This executive summary comes from a report by the Breakthrough Institute
The recent gains made by clean-tech sectors in the U.S. are shadowed by the looming collapse of federal subsidy support, which has been a powerful driver of expanding clean-energy markets. As documented in a report – published by the Breakthrough Institute, the Brookings Institution, and the World Resources Institute — federal investment in clean tech is slated to drop 75% over 2009 to 2014. The only solution to the policy-induced cycle of boom-and-bust endured by clean tech is to optimize federal support programs to drive innovation and cost declines so clean-energy technologies can ultimately thrive on their own in American markets without subsidy.
The report’s key recommendations include:
1 Reform energy deployment subsidies and policies to reward technology improvement and cost declines
Expiring policies and programs are poised to wipe away the large bulk of today’s clean energy deployment regime. This creates a clear need for urgent policy reform to sustain market opportunities for advanced energy technologies. More effectively deploy limited public resources, and support innovative entrepreneurs and firms. Whatever form they take, a new suite of clean tech deployment policies must simultaneously drive market demand and continual innovation. In particular, clean tech deployment policies should:
- Establish a competitive market. Deployment policies should create market opportunities for advanced clean energy technologies while fostering competition between technology firms.
- Drive cost reductions and performance improvements. Deployment policies should create market incentives and structures that demand and reward continual improvement in technology performance and cost.
- Provide targeted and temporary support for maturing technologies. Deployment policies must not operate in perpetuity, but rather should be terminated when technology segments either fail to improve in price and performance or become competitive without subsidy.
- Reduce subsidy levels in response to changing technology costs. Deployment incentives should decline as technologies improve in price and performance to conserve limited taxpayer and consumer resources, and provide clear incentives for continued technology improvement.
- Avoid technology lock-out and promote a diverse energy portfolio. Deployment incentives should be structured to create market opportunities for energy technologies at different levels of maturity, including new market entrants, to ensure that each has a chance to mature while allowing technologies of similar maturity levels to compete amongst themselves.
- Provide sufficient business certainty. While deployment incentives should be temporary, they must still provide sufficient certainty to support key business decisions by private firms and investors.
- Maximize the impact of taxpayer resources and provide ready access to afford- able private capital. Deployment incentives should be designed to avoid creating unnecessarily high transaction costs while opening up clean tech investment to broader private capital markets.
Many of today’s clean tech deployment subsidies and policies should be reformed with these criteria in mind. Examples of possible policies that could meet these criteria include competitive deployment incentives, steadily-improving performance-based standards, “top-runner” standards or incentives, demanding government procurement opportunities, and reverse auction programs. If structured to adhere to these criteria, a new era of clean-tech deployment policies will neither select “winners and losers” a priori, nor create permanently subsidized industries. Rather, these policies will provide opportunity for all emerging clean-energy technologies to demonstrate progress in price and performance, foster competitive markets within a diverse energy portfolio, and put clean tech segments on track to full subsidy independence.
2 Strengthen the U.S. energy innovation system to make clean energy cheap
A new energy policy consensus to secure an internationally competitive, subsidy-independent clean tech sector must also harness America’s strengths as an innovator. The U.S. is home to world-class universities, generations of trained scientists and engineers, potent centers of entrepreneurship, finance, and advanced manufacturing, and a creative culture capable of attracting talent from around the world. Yet when it comes to energy, America’s innovation system falls short. Policy makers must strengthen the US energy innovation system to catalyze clean energy breakthroughs and support continual technology improvement. Along these lines, the nation should:
- Steadily increase investment in R&D while reforming and strengthening the U.S. energy innovation system.
Policy makers should steadily scale-up investment in energy RD&D to triple today’s levels to match the scale of other national innovation priorities.
America’s energy innovation system must also be modernized to leverage regional innovation opportunities and strengthen new institutional models at the federal level, including the Energy Frontier Research Centers (EFRCs), the Advanced Research Projects Agency-Energy (ARPA-E), and the Energy Innovation Hubs. Encourage efforts to build public-private partnerships responsive to industry needs and regional strengths across the Department of Energy (DOE) and particularly in the National Labs in order to ensure a maximum return on the federal R&D investment.
- Unlock clean energy entrepreneurship by implementing effective policies to accelerate commercialization of advanced energy technologies.
The DOE’s Loan Programs Office, which funded Solyndra, should be replaced by a more flexible, independent, and sophisticated suite of financial tools and other mechanisms to draw private capital into cleantech projects through a variety of investment, credit, securitization, insurance, and standardization activities. Whether delivered through a Clean Energy Deployment Administration (CEDA) or other entities or programs, the clear mission of these activities would be to accelerate the commercialization and deployment of critical advanced energy technologies.
A National Clean Energy Testbeds program (N-CET) should be established to take advantage of public lands to accelerate technology demonstration and commercialization. This new program would provide access to pre-approved, monitored, and grid-connected public lands and waters ideal for demonstration of innovative energy technologies, thereby reducing the cost, time, and permitting challenges associated with technology commercialization.
The power of military procurement should also be leveraged to drive demanding early markets for advanced energy technologies that meet tactical and strategic military needs and may have later commercial applications. Energy technologies with dual-use military and commercial potential include advanced vehicle technologies, aviation biofuels, advanced solar power, improved batteries, and small modular nuclear reactors.
Similarly, federal agencies should work independently and with the states to address infrastructure and regulatory challenges that may prevent the commercialization of new energy technologies.
- Harness advanced manufacturing, regional industry clusters, and a world- class energy workforce to enhance America’s innovative edge.
Advanced manufacturing is an integral part of the innovation system and a key area for cost reductions and performance improvements in emerging technologies. Innovation thus suffers when divorced from manufacturing activities. U.S. advanced manufacturing must play a key role in accelerating advanced energy innovation. Technical support programs, public-private research consortia, and other strategic policies can help domestic manufacturers of advanced energy technologies remain at the cutting edge.
Likewise, the nation must develop more potent, catalytic ways to leverage and enhance regional clean tech industry clusters. Such industry clustering has been shown to accelerate growth by promoting innovation, entrepreneurship, and job creation. Policy makers should increase investment in competitive grants to support smart regional cluster initiatives, designed not in Washington but on the ground close to the “bottom up” innovation that has broken out in numerous states and metropolitan areas.
Finally, American clean tech leadership will require a highly educated, globally competitive advanced energy workforce. The nation must make new investments in energy science, technology, engineering, and mathematics education and make smart reforms to immigration policies to ensure America remains the destination of choice for the world’s best entrepreneurs and innovators.
Clean-energy policy in America is at a crossroads. Federal support for clean tech is now poised to decline precipitously–unless policy makers and industry work together to enact smart reforms that can ultimately free clean energy from subsidy dependence and put clean tech sectors on a path to sustainable, long-term growth.
A business-as-usual strategy of perpetual policy expiration and renewal is no longer sustainable. Yet neither is the immediate cessation of clean tech subsidies in the national interest. Supporting the develop- ment of a new portfolio of cost-competitive, scalable clean energy technologies offers substantial opportunities for enhanced American energy security, new technology exports, and improved public health.
The time has come to craft a new energy policy framework specifically designed to accelerate technology improvements and cost reductions in clean tech sectors, ensure scarce public resources are used wisely to drive technologies towards subsidy independence as soon as possible, and continue the growth and maturation of America’s clean tech industries. This report lays out the challenges facing policy makers and business leaders with the aim of sparking a national conversation on the route forward.
The Breakthrough Institute
The Breakthrough Institute
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