Office of Science & Technology - Transforming US Energy Innovation – Results of the Energy Research, Development, Demonstration & Deployment Project

Transforming US Energy Innovation – Results of the Energy Research, Development, Demonstration & Deployment Project

bridges vol. 32, December 2011 / News from the Network: Austrian Researchers Abroad

By Laura Diaz Anadon, Matthew Bunn, Venkatesh Narayanamurti, et al.

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Editorial note: the following article is an abridged version of the recently published report Transforming US Energy Innovation. It represents a summary of some of the main findings as presented in the executive summary and the policy brief of the report, published by the study's authors.

Transforming US Energy Innovation

The United States and the world need a revolution in energy technology - a revolution that would improve the performance of its energy systems to face the challenges ahead. A dramatic increase in the pace of energy innovation is crucial to meet the challenges of:

Energy and national security: to address the dangers of undue reliance on dwindling supplies of oil increasingly concentrated in some of the most volatile regions of the world, and to limit the connection between nuclear energy and the spread of nuclear weapons;

Environmental sustainability: to reduce the wide range of environmental damages due to energy production and use, from fine particulate emissions at coal plants, to oil spills, to global climate disruption; and

Economic competitiveness: to seize a significant share of the multi-trillion-dollar clean energy technology market and improve the balance of payments by increasing exports, while reducing the hundreds of billions of dollars spent every year on importing oil.

Will photovoltaic installations and electric vehicles be part of the energy future of the US?

In an intensely competitive and interdependent global landscape, and in the face of large climate risks from ongoing US reliance on a fossil fuel-based energy system, it is important to maintain and expand long-term investments in the energy future of the US even at a time of budget stringency. It is equally necessary to think about how to improve the efficiency of those investments, through strengthening US energy innovation institutions, providing expanded incentives for private-sector innovation, and seizing opportunities for international cooperation to accelerate innovation. The private sector role is key: In the United States, the vast majority of the energy system is owned by private enterprises whose innovation and technology deployment decisions drive much of the country's overall energy systems. Efficiently utilizing government investments in energy innovation requires understanding the market incentives that drive private firms to invest in advanced energy technologies, including policy stability and predictability.

Click here to download the first Quadrennial Technology Review, published in 2011 by DOE.

The US government has already launched new efforts to accelerate energy innovation. In particular, the US Department of Energy (DOE) is undertaking a Quadrennial Technology Review to identify the most promising opportunities and provide increased coherence and stability. In order to help the US administration accelerate the development and deployment of low-carbon energy technologies, in 2008, researchers at Harvard's Belfer Center for Science and International Affairs launched the Energy Research, Development, Demonstration & Deployment Project (ERD3) with the goal of producing and promoting a comprehensive set of recommendations. Over the past three years, the ERD3 project has worked to develop and to implement a methodology for designing an expanded portfolio of federal ERD&D activities; has investigated the role that the private sector and public-private partnerships play in energy innovation in the US; has identified ways to improve the effectiveness of public energy innovation institutions; and has analyzed how the US government could improve the effectiveness of its international collaboration efforts on energy innovation. This research was informed by interviews, surveys, modeling exercises, and literature reviews.

The ERD3 report, presented in Washington, DC, on November 22, offers analysis and recommendations designed to accelerate the pace at which better energy technologies are discovered, developed, and deployed. The report focuses on four key areas:

Designing an expanded portfolio of federal investments in energy research, development, and demonstration (ERD&D), and complementary policies to catalyze the deployment of novel energy technologies;

Increasing incentives for private-sector innovation and strengthening federal-private energy innovation partnerships;

Improving the management of energy innovation institutions to maximize the results of federal investments; and

Expanding and coordinating international energy innovation cooperation to bring ideas and resources together across the globe to address these global challenges.

The full ERD3 report comprises more than 300 pages, and its findings resulted in five key recommendations for accelerating US energy innovation:

(1) The US government should dramatically expand its investment in energy RD&D, focused on a broad portfolio of different energy technologies and stages of innovation.

Investing a few extra billion per year today could develop technologies that might save the economy hundreds of billions of dollars per year by 2050.

The ERD3 report recommends that current investments in energy RD&D be roughly doubled, to $10 billion per year (including about $5 billion for the seven technology areas considered in detail and the remainder for other areas, including Basic Energy Sciences). Experts in a range of energy technologies have almost unanimously recommended increasing energy RD&D in their areas 2-3 times, in order to seize the technological opportunities that now exist. The report's economic modeling suggests that investing a few extra billion per year today could develop technologies that might save the economy hundreds of billions of dollars per year by 2050, in scenarios where stringent policies are limiting how much carbon can be emitted.

Current modeling suggests that marginal returns from spending more than the recommended $10 billion per year may decrease, but that conclusion should be regularly reassessed as technologies evolve. These investments should target a broad portfolio of technologies, to maximize the chances of achieving major breakthroughs. The largest percentage increases recommended, compared to 2009 funding levels, are for energy storage, buildings, bioenergy, and solar photovoltaics.

Despite current deficits, the United States cannot afford to forego the long-term investments that will improve its competitiveness in this multi-trillion-dollar market and its national security, while reducing greenhouse gas emissions and other environmental hazards. These funds could be provided through channels outside the appropriations process, as has been done successfully in the past.

(2) The US federal government should implement policies that create market incentives to develop and deploy new energy technologies, including policies that have the effect of creating a substantial price on carbon emissions, and sector-specific policies to overcome other market failures.

Problems concerning greenhouse gas emission will not end in smoke without the right policies.

The report's modeling makes clear that both expanded RD&D investments and a substantial price on carbon emissions are necessary if the United States is to meet the climate change challenge and find cost-effective ways to reduce dependence on imported oil. Increased energy innovation investment alone, with no policies in place to drive the adoption of the resulting technologies, is very unlikely to reduce US greenhouse gas emissions by more than a few percent - even with huge increases in RD&D and optimistic technology assumptions. Similarly, carbon caps or prices alone, with no increase in energy RD&D, would make the resulting energy system more costly. A clean energy standard could contribute towards the goal of reducing carbon emissions, but would be less effective than a broader carbon policy. Together, well-integrated "technology push" from increased RD&D and "demand pull" from a carbon price and sector-specific policies (such as building codes) have the potential to accomplish what neither can do alone.

(3) The US government should take a strategic approach to working with the private sector on energy innovation, expanding incentives for private sector energy innovation, and focusing on the particular strategies likely to work best in each case.

The private sector has a critical role to play, as the vast majority of the energy system infrastructure in the United States is controlled by the private sector. Research results show that private sector innovation in energy is more widespread than was previously understood. Yet, today, DOE does not have an overall strategy for its interactions with the private sector. It does not collect and analyze the data from past projects that might indicate what collaborative mechanisms work best and under which circumstances. The report proposes a new approach in which those data would be collected and analyzed, to enable learning by doing. It also shows that the demand-pull policies we recommend will enhance incentives for private sector investment in energy innovation; this should also be strengthened through other policies, ranging from support for large-scale technology demonstrations to investment in training the next generation of energy technologists.

(4) The US government should strengthen its energy innovation institutions, particularly the national laboratories, by giving them clear missions and direction; considerable management authority and flexibility with clear accountability for results; stable funding; a culture willing to invest in high-risk, high-payoff projects; and opportunities to lend their insights to the design of the policies and approaches they are helping to implement, including public-private partnerships.

To maximize the return on its investment in energy RD&D, the US government must ensure that its energy innovation institutions are as efficient and effective as possible. Constantly shifting funding, DOE headquarters' micromanagement, diffuse missions, risk-averse cultures, new contracting approaches that have diluted the focus on key national objectives, and insufficient ability to connect to the private sector have undermined the efficiency of US energy RD&D institutions. The study recommends a range of reforms, including increasing lab-directed funds to allow lab directors to provide seed funds for promising areas, incentives for entrepreneurialism and risk taking for lab scientists and technicians, and a revision of contracting in the labs.

Advanced Research Projects Agency-Energy (ARPA-E) represents a major step in the right direction, emphasizing technical excellence, rapid adaptation, and high-risk, potentially high-payoff projects. Policy makers should provide consistent, multiyear support for ARPA-E and should not be deterred by a few failures - if there were no failures, the effort would not be pursuing the high-risk projects with the highest potential payoffs.

(5) The US government should undertake a strategic approach to energy RD&D cooperation with other countries to leverage the knowledge, resources, and opportunities available around the world, incorporating both top-down strategic priorities and investment in new ideas arising from the bottom up.

The energy challenges of the 21st century are global and need to be addressed by international cooperation.

The energy challenges of the 21st century are global, not limited to the United States. World energy markets and energy technology development are rapidly changing as globalization progresses and new players emerge. Today, the total government-controlled energy RD&D in just six emerging or transition countries (Brazil, Russia, India, China, Mexico, and South Africa), counting investments by state-owned enterprises, is as large as or larger than government-sponsored energy RD&D in all the developed countries combined. These new realities create new competitive challenges as well as new opportunities, requiring the United States to ensure that high-value cooperation opportunities are not missed because of the sometimes ad hoc and distributed nature of cooperation activities. The report recommends that a new interagency committee be established to identify additional priorities - for funding and action in international cooperation in energy innovation - that are not being undertaken by the agencies; it also urges that a new approach be established for collecting and analyzing the data needed to determine what approaches to RD&D cooperation are most effective, and under what circumstances. At the same time, recognizing that innovators on the ground may be most aware of new opportunities as they arise, it is recommended that all the key energy RD&D programs at DOE and each agency involved in cooperation in energy innovation should set aside a small portion of its funds to provide bottom-up support for the suggested international energy RD&D projects.

Cross-cutting issues in energy technology innovation

As the research for the study was underway, several themes arose repeatedly. In addition to the above-listed five key recommendations, the following principles are important for improving the effectiveness of US energy policy:

The first theme is the need for stable long-term policies that allow the private sector to plan and make investments and that provide researchers with time to collect sufficient information and explore different research avenues efficiently. The Quadrennial Technology Review that the DOE was undertaking as this report was being written is a first step that can help contribute to stability by identifying multiyear programs for different technologies. Long-term stability is also needed in policies (such as standards or carbon prices) to pull technologies into the marketplace.

The second theme is the need for improved coordination between agencies. Again, the Quadrennial Technology Review will help provide coordination within the DOE; however, ultimately, a government-wide review (such as the Quadrennial Energy Review recommended by the President's Committee of Advisors in Science and Technology) will be needed to align DOE programs with government-wide initiatives. For example, a price on carbon or a clean-energy standard will affect private sector activity in energy innovation and therefore influence the investments that the DOE should make.

The third theme that emerged is the need for a balanced portfolio of: a) investments in different technologies, b) investments in different stages of technology development, and c) mechanisms to interact with the private sector and universities. The outcome of innovation is uncertain and, as a result, managing risks requires spreading bets across a range of projects while expecting failures. At the same time, given that budgets are constrained and that overly small bets are unlikely to yield results, not everything can be supported.

Strengthened connections between the public and private sectors will improve the effectiveness of US energy policy.ream/

A fourth theme was the need to strengthen the interaction between government and the private sector. Although members of the private sector testify to Congress, participate in advisory boards, and respond to requests for information, it would be useful to integrate private sector perspectives more fully into the design of policies and research programs. Extended use of advisory boards - such as the Energy Innovation Advisory Board we propose - could help strengthen connections between the public and private sectors.

Finally, a fifth theme indicated by our research is the need to work on the design for an energy technology innovation strategy that is guided by learning. Today, program managers are often unaware of which approaches worked and which did not in research areas related to their own. This lack of awareness makes it difficult to strengthen or expedite their efforts through lessons from past experience. Much more effort can be devoted to collecting and analyzing data on the different approaches that are being implemented and to determine which ones work best and under what circumstances. For example, better information is needed for program planning and the budget process. Information required includes: (1) the portfolio of mechanisms and projects that are in place; (2) multiyear program plans that take into account what capabilities and resources will be needed; (3) managers' experience with what partners can contribute and what the DOE has to contribute (this is as important as the state of technology in deciding what actions to take); (4) the pace of technology development and the challenges being encountered by those involved in projects; and (5) the impacts of the programs. ARPA-E is placing increased emphasis on self-evaluation and data collection, and exemplifies an institution that is adopting this "learning" principle.

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For further information, and to download the full report, please visit: http://belfercenter.ksg.harvard.edu/publication/21528/transforming_us_energy_innovation.html

About the authors:

Laura Diaz Anadon is associate director of the Science, Technology, and Public Policy Program; director of the Energy Tech¬nology Innovation Policy research group; project manager of the Energy Research, Development, Dem¬onstration & Deployment (ERD3) Policy Project; and adjunct lecturer on public policy at the Harvard Kennedy School.

Matthew Bunn is associate professor of public policy; co-principal investigator of the Project on Managing the Atom; co-princi¬pal investigator of the Energy Research, Development, Demonstration & Deployment (ERD3) Policy Project.

Venkatesh "Venky" Narayanamurti is the Benjamin Peirce Professor of Technology and Public Policy; professor of physics, Harvard; director of the Science, Technology, and Public Policy Program; co-principal investigator of the Energy Technology Innova¬tion Policy research group; co-principal investigator of the Energy Research, Development, Demonstration & Deployment (ERD3) Policy Project; co-principal investigator of Explorations in Cyber International Relations.

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