The Challenges

During the last decade Cambridge has gained recognition as platform for research and development of energy innovation policy, a subject which in election years take on added attention and controversy. Among important views presented in the city late in 2011 were those of Secretary of Energy Michael Chu. On December the Secretary delivered an address at MIT defending the Department Of Energy (DOE) ARPA-E (Advanced Research Projects Agency-Energy) As model for U.S. financial backing of R & D and production of green energy equipment, ARPA-E has faced criticism in the wake of high-profile setbacks such as May 2011 Solyndra bankruptcy in California. Coincidentally, Chu was echoing recent affirmation of support by Governor Duval Patrick for a parallel Massachusetts policy, one which has seen its share of miss-fires with liquidations of green energy companies Evergreen Solar in Devens and Beacon Power of Tyngsboro in last year's closing months.

In the unfolding 2012 election cycle heat generated by political debate has been balanced in part by efforts to shed useful light on the issues. While many voice concern about shrinking international competitiveness of U.S. alternative energy, exchanges on the proper role of public resources in this sphere has yielded scant consensus.

The Debate and Solutions Proposed

Economists and politicians with Republican, pro-business leanings, including presidential hopeful Mitt Romney, reject government involvement in emphatic terms. They argue against distortions of market forces and question the fundamental commercial viability of energy innovation. Opposing these views is a growing cohort of scientists, economists and policymakers who while recognizing the need for the public inputs differ on institutional frameworks for integrating the these with efforts the private sector There is disagreement, for example, on usefulness of the vaunted Department Of Defense DARPA (Defense Advanced Research Projects Agency) model on which ARPA-E program is based, as the former was designed to promote defense and not commercial technology.

Well informed discourse is surely important for shaping national energy innovation policies, in which the U.S. has in last two decades fallen behind international competitors. In the interest of advancing this effort we have summarized a handful of voices from Cambridge and beyond.

In November 2011 the Energy and Technology Innovation Policy Research Group at Harvard’s Kennedy School of Government issued a report on Transforming U.S. Energy Innovation. The broad-ranging 340 page study by a team of policy specialists offered four main conclusions:

First, the importance for a portfolio approach to energy research, development and demonstration (ERD&D) encompassing expanded range of policy and deployment solutions. Second, the need to appropriately incentivise private-sector innovation with public funding. Third, creating institutional frameworks for delivering effective results from federal investments, including increased side-by-side, project-based public-private collaboration. And fourth, expanding observation and cooperation in energy innovation to capture experience from international best practices

In December 2011 MIT professor Richard Lester teamed with David M. Hart of George Mason University to publish Unlocking Energy Innovation (MIT Press 2012) Lester heads the Institute’s Department of Nuclear Science and Engineering and serves as Director of MIT’s new Industrial Performance Center. Together with Hart he headed a three year Energy Innovation project staffed by MIT and Harvard specialists which projected three waves of energy modernization and proposed organizational schemes to drive them forward.

The first wave would focus on efficiency gains in buildings, which consume 40% of total energy and 70% of electricity. In this area improvements are expected to be institutional and organizational. The second phase will focus on large scale deployment of low carbon technologies, including nuclear solar and electric/hybrid as well as grid scale storage. The third wave would emerge from radical technical advances from new research in a broad range of fields and call for adequate funding years in advance. Lester and Hart outline institutional arrangements in which market solutions can be integrated with government support and organized into regional sub-agencies for allocation of funding to demonstration projects.

MIT Institute Professor John Deutch (CIA Director in Clinton Administration) is member the Brookings Institution Hamilton Project, which has the mission developing policy agenda for U.S. economic recovery. In May 2011 Deutch unveiled an influential plan for a new national quasi-public Energy Technology Corporation (ETC) charged with identifying, managing and funding energy technology demonstration projects. The professor argues that critical function of technology demonstration is typically underfunded by private sector because of risk and uncertainty, in turn impeding selection of concepts and designs which are commercially viable. Deutch proposes that government take the lead in technology demonstration. Although DOE has sponsored programs in nuclear, coal and synthetic fuels demonstration, these efforts, according to Deutch, fell short along a range attributes. The proposed ETC would be funded by a one-time federal appropriation of $60 billion over ten years.

MIT Professor of Economics Michael Greenstone as Director of the Brookings Hamilton Project testified in June 2011 before the Joint Economic Committee of Congress, marshaling important arguments for restorinbg funding R & D in energy innovation. Greenstone's published statement linked continued dependence on imports of fossil fuels to eroding international competitiveness in energy technology, calling attention to declining federal investment in energy related R & D. In 2007 U.S. outlays totaled $1.7 billion or less than .01 % of GDP, down from the high point of .14% during the 1980’s. These results contrast with .07% in Japan and South Korea and .03% in Germany and Sweden. Greenstone argued that new government funding mechanisms R & D will be required to stimulate private sector commitments and echoes Deutch’s advocacy for demonstration projects.

Added Perspectives

To the foregoing Cambridge-based voices we need to add important points of view from beyond the city.

Former Intel CEO Andy Grove in 2011 published controversial yet influential articles on technology innovation. He which he took issue with manufacturing of technology products offshore in pursuit of lower labor costs. Grove argues that important aspects of innovation and scaling in production of batteries and photo-voltaic nano-coatings are imbedded in the manufacturing process itself. The focus on short-term results by financial markets and policymakers has lead to atrophy and contraction of American green energy manufacturing. Grove cites examples from the industrial development in East Asia, where both protectionist policies and government investement in technology manufacturing played a key role.

President Bill Clinton's new book Back to Work (Knopf 2012) takes on anti-government advocates by citing Chinese and German examples of public-private collaboration, practices which have turned these countries into world leaders in wind energy and solar cell production. Clinton sees government investment in energy conservation as an important instrument of job creation and deficit reduction. The President singles out the example of the LEED (Leadership for Environmental Design) program which creates many jobs in energy retrofitting of buildings. LEED projects, according to Clinton, are financed entirely from savings on energy costs. His proposals include a new federal agency modeled on the SBA for providing loan guarantees for financing retrofits on a major scale.

International Context

Discussions of energy innovation in the U.S. increasingly are singling out international benchmarks for study and adaptation. Bill Gates as member of the American Energy Innovation Council in 2011 published a series of articles disputing opposition to government inputs in energy innovation. He voiced alarm at declining U.S. investment in R & D comparing with rising expenditures by China, Germany and Japan.

Deborah Bleviss of the School for Advanced International Studies of Johns Hopkins University issued an important study in 2011 on energy innovation in Germany, Japan and Brazil. She identified common elements driving successful results of these countries, including integrated government-private sector research institutions. Equally important are well-conceived government initiatives which “push” innovation toward successful commercialization and policies that “pull” by driving market demand for new products.

Underlying Issues

As we seek central aspects of the American debate on energy innovation we identify, on one side, fundamental rejection of government engagement by way of funding and collaboration. Among those favoring significant role for the public sector alongside the private views on useful institutional frameworks range widely. Existing programs, including ARPA-E and its Massachusetts counterpart, have yet to demonstrate reliable results.

At the core of the divergence, some argue, are principles derived from supply-side or neo-liberal economic policies which have been entrenched since the Reagan administration in U.S. and the Thatcher government in England. Neo-liberal theories, promoted by the dominant Chicago and MIT economic schools, reject government intervention in the market as unacceptable distortion of free enterprise except in extreme cases of market failure. Dismissed as un-American has been “industrial policy”, different versions of which have been applied in Germany, China, Japan and Brazil. Industrial policy at its essence calls pro-active collaboration between public and private sectors. Not co-incidentally, all four latter states have rebounded strongly from 2009 contraction and are surpassing U.S. in energy technology. Nor did neo-liberal economics ever take root in Germany, China, Japan or Brazil, countries in which the institutional frame work for industrial policy has been created over decades.