionally. The global energy industry is in the midst of a multi-decade transformation into a collection of clean energy sectors. The US is lagging China and number of overseas competitors in public and private investments as well as the speed of innovation scale-up an adoption. However, the US won’t be a global leader in clean energy by employing China’s strategy. We need to recognize the unique strengths and assets of our distributed, private sector, innovation and entrepreneurial economy, while also recognizing that the US has a collection of regional and state energy markets that are highly regulated. The challenge at hand in the US is to speed energy innovations and enable the deployment of those innovations in a way that unleashed private sector entrepreneurship and regional economic growth. Both pieces require an active federal government as a partner to the private sector and regions, enabling a flexible, regionally-based innovation and market strategy.

Fostering Regional Innovation

As Mark Muro suggests in his comments, regional innovation clusters – defined as geographic concentrations of interconnected companies, entrepreneurs, investors, researchers and other institutions in a particular field – are central to the innovation process. We’ve long known that clusters can leverage proximity to suppliers, specialized information, human capital, public institutions, and more to create significant comparative advantages. Mark’s recent research at Brookings demonstrates that the “cluster premium” is robust within the clean economy, with clustered establishments growing 1.4% faster than isolated ones. 

While clustering is already providing important benefits in the clean economy, more needs to be done to strengthen cleantech innovation networks and address gaps in the innovation pipeline. Particular attention should be paid to gaps in the spinout, seed, or translational development phase, at which newly formed ventures often struggle to attract capital, expertise, and customer validation. There are a number of models for federal support to regional public-private partnership in this area (both existing and proposed) including EDA’s i6 Green Challenge, which Mark mentions. We at the New England Clean Energy Council have proposed a Clean Energy Innovation Consortia model that would accelerate research and commercialization efforts, drawing on regional partners from both the private and public sectors. The key is to leverage the power of clusters that can connect innovators with regional early adoption markets and business partners, strengthening existing networks and bringing together existing institutions to help technologies bridge the early-stage valley of death. These regional public-private initiatives don’t require a large federal bureaucracy.  But they do need flexible, modest federal matching funds to accelerate regional innovation markets and initiatives.

A Robust Role For Government

There is much more that the federal government can do to accelerate the clean economy beyond supporting regional cluster development. It’s critically important for the federal government to fund basic and applied research, which has not been adequately funded by the private sector because no firm can capture all the gains of such research. The federal government should also foster demand for clean energy both through expanded government procurement and market standards that can create demand for clean energy innovation. Congress can also address the gap for scale-up financing through the creation of “green bank” mechanisms along the lines of the CEDA proposal, or through a repatriation tax cut linked to cleantech investments.

In all of these efforts, Washington should consider itself an enabler of and a partner to bottom-up innovation and entrepreneurship driven by the private sector. Josh Freed hits the nail on the head in pointing out that “the electricity sector is one of the most highly regulated and balkanized segments of the economy.” Energy markets are indeed regional, and many regulatory intricacies will need to be sorted out within and between the states.  But federal involvement remains crucial. The US cannot compete against China by mirroring its centralized model. Our strength is in our unrivaled innovation assets and distributed model of economic growth. Yet, clean energy is too young, too capital intensive, too regulated, and too competitive to be left wholly to the private sector.  Conversely, a purely federally driven clean energy innovation effort would encumber the innovation and entrepreneurial spirit, insights and capabilities across the country, slowing down the dynamic growth and evolution of the US as a leader in emerging clean energy industries.

The federal government can accelerate clean energy market building across the regions by partnering on regional public-private partnerships and co-funding innovative initiatives. Just as the Obama administration has pushed progress in education through a “Race to the Top”, Washington should set the goals for transforming our energy systems and reward regions that innovate and rise to the challenge. If D.C. wants to realize the economic promise of a clean energy economy, it must think globally and act regionally.