Renewing America’s economy, responding to the threat of global climate change, and finally securing the nation’s energy independence all compel the transformation of United States energy system. Accomplishing this transformation requires the rapid development and deployment of a suite of clean, affordable, and scalable energy technologies.

The challenge is this: Over the next four decades, global energy demand is expected to triple. But at the same time, global greenhouse gas emissions must fall rapidly, decreasing at least 50 to 85 percent by mid-century to avert potentially catastrophic climate change.

Most of this growth in energy demand will occur in the developing world, as nations like China, India and Brazil continue to lift their citizens out of poverty and build modern societies. And overall, that’s a very good thing. Increased access to energy brings relief from backbreaking physical labor, electricity to pump and treat potable water, lights to read and study by, a more secure built infrastructure, access to modern health care, and much more.

The problem, however, is that fossil fuels remain cheap and abundant. In the absence of similarly affordable and scalable clean energy sources, the developing world will turn to coal and other fossil fuels to power their development, just as we in the United States did as we built our modern industrialized nation. That, of course, would virtually assure complete destabilization of the global climate system, regardless of what occurs in the developed world.

Or as President Obama’s chief science advisor John Holdren has concluded:

"Without an accelerated transition to improved technologies, societies will find it increasingly difficult – and in the end probably impossible – … to provide the affordable energy needed for sustainable prosperity everywhere without intolerably disrupting the Earth’s climate."

The task is therefore clear: To stabilize the climate and provide the energy necessary to sustainably power global development, we must develop and harness a portfolio of truly scalable clean energy sources and ensure they are affordable enough to deploy throughout the world.

In short, we must make clean energy cheap.

Such a strategy represents a significant departure from traditional approaches to climate policy. For years, the dominant climate policy agenda has focused on establishing market-based mechanisms and price signals, such as carbon taxes and cap and trade schemes, designed to make dirty energy more expensive. The theory is that the resulting price signals would presumably spur private-sector investment and innovation in clean energy alternatives and secure the energy technology transformation we need.

But there's a fundamental problem that consistently plagues this effort to make dirty energy more expensive: policymakers and the public alike are simply reluctant to significantly increase the cost of energy through higher prices on carbon emissions. In today's context of deep economic recession, public tolerance for higher energy prices is no doubt minimal, and more than a third of the U.S. Senate has yet to be convinced that the costs of cap and trade are acceptable.

The result is this: cap and trade proposals everywhere contain one or (usually) several mechanisms to constrain the price of carbon emissions and contain the cost of compliance with the emissions cap. These mechanisms come in the form of transparent "safety valves" and price "off-ramps" or in more convoluted and obscured mechanisms like allowance reserves, borrowing from future compliance periods (which simply kick the can down the road), provisions allowing discretionary suspension of the cap, or the all-too-common heavy reliance on carbon offsets (which removes the pressure to transform capped sectors that's the whole point of the cap while, if utilized at any meaningful scale, undermining the integrity of the entire system). Transparent or not, these cost containment mechanisms are never absent from cap and trade policies (at least one's that have any hope of securing passage).

And yet, if a cap and trade program contains any of these cost containment mechanisms, it's not really a cap at all.

For a cap and trade program to truly guarantee emissions reductions -- that is, for it to be a true cap on emissions -- the price of carbon emissions must be allowed to rise as high as is necessary to shift investment decisions towards cleaner alternatives and drive emissions reductions. That "as high as necessary" part of course runs smack dab into the fundamental political economy of energy prices discussed above: there's a breaking point where public tolerance for increased energy prices simply stops. This breaking point is manifested in the various mechanisms designed to constrain the cost of carbon, which inevitably invalidate the certainty of the emissions cap.

And of course, even if there are no explicit cost containment mechanisms in a cap and trade proposal, the ballot box will act as an ultimate constraint on the price of carbon in any democratic society. Just look at the public backlash against higher energy prices in the summer of 2008 to see this effect in action. By the height of the gas price spike, the "Drill Here, Drill Now!" craze was sweaping the country and even a majority of Californians supported expanded offshore oil drilling.

This situation is even more apparent in the developing world, where tolerance of higher dirty energy prices to drive emissions reductions is virtually non-existent. This attitude is summed up succinctly in the statement of one Chinese official, Lu Xuedu, of the Office of Global Environmental Affairs. “You cannot tell people who are struggling to earn enough to eat that they need to reduce their emissions,” he told The New York Times, expressing a sentiment surely familiar to any participants in the ongoing international climate negotiations. The leaders of China, India and other developing nations have repeatedly made clear that if reducing emissions runs counter to economic development imperatives, they will not tolerate binding caps on emissions or significant carbon prices.

The ultimate effectiveness of a strategy premised centrally on an effort to make dirty energy more expensive will always limited by this fundamental reality of the political economy of energy -- which we at the Breakthrough Institute have dubbed "Global Warming's Gordian Knot." If the price of carbon must rise too high to drive emissions reductions, various cost containment mechanisms or public backlash will kick in -- either of which effectively abrogates the emissions cap. Yet if we constrain the price of carbon, it will have very little impact on emissions absent a steady supply of low-cost emissions reductions opportunities. [Side note: this dynamic is playing out to a T in Australia right now]

Thus, to cut free of this Gordian Knot and have any hope of achieving deep, sustained emissions reductions, we need both clean and cheap energy sources that can truly replace fossil fuels to power the U.S. and global economy.

This isn't to say that pricing carbon dioxide emissions is a bad idea. Internalizing some of the many un-priced costs of burning dirty fuels is long overdue, and would clearly help send a more effective price signal to market actors. However, we must recognize that the fundamental reality of the political economy of energy will always constrain the effectiveness of a climate strategy reliant on significant increases in the price of dirty energy.

This all brings us to the crux of the matter: if there is a limit to how far we can get with a strategy that makes dirty energy more expensive, we need to turn to a strategy to make clean energy cheap instead.

When I say "make clean energy cheap," I mean that in both subsidized and real terms.

First, instead of relying on carbon prices alone to bridge the gap between the price of fossil fuels and their cleaner alternatives, we can make clean energy sources cost competitive by directly subsidizing their deployment. After all, there's more than one way to make "clean, renewable energy the profitable kind of energy," as President Obama pledged to do in his recent joint address to Congress.

While there are several potential ways to finance these direct investments in clean energy deployment, the most obvious and synergistic revenue source would be a modest and politically sustainable price on carbon (either through a straightforward carbon tax or a cap-and-auction with cost containment provisions). Here, carbon prices still play an important, but very different role in this strategy: they generate critical revenues while providing some synergistic market signal to help pull more mature and cost-competitive clean energy sources the last few yards into the marketplace. Carbon prices are not, however, the central driver of a clean energy transition, as envisioned in most cap and trade proposals.

These investments in clean energy deployment will limit the overall cost of driving clean energy into the market compared to a strategy that relies solely on carbon prices to drive investment decisions. Simply put, this strategy makes our carbon dollars do double duty -- first to modestly increase the price of dirty energy and provide increased market pull for relatively affordable clean energy alternatives, and second as the revenue source for major investments that directly drive down the cost of clean energy.

Perhaps more importantly though, we also need to make clean energy cheap in real, unsubsidized terms.

Permanent reliance on either major subsidy or a price on carbon will render clean energy technologies infeasible as a primary energy source for the developing world. The only way to avert disastrous global climate change is to provide clean and affordable energy sources that can meet the growing energy demands of the developing world and truly render fossil fuels obsolete.

This critical effort to make clean energy cheap, in real, unsubsidized terms, presents a massive innovation challenge. As such, it requires a coordinated, well-funded and effective strategy to accelerate clean energy innovation and drive major improvements in the price and performance of clean energy technologies.

This strategy to make clean energy cheap must support the full energy innovation pipeline -- including (1) research and development, (2) demonstration, and (3) early commercialization and deployment of emerging clean energy technologies. Complementary policies supporting critical infrastructure and human capital development (i.e. education and training) are also requisite, but will be discussed elsewhere.

A strategy to make clean energy cheap begins with a dramatic increase in energy R&D investments -- on the scale of $15 billion annually in the U.S. and much more globally -- aimed at creating a new generation of affordable clean energy technologies and driving major cost reductions in existing technologies through breakthroughs in materials, production methods and more. As Energy Secretary Steven Chu recently told the U.S. Senate, new, low-cost solar panel materials, electric vehicle batteries with greatly increased energy storage and weight characteristics, and next-generation biofuel production methods are all likely candidates for major R&D breakthroughs.

To take technologies from the lab to the marketplace, this strategy must also support the commercial-scale demonstration of first-of-its-kind technologies. Public investments on the scale of $5 billion annually could, when combined with private sector investment, accelerate the critical but high-risk demonstration of a whole portfolio of new technologies -- including next-generation nuclear reactors, carbon capture and storage technologies, floating deep water offshore wind turbine designs, new wave and tidal power technologies, cellulosic ethanol production methods and advanced/engineered geothermal energy techniques.

And since carbon prices alone cannot pull more costly emerging clean energy sources into the marketplace, a strategy to make clean energy cheap must also include major direct investments to drive the deployment of emerging clean energy technologies. We should commit roughly $30 billion annually to directly buy down the cost of clean energy technologies in the early stages of commercialization.

Emerging technologies routinely experience robust economies of scale and learning curves with increased manufacturing capacity and deployment that result in direct cost-reductions. For example, numerous studies have shown that the production cost of solar photovoltaic modules have reliably decreased by approximately 20 percent with every doubling of cumulative installed capacity.

The primary focus of this clean energy deployment strategy should therefore be to drive down real production costs by providing increased and consistent demand for early-stage clean energy technologies that accelerate economies of scale and learning curves. By creating larger and more consistent market demand, these public investments would also attract greater private investment in the development of these technologies.

Wind power, concentrating solar thermal power plants, and current solar photovoltaic technologies are all candidates for major direct public investment that can drive these technologies to scale and capture associated cost reductions. And as more technologies emerge from the earlier stages of the energy innovation pipeline discussed above, they will quickly be picked up and driven into the market by this direct deployment strategy

Since real cost reductions are the primary objective, continued public investments in any emerging technology should be predicated upon the achievement of consistent improvement in price and performance. In this manner, this strategy to drive clean energy deployment will not select winners and losers a priori, nor will it create permanently subsidized industries. These public investments will instead provide opportunity for all emerging, low-carbon energy technologies to demonstrate progress toward competitive costs while increasing the rate at which early-stage clean, and affordable energy technologies are commercialized.

Taken together, these investments in R&D, demonstration and deployment -- totalling roughly $50 billion annually -- can dramatically accelerate the transition to a clean energy economy, drive down the real price of clean energy technologies, and ensure the supply of a whole portfolio of clean and truly affordable energy sources that can power sustainable development globally. Compared to the estimated costs of an effective cap and trade program (which could rise to well above $100 billion annually), these investments to make clean energy cheap are a bargain. And unlike a strategy that requires major increases in the price of dirty energy, a strategy to make clean energy cheap can actually succeed within the realities of the political economy of energy.

Jesse Jenkins is the Director of Energy and Climate Policy at the Breakthrough Institute. He is also the founder and chief editor of WattHead - Energy News and Commentary and a Featured Blogger and Editorial Board Member at The Energy Collective

[Note from the author: I strongly encourage you to share thoughts, reactions, criticisms or anything else on the above analysis and proposed strategy to make clean energy cheap in the comments section or in your own posts at The Energy Collective.]