On Tuesday, a group of the nation’s most formidable business leaders — including Microsoft founder Bill Gates and Bank of America Chairman Chad Holliday – gathered in Washington, DC to deliver a full-throated warning to lawmakers: increase the federal government’s investment in energy innovation or risk losing out on a $5 trillion global industry.

“If the U.S. fails to invent new technologies and create new markets and new jobs that will drive the transformation and revitalization of the $5 trillion global energy industry, we will have lost an opportunity to lead in what is arguably the largest and most pervasive technology sector in the world,” they stated.

The seven-member group, called the American Energy Innovation Council (AEIC), also includes Jeffrey Immelt, CEO of General Electric; Norman Augustine, former CEO of Lockheed Martin and undersecretary of the U.S. Army; John Doerr, a leading venture capitalist; Ursula Barnes, CEO of Xerox Corp.; and Tim Solso, CEO of Cummins Inc.  The group gained national recognition in 2010 in releasing its first report, A Business Plan for America’s Energy Future, which called for a three-fold increase in federal energy innovation budgets.

This week, the group released a new report called Catalyzing American Ingenuity: The Role of Government in Energy Innovation. In a rare move for high-profile business leaders, the report directly challenges the notion that government should cut investments in technology and calls energy innovation spending “a top national priority.”

“In these debates, some argue that government serves little essential role in innovation… Based on history and on our own experiences leading innovative companies, we disagree,” states the report.  ”In a time of austerity, the last thing one should do is under-fund R&D and high technology priorities… to do so is the equivalent of removing an engine from an overloaded aircraft in order to reduce its weight.”

 

The new report contains three chapters: (1) Why does government need to play a role in supporting energy innovation?; (2) How should the government play a constructive role in energy innovation?; and (3) How can the U.S. government pay for energy innovation in a new era of fiscal austerity?

The first chapter documents the successful role the government has played in promoting technology innovation and outlines several reasons why this role is necessary today in energy: “The federal government has played a central role in catalyzing and driving innovation and technology development throughout the history of the United States… All of these factors together create a clear and compelling justification for direct government support of energy innovation, particularly given the economic, national security, and environmental interests at stake.”

The second chapter offers recommendations for the federal government to support energy innovation, including overarching principles and specific policy reforms. The five policy recommendations are:

1. Develop and implement a comprehensive, government-wide Quadrennial Energy Review (QER) that seeks to align the capacities of the public and private sectors. The QER should pinpoint key market failures and technology chokepoints in order to better orient federal programs and resources.

2. Support “innovation hubs” that concentrate resources and knowledge and thereby accelerate the development of new technologies. We strongly support the direction of U.S. Department of Energy (DOE) Innovation Hubs, Bioenergy Research Centers and Energy Frontier Research Centers and believe they should receive full funding.

3. Support and expand the new Advance Research Projects Agency-Energy (ARPA-E). As we have noted previously, ARPA-E challenges and empowers innovators across a range of technology pathways. By nearly all accounts, it appears that ARPA-E is being managed as a highly efficient, risk-taking, results-oriented organization. At a minimum, ARPA-E should receive at least $300 million per year. Going forward, investments in ARPA-E should be prioritized and increased.

4. Make DOE work smarter along the ARPA-E model. DOE has a critical role to play but needs to evolve beyond its current program structure and culture to be maximally effective. We argue for “ARPA-izing” a larger portion of DOE and the national labs by expanding some of the new authorities, tools and processes that are embodied in ARPA-E to other parts of the agency.

5. Develop a first-of-a-kind technology commercialization engine along the lines of the proposed Clean Energy Development Administration (CEDA). Previously, we called for a new government-backed institution dedicated to overcoming financing hurdles for new advanced, commercial-scale energy technologies. We believe the CEDA legislation aligns with our original recommendation and would mobilize significant private-sector capital to bridge the transition from demonstration to commercialization.

Finally, the third chapter offers several constructive ideas for how the federal government can fund these investments: “In short, we see an urgent need for a new energy innovation funding regime that accounts for current budgetary realities, but still ensures that our nation makes targeted investments in its energy future… For too long, federal energy innovation investments have been plagued by unpredictable funding patterns. Uncertain annual appropriations, short-term tax credits, and one-time spending injections are all unsuited to creating the sustained, predictable funding stream needed to bolster the country’s innovation infrastructure.”  Potential dedicated revenue streams from within the energy sector include:

  • Diverting a portion of royalties from domestic energy production: “With continued, and likely expanded, off-shore oil and gas exploration, shale gas production on federal lands, and enhanced oil recovery in the coming years, reorienting a portion of the current suite of domestic energy production fees – including royalty payments, lease sales, bonus bids and other charges – presents a real opportunity to raise new revenue for the federal government that could fund innovation in new energy technologies.”
  • Reforming and redirecting energy industry subsidies: “subsidies to incumbent industries and mature technologies should be reduced or reformed. The market provides ample incentives for these players to deploy technology without public support… Going forward, a portion of revenues liberated by eliminating, reducing or reforming energy subsidies should be directed to clean energy innovation.”
  • Collecting a charge on sales of electricity: “The term “wires charge” (also sometimes referred to as a “public goods charge”) refers to a small fee imposed on each kilowatt-hour of electricity delivered to consumers. It is a fairly common levy at the state level where it is typically used to promote energy efficiency, fund research and development, or pursue other public purposes… Substantial revenues could be raised to fund energy innovation programs with fairly modest consumer impacts.”
  • Levying fees on other energy or pollution sources: “there are a number of ways to levy a small fee on various energy sources that could generate significant revenues to fund new technology development. A gas tax, oil import fees, energy export fees, and even perhaps a carbon dioxide (CO2) fee are all options that could be considered… Energy and emissions fees together have the potential to raise more than $80 billion per year.”
  • Streamlining DOE: “Policymakers will need to explore ways to streamline, and perhaps even cut, DOE programs that are non-essential in order to free up funding for technology investments that have significant potential… policymakers should examine options to trim other high-dollar programs in order to fund the country’s energy innovation activities.”

If there is any group of high-level messengers who can credibly make the case for energy innovation investment in the current political and economic environment, this is it: America’s most renowned and successful private-sector leaders, job creators, and innovators.  In a largely bleak landscape for U.S. energy and innovation policy reform, the American Energy Innovation Council offers an important glimmer of hope and inspiration to continue fighting for sensible policy reform.  As they put it: “We know the federal government has a vital role to play in energy innovation… There are no excuses. As a country, it is time to put aside partisan differences and embark on a clear path to achieving our clean energy goals.  We call on Congress and the President to act.”