Climate change policy: How to do clean energy innovation right

“Innovation” is a fraught concept in climate politics. For years, it was used as a kind of fig leaf to cover for delaying tactics, as though climate progress must wait on some kind of technological breakthrough or miracle. That left climate advocates with an enduring suspicion toward the notion, and hostility toward those championing it.

Lately, though, that has changed. Arguably, some Republicans in Congress are still using innovation as a way to create the illusion of climate concern (without any conflict with fossil fuel companies). But among people serious about the climate crisis, it is now widely acknowledged that hitting the world’s ambitious emissions targets will require both aggressive deployment of existing technologies and an equally aggressive push to improve those technologies and develop nascent ones.

There is legitimate disagreement about the ratio — about how far and how fast existing, mature technologies can go — but there is virtually no analyst who thinks that the current energy innovation system in the US is adequate to decarbonize the country by mid-century. It needs reform.

What kind of reform? Here, as in other areas of climate policy, there is increasing alignment across the left-of-center spectrum. Two recent reports illustrate this.

The first — a report so long they’re calling it a book — is from a group of scholars at the Columbia University Center on Global Energy Policy (CGEP), led by energy scholar Varun Sivaram; it is the first in what will be three volumes on what CGEP is calling a “National Energy Innovation Mission.” The second is from the progressive think tank Data for Progress, on “A Progressive Climate Innovation Agenda,” accompanied by a policy brief and some polling.

Both reports accept the International Energy Agency (IEA) conclusion that “roughly half of the reductions that the world needs to swiftly achieve net-zero emissions in the coming decades must come from technologies that have not yet reached the market today.” There are reasons to think this might be an overly gloomy assessment, but whether it’s 20 or 50 percent, aggressive innovation will be required to pull it off.

Both reports set out to put some meat on the bones of a clean energy innovation agenda. And they both end up in roughly the same place, with roughly the same set of policy recommendations. With a bigger team and more resources, the CGEP report is inevitably bulkier and more comprehensive, so I’ll mostly follow along with it, but the Data for Progress report adds a few key elements that we’ll touch on below.

There are five basic reforms involved in developing an innovation system that can decarbonize the US by mid-century: it needs to be bigger, better targeted, more broad, more stable, and more equitable.

US public spending on energy innovation is paltry

Today, the federal government spends less than $9 billion annually on energy innovation, “less than a quarter of what it invests in health innovation and less than a tenth of what it invests in defense innovation,” says CGEP.

CGEP

Roughly 80 percent of the money goes to the Department of Energy; the rest goes to a grab bag of agencies including the Department of Agriculture and NASA.

US energy R&D spending spiked after the 1970s oil crisis, but when oil prices fell and President Reagan came along, it plunged, and as a percentage of US GDP, it has never recovered.

A chart showing US energy R&D spending, which spiked after the 1970s oil crisis. Spending plunged when oil prices fell, and as a percentage of US GDP, it has never recovered. ITIF

And just as public R&D spending “crowds in” private investment in a virtuous cycle, the loss of funding leads to a vicious cycle. “Starting in 1984,” CGEP writes, “private funding for energy RD&D and US energy patents declined for the next two decades.”

Still today, what private investment there is in clean energy is overwhelmingly focused on mature technologies that are market competitive. In 2019, just 10 percent of private investment in clean energy went to innovative companies; the bulk was financing for projects like wind and solar farms, from established market players.

And venture capital isn’t stepping up either. “In 2019, VCs invested just $1 billion into US energy companies,” CGEP writes, “compared with about $20 billion for health care deals and $70 billion for information technology firms.”

In 2015, the US made a promise to the world, as part of the international Mission Innovation compact, to raise energy R&D spending to $12.8 billion annually by 2021. It remains billions of dollars short.

As IEA’s report makes clear, even the Mission Innovation target is grossly inadequate to the task. The US is only about 15 percent of global greenhouse gas emissions. One of its primary roles in the climate fight must be putting its incredible intellectual and engineering might behind innovation, to drive down the costs of technologies other countries need to get on a sustainable path.

“The single most important thing that the United States can do to advance progress on climate change,” Sivaram says, “is launch a national energy innovation mission.”

A pie chart showing countries’ share of global emissions. UCS

The US energy innovation budget should triple or quadruple

One of the primary lessons CGEP draws from historical examples of government R&D is that “scale matters.” It cites defense and health spending, which have created expansive innovation ecosystems that encompass the entire development process, from lab to market, and are at least somewhat self-sustaining and insulated from ongoing political interference.

“Federal support for energy innovation has not attained this scale,” CGEP writes, “and as a result, enjoys neither a thriving and self-sustaining innovation ecosystem nor sufficient political independence to tolerate failures in the portfolio.” (Imagine how the health system would look if every failed drug was treated like Solyndra.)

The first order of business in creating an adequate innovation ecosystem is simply spending more money on it.

Data for Progress recommends “slightly more than a three-fold increase in R&D spending and a four-fold increase in RD&D spending by 2030.”

A chart showing historical spending on energy R&D (left) versus recommended spending levels (right). Data for Progress

CGEP emphasizes a more specific near-term target: $25 billion by 2025 (roughly tripling the current budget, which would still put energy innovation at about half what the US spends on health innovation).

That target is high enough to bulk up the energy R&D portfolio, CGEP argues. It matches a bottom-up analysis of funding needs; research shows that “funding in roughly this range will translate into net economic benefits and rapid technological progress”; and it would bring US public investment in energy R&D to roughly the same percentage of GDP as China’s. At the same time, history shows that spending of that level can be profitably and economically deployed by agencies to accelerate innovation. Contrary to conservative myth, the federal government is pretty good at this.

The previously mentioned health and defense innovations ecosystems have produced dozens of products and services that have spilled over into other sectors. Defense R&D yielded semiconductors, computers, and GPS systems. Biomedical R&D produced the biotech industry. “Science supported by NIH,” CGEP writes, “underpinned every single one of the 210 new drugs approved by the Food and Drug Administration from 2010 to 2016.”

Federal R&D spending works. And it draws in private capital. “It’s been shown that government R&D in clean energy technologies redirects private R&D away from fossil fuel technologies and into clean energy,” Visaram says.

But the full potential of federal innovation spending is only unlocked at scale. That means lots more money, quickly.

Federal innovation money should be targeted at the neediest sectors

Data for Progress is blunt: “Existing innovation programs are not designed to address climate change,” but rather to boost US fossil fuel supply.

For one thing, Department of Energy (DOE) R&D spending is concentrated on the power sector, while the bulk of US emissions come from fossil fuel combustion in transportation, buildings, and industry.

A comparison of greenhouse gas emissions (in 2018) versus Department of Energy R&D priorities in 2020. CGEP

(Note, in particular, the low spending on industry, where high-temperature processes like steel and concrete manufacture promise to be one of the most difficult areas to decarbonize.)

What’s more, the bulk of DOE R&D spending goes to nuclear power and fossil fuels, despite the fact that the IPCC (and everyone else) expects renewable energy to be the backbone of a decarbonized energy system.

r&d spending vs 1.5 pathway Data for Progress

Both Data for Progress and GCEP recommend that funding priorities shift away from individual fuels, especially fossil fuels, toward energy applications with large potential emission reductions.

GCEP suggests a focus on 10 particular “technology pillars.” (In the report, each pillar is accompanied by a helpful summary of recent initiatives around it and some recommendations for new initiatives to boost it.)

  1. Foundational science & platform technologies
  2. Clean electricity generation
  3. Advanced transportation systems
  4. Clean fuels
  5. Modern electric power systems
  6. Clean and efficient buildings
  7. Industrial decarbonization
  8. Carbon capture, use, & sequestration
  9. Clean agricultural systems
  10. Carbon dioxide removal

One could argue about the relative weighting of these pillars — I have contended for a while that smaller, more distributed, modular, and digital technologies are better suited to America’s strengths — but as an initial list, it is solid. And it overlaps almost entirely with Data for Progress’s similar list of tech priorities.

A chart showing a proposed federal energy innovation budget for 2022. GCEP

It will not be enough, however, to target money at early-stage research alone.

Federal innovation money should be spread out more broadly

Too often, those who tout “innovation” seek to confine R&D money to early-stage research, as though the market will take it from there. Extensive experience and analysis shows that is false.

In fact, research shows that R&D is vital to driving technologies down the cost curve, not only in the lab stage, but when crossing the “valley of death” between lab and market and when scaling up to full market maturity. All those graphs you see of solar, wind, and battery costs falling? It’s not just scale, or “learning by doing,” that’s driving those cost reductions. The graphs rarely show it, but behind almost every new technology that reaches broad market scale there is consistent innovation-boosting policy help, at every stage.

Different policies help more during different stages, as the stylized chart below shows.

A chart showing the efficacy of different policies in supporting clean energy innovation. GCEP

Today, public funding for innovation is overwhelmingly focused on early-stage research.

The underfunding of demonstration projects is particularly acute, since private capital is often leery of investing in high-risk projects where knowledge spillovers make it difficult to capture all of the benefits. “As a result,” CGEP writes, “a yawning valley of death can swallow firms that lack the capital to demonstrate promising clean energy technologies that they have developed.”

Right now only 5 percent of federal energy R&D spending goes to demonstration projects, and most of that is for advanced nuclear. CGEP recommends that the government “fund demonstration projects across the ten technology pillars at a level of at least $5 billion per year by 2025.”

To spend this money, the government should create a central financing authority. Data for Progress recommends a national Green Bank; CGEP mentions a possible Clean Energy Deployment Administration. Either way, a central, accountable authority should dispense and track grants and loans.

And the government should join “technology push” policies focused on early research with “market pull” policies that draw demonstrated technologies into market scale. Options include “carbon pricing, clean electricity standards, fuel economy standards, targeted tax incentives, and more,” CGEP says. This will help government spread investment more broadly across the technology development curve.

And the funding should also be spread more broadly across agencies and programs, to exploit synergies among agencies and better protect funding from political interference. “Many other federal agencies have missions that align with advancing energy innovation,” CGEP notes. It cites the Department of Defense, NASA, the National Institute of Standards and Technology (within the Commerce Department), and the Department of Agriculture, among others.

And finally, funding should be spread across institutions, from national laboratories to universities, private sector companies, and state and local governments. Government partnerships with industry are a major feature of the German innovation system, which features 66 German Fraunhofer Institutes that focus practical research on various industrial challenges. And it is well understood that innovation proceeds faster in research “clusters,” where labs, universities, and firms work in close proximity. The federal government can work with local and regional authorities to help build those clusters.

And again, it comes back to scale. “To sustain academic, industrial, and federal laboratory complexes,” Sivaram says, “a threshold level of investment is needed across all parts of the chain, to support this interplay between R&D and manufacturing.”

Federal innovation funding should be steady and flexible

The scale of US defense and health R&D spending produces predictability — the institutions it has created are at least somewhat self-sustaining. Energy R&D, on the other hand, has been subject to continuous boom and bust cycles, which inevitably disrupt research.

To scale up innovation as fast as needed, the government should “signal its long-term commitment to increasing annual energy RD&D funding over the next decade, even after reaching the target of $25 billion by 2025.” Researchers and industries need to be able to rely on it.

And agencies should rigorously collect and analyze information, to foster transparency and increase trust among policymakers and the public, so that funding survives swings in politics.

Finally, innovation funding should be flexible and adaptive, based on ongoing research, forecasting, and expert opinion. If some technologies fall in cost faster (or slower) than expected, agencies should be able to course correct and redirect funding.

“If, for example, the commercial cost of producing clean hydrogen falls rapidly over the next decade,” CGEP writes, “it could make sense to redouble investments in RD&D to use hydrogen as a feedstock to decarbonize industrial processes.” Conversely, if hydrogen proves resistant to cost declines, it might make sense to channel more money to biofuels and battery chemistries.

Steadiness and predictability are the key, though: “At a high level,” CGEP says, “policymakers must stick to their roadmap for ramping up the federal budget for energy innovation.”

Federal innovation funding should be spent equitably

The CGEP report contains several references to “inclusive economic growth” and lots of ideas for how federal partnerships with states and localities could foster it, but the Data for Progress report has a full and separate section on equity, which gathers key recommendations in one place, so let’s take a look at them.

The first and arguably most important recommendation is that federal innovation programs be explicitly redirected toward addressing the climate crisis, which crucially involves environmental justice. Energy innovation programs should “prioritize projects that improve social and economic equity, including through business models that allow for communities to lead, own, and benefit from clean energy projects,” Data for Progress writes. And it should seek to avoid exacerbating other inequitable environmental hazards in its quest to reduce emissions.

Second, Data for Progress argues that the federal government should direct at least 40 percent of climate-related investments (including those on innovation) to “disproportionately burdened communities” that have historically suffered from “systemic racism and structural inequity.”

A protest banner with the words “Climate Justice Now” placed in front of the Citgo sign in Kenmore Square in Massachusetts.
A sign reading “Climate Justice Now” is placed in front of the Citgo Sign in Kenmore Square on August 10, 2020, at Fenway Park in Boston, Massachusetts.
Billie Weiss/Boston Red Sox/Getty Images

Third, it argues that the government should prioritize projects in communities dependent on the fossil fuel economy, which could be hard hit by a wholesale transition to clean energy. When DOE is making research grants or funding demonstration projects, it should “consider the extent to which these programs can enable communities historically dependent on fossil fuels to benefit and diversify their economies.”

Fourth, the government should bulk up workforce redevelopment efforts aimed at clean energy jobs. And fifth, it should expand international cooperation on climate initiatives that can help address global inequities.

This focus on equity throughout the innovation ecosystem, says Jake Higdon, a climate analyst at the Environmental Defense Fund and one of the authors of the Data for Progress report, is crucial to “garnering more engagement and ownership over innovation from the progressive caucus.”

The politics of clean energy innovation in 2020

Another difference between the two reports is that Data for Progress’s is explicitly framed as advice to Democrats for when and if they get power.

As it shows in its accompanying polling, this is good politics for Dems. A narrow (51 percent) majority of the public supports investing $1 trillion in green energy innovation.

A chart that shows around 50 percent of voters support a trillion-dollar investment in advanced green technologies. Data for Progress

(Note how big the “don’t know” category is, especially among independents. There is lots of room for persuasion here.)

And larger majorities would prefer to invest in clean energy tech over more military weaponry.

A chart showing that more than 50 percent of voters want to prioritize investments in clean energy over military weapons. Data for Progress

Bipartisan public support, Higdon says, “is all the more reason for progressives, who are concerned about the climate crisis and see it as an intersectional issue, to be engaging very deeply on setting the terms of the innovation agenda.”

CGEP, by contrast, is insistent that for public innovation spending to reach the scale, breadth, and resilience it needs, there must be a bipartisan consensus supporting it. “Any policy that is to last for decades in the United States must withstand shifts in partisan control of the presidency, the Senate, and the House of Representatives,” it writes, “not to mention periods of divided government.” It cites the Cold War consensus and the more recent consensus around biomedical research.

No such consensus has formed around energy — Reagan theatrically rejected Carter’s calls for more thoughtful energy policy — but CGEP claims the outlines of one are beginning to take shape.

“This is a pocket of resistance among congressional Republicans against the Trump administration,” Visaram says. In each of the last four years, the Trump budget proposed significant cuts in clean energy programs, including Advanced Research Projects Agency-Energy; each time, cuts were rejected. “Instead,” CGEP writes, “federal funding for clean energy RD&D has risen by about one-third during this period.”

The report also cites the American Energy Innovation Act, co-sponsored by Sens. Lisa Murkowski of Alaska, a Republican, and Joe Manchin of West Virginia, a Democrat. As chair and ranking member of the Senate Energy and Natural Resources Committee, they wrangled the interests of some 70 senators into a single bill that boosts R&D funding for a range of technologies and funds 17 demonstration projects. (Savaram says he was “dismayed” when the Sierra Club and the Union of Concerned Scientists denounced the bill for directing too much funding to fossil fuel technologies.)

Sen. Joe Manchin (D-W.Va), left, speaks to Sen. Lisa Murkowski (R-AK), during a Senate Energy and Natural Resources Committee hearing on the FY2021 Interior Department budget in Washington, DC, on March 10, 2020.
Caroline Brehman/CQ-Roll Call, Inc via Getty Images

There’s a bipartisan group of legislators behind the “Endless Frontier Act,” which would set up a directorate in the National Science Foundation to fund 10 technology research areas (including advanced energy) to the tune of $20 billion a year, and another bipartisan group behind the House Nuclear Energy R&D Act, which would refocus DOE’s nuclear energy program on next-gen reactors.

Sen. Lamar Alexander (R-TN), called for a “New Manhattan Project” for clean energy research. Even Sen. Marco Rubio (R-FL) has hopped on board the innovation train. The Bipartisan Policy Center has an American Energy Innovation Council stocked with CEOs who support energy innovation.

It’s not so much the climate angle that draws conservative support, Sivaram says, as the economic development angle and the competition-with-China angle. And that might be enough. “The whole reason I devoted the last six months to doing this is, I think it can actually happen,” he says, “and it’s not going to require a signal change in how the government works, compared with all the other climate plans.”

He acknowledges that implementing the recommendations in CGEP’s report will probably require a new presidential administration, but he insists that it “does not require a substantial change in the makeup of Congress.”

I do not share Sivaram’s optimism. CGEP’s report concludes with three recommendations for immediate action: The president should launch a National Energy Innovation Mission, Congress should increase energy RD&D funding by 30 percent in 2021, and the US should reassert its international leadership on energy innovation.

If I were a gambling man, I would bet that US conservatives will condemn any mission launched by a President Joe Biden as a wasteful government boondoggle. I would bet that, to the extent they are capable, they will deny him any major legislative victories in Congress, including a big clean energy bill. And I would bet that any attempts to reestablish US commitment to clean energy on the international stage will be dogged by Republican assurances that, should they retake power, fossil fuels will once again be in the driver’s seat.

US-POLITICS-TRUMP
Republican loyalties are not subtle.
Saul Loeb/AFP via Getty Images

The political history of the last few decades reveals that the far right’s hold on the GOP and its near-religious devotion to opposing anything Democrats do or say steamroll any glimmers of bipartisan consensus. Partisanship is stronger than any other force in US life.

Republicans may support channeling federal energy innovation money to fossil fuel companies and fossil fuel communities, but recent history suggest that they simply will not go beyond that, to any perceived progressive priority. Bipartisanship, with today’s GOP, means the portion of Republican priorities that Democrats are willing to support.

But I am a pessimist! Perhaps Sivaram is right. There’s no harm in trying.

Either way, it is good to see the left side of the aisle getting serious about the details of a federal energy agenda. And it is good to see that on this subject, as in other parts of climate policy, there is substantial overlap among centrists and progressives. If Biden finds himself in the Oval Office, he will have a broadly popular and extremely detailed roadmap.

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