Investing in Energy Innovation

Many reasons have been cited for the world's huge energy challenges. How innovative will our response be? And what role will R&D have in a proposed innovation revolution?

The consequences of unfettered growth in global energy demand are alarming for all countries, many of which will increasingly rely on imports of oil and gas, according to the International Energy Agency's latest edition of its World Energy Outlook.

To meet these challenges, we must "undergo an innovation revolution," write Peter Ogden, senior policy analyst for National Security and International Policy at the Center for American Progress, John Podesta, president of the Center for American Progress, and John Deutch, an Institute Professor at the Massachusetts Institute of Technology and a trustee of the Center for American Progress, in their January 2008 "Issues in Science and Technology" report A New Strategy to Spur Energy Innovation.

In some areas, the first energy crisis in the early 1970s led to the use of technology to create significant efficiencies. Prior to that time, for example, as much as 40 percent of a typical household's natural gas consumption was for pilot lights burning idly in case a stove or furnace was needed. Today electric pilot lights create spark ignition on demand.

Of course, one of the biggest current and future challenges is how to meet the energy needs of the world, while still reducing the emissions of greenhouse gases. Concern that our current course will likely lead to disaster has put a renewed emphasis on innovation to improve all things energy-efficient.

In a six-part strategy to address the nation's energy needs, the National Association of Manufacturers last year proposed: "Nothing short of a robust, aggressive, comprehensive energy strategy will adequately address our nation's energy needs." Included in the manufacturers' Energy Security for American Competitiveness Act: strengthening and making permanent the research and development (R&D) tax credit; fully funding federal agency research authorized by the 2005 Energy Policy Act; and funding energy research for nuclear physics, reprocessing spent nuclear fuel, coal liquefaction and fuel cycles, among others.

"We cannot continue to fall behind other nations in R&D investment, in the commercialization and manufacturing of new energy technologies, and in workforce development," Shirley Ann Jackson, president of Rensselaer Polytechnic Institute, and Deborah Wince-Smith, president of the Council on Competitiveness, publicly commented in January. "These trends must be reversed."

The United States must begin to fund R&D at a greater level and dedicate resources to increasing energy efficiency.

Ogden, Podesta and Deutch write at the Center for American Progress:

Over the years, the U.S. government has spent more than $300 billion in direct expenditures on energy R&D and demonstration that have been combined with a variety of indirect financial incentives such as tax credits, loan guarantees, guaranteed purchase and even equity investments.

Unfortunately, the resulting pace of innovation generated by this public investment has not been sufficient given the urgency and scale of today's energy challenge.

"For more than 25 years, there has been a steady decline in public investment in energy-related R&D in the U.S.," according to Jackson and Wince-Smith. "Between 1978 and 2005, the U.S. Department of Energy budget for energy R&D dropped by more than 85 percent," they said in a statement.

Ogden, Podesta and Deutch propose a new approach for energy R&D in the U.S that will set in motion an innovation revolution by the following initiatives:

  • Creating an inter-agency Energy Innovation Council to develop a multiyear National Energy R&D strategy for the nation;

  • Increasing the national energy R&D program budget to at least twice today's level;

  • Launching a sustained and integrated energy R&D program in key areas;

  • Creating an energy technology career path within the civil service; and

  • Establishing an Energy Technology Corporation to manage demonstration projects.

Among the authors' examples of demonstration projects that could "dramatically improve" the pace of energy innovation: carbon sequestration; smart electricity networks; production of natural gas hydrates; integrated coal-fired electricity generation and CO2 capture; superconducting transmission lines; and nuclear power projects based on the once-through fuel cycle.

Meanwhile, worldwide investment capital flowing into sustainable energies increased from $28 billion in 2004 to $71 billion in 2006, according to Jackson and Wince-Smith.

Despite the sluggish economy and decline in federal R&D spending on energy, venture capitalist funding in clean-energy companies surged in 2007, according to a new study from PricewaterhouseCoopers LLP. The MoneyTree report, entitled Cleantech Comes of Age, determined that venture capitalists poured $2.2 billion into U.S. "cleantech" companies last year — a 45 percent jump from 2006.

Solar energy attracted the largest share of investment and wind energy investment is up tenfold, while investment in alternative fuels (including biofuels and nuclear energy) "sputtered to $291 million in 2007 [...] after a surge of $462 million in 2006."

Clean-energy technology may face huge hurdles ahead, but it also continues to make huge gains. And this trend shows few signs of a slowdown.

According to the report:

Despite signs of a weakening economy, the credit squeeze and volatile public markets, investment in the sector is expected to persist, priming significant exit activity by 2009 and throughout 2010, then accelerating as more companies graduate through a well-fed pipeline. Investment in 2008 will likely continue to flow into wind and solar and channel out to an increasingly diverse range of sub-sectors, including next-generation biofuels and energy storage technologies.

Today's soaring oil and gas prices have forced us to confront the reality of our energy circumstances. Unfortunately, how we go about addressing our energy problems is less than clear. Any fast-paced innovation and accelerated investment flows will inevitably produce winners and losers; but if we are to loosen our dependency on foreign oil and strengthen our global competitiveness, we must begin by investing and driving innovation to create new energy solutions, jobs and industries.

As one IMT reader recently commented: "Blaming the president, Congress or big business doesn't accomplish anything. We are the innovators — come up with innovative ideas for alternative sources of power."


World Energy Outlook 2007 Edition

World Energy Outlook, 2007

A New Strategy to Spur Energy Innovation

by Peter Ogden, John Deutch and John Podesta

Center for American Progress, January 2008

Comment on the State of the Union Address and Energy Productivity from Leaders of the Energy..., Jan. 27, 2008

Energy Security for American Competitiveness

National Association of Manufacturers, Feb. 14, 2007

Cleantech Comes of Age

PriceWaterHouseCoopers, May 2008

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