Both current foreign wars (Iraq 2003-, Afghanistan 2001-) have been, at one point or another, defended on the grounds that they strategically secure liquid petroleum reserves, pipelines, export points and refining stations that are critical to U.S. energy needs (mostly those in Iraq) and those of American allies. In particular, Afghanistan contains the most direct and efficient access points to transport oil and natural gas supplies to and from Central Asia and China through the Khyber Pass. Its border with Iran has also been thought to create strategic leverage against the world’s second-leading producer of oil. Though other factors—the “war on terror,” and “democratization”—have also been used to justify the continued American presence in these regions, the only strategic raisons d’etat for continuing to occupy these nations would seem to involve their relevance to current US energy needs. These wars have already exceeded a trillion dollars and sent thousands of American soldiers to their death. The costs of caring for wounded veterans returning from are sure to treble the fiscal impact of the wars in the future. By broadening our energy generation and storage options, the US can avoid these “wars of necessity” in the future, saving crucial dollars and preventing immeasurable losses of lives and loved ones—priorities within, and beyond, the DoD.

US combat capabilities also have much to gain from clean-energy innovation and investment. Napoleon talked of his army “marching on its stomach.” The meat and bread that provided the joules for the low-tech armies of the 19th century still power today’s modern militaries, only in the form of liquid carbon fuels. US power projection is entirely dependent upon its ability to generate, transport and store energy rapidly and securely. The “long tails” that supply and resupply current US global deployments are limited in their efficiently by the physics of liquid carbon: dozens of miles of gasoline trucks and protective humvees, jet-fueled C17s and oil-powered frigates are needed to transport energy to today’s frontlines. These deliver not only an inefficient yield, but are often slow and insecure as well. As wars become increasingly unconventional, and supply lines more complicated and vulnerable, the US is forced to squander much of its force potential to maintain these lines, and even abandon some aspects of its combat capacities altogether.

While much continues to be done within the DoD to improve the energy efficiency of its operations and the fuel effiency of its vehicles, to accomplish any of these broad goals the DoD must promote critical research for future energy technologies. The DoD has a long tradition of innovation spillovers into the consumer economy, stretching from recent breakthroughs in global positioning technology to the Internet (ARPANET). But even innovations as minor as developing lighter rechargeable batteries are estimated to the save the DoD hundreds of millions annually from the costs of replacing out-modeled batteries and reducing their “fully-burdened-costs.” Tactically, smaller more durable batteries enhance U.S. force capabilities in unconventional conflict zones that require lengthy and covert special operations missions (see: Afghanistan, Iraq).

As groundbreaking as these more modest projects can be, even more ambitious research projects have even greater potential not only for the military, but also for civilian market spillover that could greatly contribute to overall US economic growth and competitiveness. Two such projects standout: algae based jet fuels and micro-nuclear reactor technology. This spring, the Defense Advanced Research Projects Agency (DARPA) successfully extracted oil from algal ponds at a cost of just $2/gallon, and has been working to begin large-scale refining of that oil into usable fuels at a cost of less $3/gallon. Though private industry has invested nearly $600 million into the project, DARPA’s hopes of expanding the breakthrough into a 50 million gallon annual refining operation to begin supplying the Air Force with 50-50 fuel blends by 2013 will require significant public investment.

Similarly, the late-third/early-fourth generation nuclear reactors—smaller, safer and more efficient alternatives to the large 2G light-water reactors currently deployed—are promising for US military operations, as well as general US energy needs. Unfortunately, America’s symbolic aversion to developing nuclear technologies have stymied domestic innovation in these key technologies. With effective support and communication, however, the DoD could gain from these reactors as they strive to develop “net-zero” energy self-sufficient bases. Smaller “pocket-nukes” are still in development and, with investment support, could revolutionize the mobility of US forces as force deployments become increasingly unconventional.

At the same time, the Navy is studying cheaper and more efficient alternative energy propulsion systems for its carriers, submarines and frigates, and is also considering proposals to create an “all-nuclear fleet” in the next 20 years. With broader federal investments within the DoD’s research and development budget, a breakthrough in either of these technologies would enable U.S. naval forces to extend farther, faster and cheaper into critical seas, straits and oceans than any other naval force in the world. This strengthens U.S. “off-shore balancing” capabilities, the essential instruments of a status-quo global power. The benefits, moreover, of producing, distributing, installing and marketing industrial-domestic versions of these technologies would be a boon for the U.S. energy sector, job creation and overall economic growth.

In addition to serving as a crucial locus of clean energy innovation (CEI) through federal investment, DoD can play a critical role in creating markets for emerging technologies through direct procurement. Without a reliable demand for new energy technologies, private firms will not aggressively pursue energy technology innovation, nor will they find public-private partnerships with DoD/DARPA worthwhile. In the US, most attempts to create demand for low-carbon energy technologies have focused on establishment of a carbon price. While this approach could push some innovation in the long run, there are serious political-economic complications within carbon pricing that make it a less than comprehensive solution. By contrast, direct government procurement coupled with direct government investment are powerful ways for the federal government to stimulate CEI. DoD’s unique purchasing capacities can create, on its own, a sufficient market with credible sustainability for many capital-intensive investments that remove risky “bet-the-company” labels from CEI projects—projects that, as noted above, are likely to benefit the DoD as much, if not more, than anyone else.

At the moment, the National Training Center in Fort Irwin, CA, Fort Carson in Colorado, and Nellis Air Force Base in Nevada all host cutting-edge solar photovoltaic energy generation arrays. The array at Nellis was at one point the world’s largest and the 15 MW it produces cover approximately one-third of the bases total power needs. More broadly, the Air Force is the largest renewable energy power purchaser in the U.S, and the third largest procurer in the world. Four Airforce bases currently rely entirely on renewable energy for power, while several others use a combination of solar and wind. As only 9% of current power for military facilities rely on alternative energies, there is much room for future procurement and the potential forum for market introduction that DoD presents has only begun to be tapped.

For more than two decades, federal energy policy has been afflicted by paralysis. Although much energy legislation has been passed into law during this period, America’s energy security has grown worse with each passing year. This deteriorating condition has created enormous economic and national security vulnerabilities. The time for action arrived long ago. We must not waste another moment. The DoD has much to gain from CEI, and its role in promoting it will not only resolve critical concerns central to the Department, but also a gathering crisis confronting the nation as a whole.

Photo Courtesy of "Action Sports" via the New York Times

China did not participate in this year’s World Cup and has actually qualified for the tournament only once, in 2002. Nevertheless, 2010 saw a solar energy company – Yingli Green Energy Holding Company – become the first firm from that country to secure global marketing rights to the sporting event. Viewers and fans would have seen the company’s name and logo displayed on the digital billboards ringing the fields, alongside more familiar consumer brands such as McDonald’s, Budweiser, and BP Castrol. Yingli Solar’s investment also made it the first renewable energy company to ever sponsor the World Cup.

The exact cost of the sponsorship has not been disclosed due to a confidentiality agreement, but the benefits have been extensive, as reported by the New York Times:

The “Leading Off” section of photographs in the July 5 issue of Sports Illustrated had a shot from the England-Germany match on June 27 that showed several Yingli Solar electronic signs interspersed with ads for McDonald’s…Helena Kimball, head of marketing communications at the San Francisco office of Yingli Green Energy Americas [said]: Traffic to the Yingli Web site has increased to the point where “the site did end up crashing a few times.” In addition to the presence on the billboards, the sponsorship entitles Yingli to set up displays of its products at the Soccer City Stadium in Johannesburg. Among the ways that Yingli is promoting the sponsorship, Ms. Kimball [said], are ads on the Yingli Web site; television commercials on flights of Chinese airlines like Air China; ads in Chinese and South African airports; and banner ads on Chinese Web sites like sina.com and sohu.com.

The paper previously noted that China recently became the world’s largest manufacturer of solar panels – Yingli Solar, in fact, only became listed on the New York Stock Exchange in 2007. The Breakthrough Institute and Information Technology & Innovation Foundation report, “Rising Tigers, Sleeping Giant,” similarly, closely examined the rapid development of clean energy technology in China, Japan, and South Korea. To be sure, American solar panel companies maintain an edge in their perceived quality, but if Yulin Solar’s bold sponsorship strategy is any indication, you can be sure that company and the rest of China’s indigenous solar innovators are working hard to make up the difference.

The United States must do all that it can to encourage innovation and competition in the domestic solar power industry in particular and clean energy industry in general, lest the jobs and businesses of the future be located elsewhere. Elizabeth Economy of the Council on Foreign relations put it best: “If Yingli wants to eat lunch at McDonald’s, great. I just don’t want them to eat G.E.’s lunch as well.”

China’s strong determination and serious commitment to win the global clean energy technology race is impressive. According to the several reports, China is about to invest $440 to $660 billion in the next ten years. [2]

While the rest of the world is pulling ahead in the global race by large-scale public investment in clean energy technology, the United States is still groping in the dark to untie global warming’s “Gordian Knot” at the starting line through pollution regulations.  It is time to take bold actions to solve the problems created by the regulation-centric approach, as an article in the Harvard Law and Policy Review put it. [3] The carbon pricing strategy alone will not guarantee the U.S. a promising clean technology future because it can neither close the price gap between emerging clean energy technologies and conventional alternatives, nor can it solve a variety of non-price-barrier problems in the clean energy technology sector.

From the table below, it is clear that carbon pricing is a dilemma itself because it is hard to make costly low-carbon clean energy as competitive as traditional dirty but cheap fossil fuels through a modest carbon price. According to a report of the Breakthrough Institute “Rising Tigers, Sleeping Giant”: [4]

“While it may help some lower-cost and more mature clean energy technologies (e.g., wind power) become more competitive with fossil fuels, it will do little for less mature and currently more expensive technologies such as solar energy or carbon capture and storage.”

Price Carbon Dioxide Must Reach to Make Clean Energy Cost-Competitive with Coal in the United States[5]

Source: Harvard Law and Policy Review

If a high price is imposed on carbon, there will be strong rejection from the general energy market in the name of economic development and people in general who are anxious about the energy price increase. Constant increases in carbon prices will only make people turn their faces away from the global warming issues and put the price at risk of a potential new low record due to political backlash.

Besides the price gap problem, “Rising Tigers, Sleeping Giant” also gave a detailed analysis on why carbon pricing alone does not solve the non-barrier problems specific to the adoption of emerging clean technologies.

“A high carbon price will not solve the problem of knowledge spillover and the long-term risks associated with large private investments in technology development and deployment. Nor will it facilitate the establishment of critical infrastructure, such as new transmission lines, grid upgrades, or storage for intermittent sources like wind and solar.”

Given each of these barriers, we conclude that carbon pricing strategy is not enough and large-scale public investment is the real key to boost the growing clean energy industry, regardless of carbon pricing. IEA’s Energy Technology Perspectives 2010 report also says that pricing carbon will not be the prime driver for this investment and another $46 trillion is needed to clean technology by 2050.

“We believe that a price on carbon is needed to send a strong signal to the market, but it’s unlikely this will be enough to transform our energy system,” said Peter Taylor, head of IEA’s Energy Technology Policy Division, “Other policies will be needed to support technology development and deployment.”

Large-scale and well-targeted public investment is the most effective way to overcome these key price and non-price barriers mentioned above, particularly to buy down the price of clean energy technology in absolute terms—not just for the United States, but the entire world.

Beyond providing a modest incentive for pollution reductions and low-carbon technology innovations, one of the most important roles a carbon price can play is providing constant revenue for public investment in clean energy technology. However, only $1.2 billion per year increase out of expected $80 billion cap and trade revenue is given to the clean energy sector in the Waxman Markey ACES bill, which is far from enough to embrace a real prosperous future of clean energy technology development and deployment. [6] And the new Kerry-Lieberman Act provides only similar scale or even weaker incentives.

As analyzed in “The Power to Compete”, a 2010 report published by the Breakthrough Institute and Americans for Energy Leadership, the American Power Act falls substantially short in each of the following clean energy competitiveness components: research and innovation; advanced manufacturing; and domestic market demand, as well as supporting investments in infrastructure, education and workforce development, and industry cluster formation.

“In research and innovation, the legislation would invest an order of magnitude less than the majority of energy experts recommend. In manufacturing, it would provide a modest expansion of existing programs, along with some targeted support for advanced vehicles and general manufacturing efficiency. Beyond a modest carbon price, APA would not provide robust and direct support for clean energy deployment and market creation besides carbon capture and storage, with largely insignificant results for renewable energy technology. Finally, it provides little support for clean energy industry cluster formation, clean energy workforce development, and infrastructure development.” [7]

All this evidence shows that the federal government significantly under-invests in the clean energy technology sector.  As “The Power to Compete” suggests, if U.S. energy reform is to secure the nation’s leadership in this growing clean energy sector, the scale and scope of these provisions must be significantly improved in future legislative proposals. Unless generous and well-targeted incentives are provided, the United States will, sooner or later, lose the leadership position in a worldwide clean energy technology race.  Teryn Norris, a senior advisor at the Breakthrough Institute, wrote in “The Collapse of Competitiveness Policy?” [8] ,“This kind of investment is not only a strategy for U.S. competitiveness and security, but also for long-term deficit reduction.” It is true that public investment in technology innovation is fundamentally different from other types of government spending, since the investments would create a risk-free environment for private investors and lead more domestic and foreign capitals to this sector, and therefore greater economic prosperity over the long-term.

As the Breakthrough Institute explains in one of its policy briefs:

“The public investment in clean energy is the cornerstone of an effective strategy for American energy transformation… it can make clean energy cheap and abundant; creates jobs and spurs economic growth… will put U.S. industries at the forefront of a burgeoning growth sector… will help restore America’s economic competitiveness… has always been a cornerstone strategy for American growth… strengthens our energy independence and can significantly reduce the cost of climate regulation.”[9]

In addition to all these benefits, a public investment approach gains the most public support of any alternative energy policy. According to a public opinion survey, the greatest public support went to a proposal to invest $300 billion over ten years to develop new, low-cost clean energy technologies and industries, eliminate dependence on foreign oil, create new jobs, and reduce US carbon emissions.[10]

While carbon pricing has polarized the U.S. energy and climate policy debate, the governments of some Asian nations are investing heavily to develop clean technology manufacturing and form innovation clusters. As a result the United States lags far behind its economic competitors in clean technology manufacturing. The United States relies on foreign-owned companies to manufacture the majority of its wind turbines, produces less than 10 percent of the world’s solar cells, and is losing ground on hybrid and electric vehicle technology and manufacturing.

China has become a leader in the clean energy sector not because the Chinese government put a price on carbon.  According to Pew, China now leads the way with $34.6 billion invested last year across all investment types—nearly double the U.S. figure of $18.6 billion.[11] Instead of a single cap and trade regulation, public investments in China have led the way in driving down the price of solar and wind energy, and in developing better electricity storage technologies to enable electric vehicles and very-large-scale renewable energy for further development.

By 2020, clean energy will be one of the world’s largest industries, totaling as much as $2.3 trillion. As President Obama announced at the National Academy of Sciences annual meeting “The nation that leads the world in 21st century clean energy will be the nation that leads in the 21st century global economy”[12] Asia’s rising clean technology tigers, –China, Japan, and South Korea– have already passed the United States in the production of virtually all clean energy technologies and over the next five years will out-invest the U.S. three-to-one in these sectors.[13] Should this gap persist, the United States will be a long-term loser in this growing industry, regretting why it did not fully leverage its innovative capacity to regain economic leadership in the global clean energy race. The time to act is now.

[1] Six Changes in China’s Strategic Energy Plan (我国能源战略理念将发生六大转变)

http://www.nengyuan.net/201006/21-605820.html

[2] “Jumpstarting a Clean Energy Revolution with a National Institutes of Energy.” Third Way and Breakthrough Institute. 09/2009.

http://thebreakthrough.org/blog/Jumpstarting_Clean_Energy_Sept_09.pdf

[3] “The Emerging Climate Consensus: Global Warming Policy in a Post-Environmental World.” Ted Nordhaus, Michael Shellenberger, et al.  Spring 2009.

http://thebreakthrough.org/blog/PDF/EmergingClimateConsensus.pdf

[4] Rising Tigers, Sleeping Giant.” Breakthrough Institute and Information Technology & Innovation Foundation.  11/2009.

[5] The figures are meant to be illustrative in the table since the calculation is done before 2008.

[6] “The Innovation Consensus: $15 Billion for Clean Energy R&D.” Jesse Jenkins. The Energy Collective. 10/2009. http://theenergycollective.com/TheEnergyCollective/50750

[7] http://leadenergy.org/publications/the-power-to-compete/

[8] “The Collapse of Competitiveness Policy?” Teryn Norris. The Huffington Post. 05/2010.http://www.huffingtonpost.com/teryn-norris/the-collapse-of-competiti_b_590173.html

[9] “Invest in New American Energy: Pathway to a Clean and Prosperous American Energy Economy”. Breakthrough Institute.  2009.

http://thebreakthrough.org/blog/BTI_Investment_Brief.pdf

[10] Will the Public Support Cap and Dividend? A Survey of Public Opinion Research on Carbon Prices and Rebate or Dividend Programs, January 2009.

<http://thebreakthrough.org/blog/Public_Support_Cap_and_Dividend.pdf>

[11] Pew: China overtakes U.S. in clean energy investment. http://cleantech.com/news/5731/pew-china-overtakes-us-clean-energy

[12] http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-at-the-National-Academy-of-Sciences-Annual-Meeting/

[13] Rising Tigers, Sleeping Giant.” Breakthrough Institute and Information Technology & Innovation Foundation.  11/2009.

http://thebreakthrough.org/blog/Rising_Tigers_Summary.pdf

.This is not a new problem — the American energy industry has been idle for years and innovation has come to a standstill.  The energy industry only invests 0.3% of their revenues on research and development, less than a tenth of what most US industries spend.  As a result the American consumer is paying higher prices, America is importing more Saudi oil, and Floridians are scraping tar off of their beaches.  A report recently released by the Center for American Progress (CAP) entitled, “How to Power the Energy Innovation Lifecycle” outlines the problem with energy research and development in the US:

“For every $1 million in profits the producer of an innovation earns, some estimate that ‘knowledge spillovers’ create as much as $4 million in hidden economic benefits for society. These spillover benefits manifest as the creation of new high-wage jobs, the establishment of new businesses that use the new technology, and the benefits to future innovators who can build on the new knowledge in unexpected and advantageous ways.”

John Wayne and the "Cowboy Narrative"

Last Tuesday night President Obama took to the Oval Office to reassure the nation of the government’s concerted efforts to solve the oil spill problem in the Gulf Coast. In between hitting the right measure of sympathy for Gulf victims and scorn for BP executives, the president managed to briefly mention his not-so-distant vision for America. We heard the calls for America to wean itself off of its obsession for fossil fuels and a short point on creating a stronger clean energy industry. Most outstanding however, was how the president noted that this time signifies a chance to, “seize the moment.” But what moment are we supposed to be seizing and how?

Many of the greatest achievements in American history are all related to “defining moments” that follow a specific narrative. The Manhattan Project was commissioned under FDR as a response to the perceived potential of the Nazi regime’s destructive power. As a narrative, it was a moment where the U.S. could harness its greatest minds to defend U.S. soil. An imminent threat was involved in large-scale modern warfare and the U.S. was ready to face that challenge with a modern response: science and technology. Subsequently, the Manhattan Project planted the seed for the first real modern national laboratory system, which today still includes many non-weapons-research laboratories.

After Sputnik was launched in 1958, the U.S. mobilized in an effort to beat the Soviets and win the upper hand in the Cold War. The ensuing 1950’s and 60’s space race revolved around a push to the “final frontier,” a narrative that invoked the same frontier spirit that led to the mid-19^th century expansion of the United States. Its invocation of the “American cowboy” was accessible to Americans who were already drawn to this same narrative through Hollywood westerns and the ubiquity of its fearless hero, John Wayne. In the 1950’s and 60’s, “the expansion” in this case was not only landing a man on the moon, but also the expansion of funding for engineering initiatives, scientific research, and technological innovation.

A resonating narrative punctuates each of these moments in history. Today, we wonder, “What is the narrative behind the current BP oil spill?” As Jason Linkens from the Huffington Post writes in his critique of the president’s speech Tuesday night, “what was the point?” Clearly, at this stage in the energy debate, we have lost (or perhaps we never had) a strong narrative that resonates with the American people. President Obama pointed to a myriad of measures to changing U.S. energy-consumption patterns. He mentioned the need to create higher efficiency standards for buildings and invest in wind and solar power, but he was not able to pinpoint a specific story that can motivate Americans. There is no clear message coming out of this White House or Congress on how we should view the need for alternative energy. Where is our imminent threat? Who is our John Wayne equivalent? What is going to be the defining message of this generation’s greatest innovative endeavor?

While the president did not go in depth on the subject, he did mention China and other nations’ rapidly growing clean energy industries. While other countries are definitely competitive friends to the United States, their current and future global dominance in the clean energy field has the potential to pose problems for the U.S. Countries like China, India, Japan, and South Korea continue to grow their clean energy industries while the U.S. remains stagnate.

As the Washington Post points out, South Korea recently announced a plan to invest 2% of its GDP annually in environment-related and renewable energy industries over the next five years for a total of $84.5 billion. This same article notes how China and India are ahead in the race for solar power. China already dominates the worldwide solar industry, by creating 35% of the world’s cells and 49% of its polysilicon wafers (the main material for solar cells).  The U.S. makes 5% of cells in comparison.

These countries also give large incentives for clean energy companies to build plants in their respective countries by providing large future tax breaks and guaranteed future implementation. China’s share of global clean tech investment increases each year, and has already surpassed the United States for the first time in 2008. In comparison, the U.S.’s tax policy can be daunting for companies. Plus, RD&D, the area where companies struggle the most, is constantly under-funded forcing many RD&D firms to move to countries like China.

The U.S. has already lost its standing as being the center for science and engineering development. The day of substantial funding for academic research in engineering and science ended years ago. Clearly, we have lost our momentum from large public investments like the Manhattan Project and the Apollo Mission. In the wake of America’s dying innovative spirit, perhaps Fareed Zakaria might be right in saying that America could be, “losing its mojo.”

In the wake of the decline of American innovative prowess, the current oil spill narrative is one of anti-corporate outrage. This same sentiment arose in the 2008 automotive industry crisis and the financial crisis that same year. Instead of using this moment as a time for partisan finger wagging, this should signal a time for collaborative action.

At the height of the financial crisis in November of 2008, White House Chief advisor, Rahm Emanuel, stated in an interview that you should, “never allow a crisis to go to waste.” After the colossal effects of the BP oil spill we cannot allow this crisis to slip away without a significant shift in the way this country views its own energy consumption. Some say the President’s tacit retreat on cap and trade proves that the debate on energy is dead. However, we must note that he did open the door to discussions about growing the clean energy industry in America.

In previous American innovative narratives, there has always been a strong policy agenda that is attached to each respective inspiring story. Both the Manhattan Project and the Apollo Project were heavily subsidized by governmental funding and carried a message of integrity that Americans at the time found easily accessible. In contrast, convincing people that setting a carbon tax on big companies to spur a clean energy economy does not seem to hit that same inspiring note today.

Relying on the market as an indefatigable solution to creating any sort of innovation has run its course. While the dominant myth of the “lone inventor” permeates the contemporary story of American innovation, we must remember that the federal government played a significant role in funding large-scale projects that have led to breakthrough creations including microchips, the Internet, and nuclear power just to name a few.

As BP’s oil spill continues to rage on, this moment should signify a time to galvanize support for more funding for clean energy research and development projects. It should serve as a time to restructure how the U.S. does business with the clean energy industry.

If the spewing of as much as 60,000 barrels of oil a day in to the Gulf isn’t enough of an imminent threat to the future of energy in this country, then what is? The president should seize this moment and create a lasting narrative that Americans will remember as a reason to support alternative energy. Americans always love a “comeback kid” story and the underdog image. As the President calls for a clean energy “national mission,” this moment can be the catalyst for creating a coherent American energy initiative.

Today marks the time to start a new American narrative. Sending a clear message for clean energy can be the beginning of this generation’s “final frontier.”

Clean and sustainable energy technology will create American jobs, establish the United States as a world leader in energy technology, benefit our national security, improve our overall health, reduce long-term energy costs, benefit the environment, and reduce the threat of climate change.  It is also important that this investment not follow any single technological path.  We need to diversify our approach and invest in wind, solar, nuclear, carbon-capture and storage, geothermal, energy efficiency, and other technologies.  This diversity will ensure that the United States explores all possible routes to energy independence, to discover the best approach, and that we stoke a vibrant and competitive sustainable energy industry.

Currently ARPA-E is seeking to develop varied, and in some cases competing, technologies to find short and long-term answers for our energy challenges, but due to underfunding we are still falling behind.  My purpose here is to explain why it is essential that this investment come from the government.  The market alone cannot provide the level or direction of investment in energy that is needed.

The free market can be seductive.  The first chapter of any economics textbook explains how in the market you sell an orange, buy an apple, sell a bike, buy a house; until everyone is happy.  Unfortunately, unregulated markets fail in reality.  This is where the rest of the textbook comes into play.  Market failures such as monopolies, externalities, and uncertainty affect all markets.  At best they make the market wasteful, at worst they make the market completely dysfunctional.  As my college economics professor would say, “You have to read past chapter one!”

Right now we are leaving our energy future in the hands of the market.  According to a report by The Breakthrough Institute, the United States government spends $30 billion on health R&D, $80 billion on defense, but only $5 billion a year on energy.  Energy which touches almost every aspect of our lives.  And yet, despite enormous profits, American energy companies are only investing 0.3% of their revenue in research and development (in 2009 Exxon reported $45 billion in profit).  By comparison, the automobile industry spends 3.3% on R&D and the electronics industry spends 8%.  This shameful underinvestment by the energy industry is only one of many reasons why government investment is vital.  We already recognize the value of government investment when we put our tax money into our public schools, universities, and laboratories.  Every day we pay heavily for our underinvestment in energy, and we will pay heavily in the coming years if we do not increase our investment.

Economists estimate that, on average, firms privately earn a 7-15% return on their R&D expenditures.  These economists estimate that the public and industry as a whole may gain between 2 and 7 times that return on that same investment (30-50%).  The public as a whole gains from non-marketable benefits and knowledge spillovers.  This substantial difference between the private profit motive and the external profit illustrates the importance of government investment in clean energy.  The profit motive for private firms is well below the total profits across industries that we all would see in economic profits and knowledge spillovers alone.  This condition will always lead firms to underinvest in an industry like energy.  Firms are not incentivized to focus on the whole picture.

Another major problem is that businesses cannot focus on the long-term in the same way that government can.  When considering adopting energy saving technologies 98% of businesses require for a 5 year payback period, and 50% of businesses require 1.2 years or less.  The issues involved with energy develop over a much longer timeframe than business is incentivized to handle.  Furthermore, many businesses lack the upfront capital to finance long-term research because the energy industry has such a pronounced gap between the necessary basic research and the marketable applied research, what analysts call the “Valley of Death.”  The energy industry requires high upfront costs and the research is usually long-term.  Smaller firms face a large amount of risk by investing in such long-term ventures.  Private firms simply do not have the profit motive to pursue the sort of long-run development that is necessary for the next 5, 10, and 20 years.

Our dependence on the market extends beyond our research investment.  Many of the solutions put forward to mitigate climate change seek to use the market to incentivize energy research.  One example, a carbon tax, would raise the price of carbon emitting activities such as driving a car or burning coal.  The goal is to make people consume less gas and use less polluting electricity.  Another system, cap and trade, seeks to put a finite cap on how much carbon dioxide industries could emit but allow firms to buy pollution permits at the price determined by the permit trading market.

There are major problems with these market-based approaches:

The cap-and-trade model is based off of the successful acid rain and ozone systems which had very different characteristics.  Unlike the acid rain and ozone trading plans we don’t have a clear technological alternative at a competitive price.  Additionally acid rain and ozone are local pollutants that harm US crops and citizens, carbon dioxide is primarily a global pollutant.  Without clear alternative technologies and without a global trading scheme these efforts would hurt Americans without generating the jobs or the environmental benefits associated with technology investment.

A carbon tax would incentivize short-run technologies.  Businesses and citizens would seek to minimize immediate compliance costs and a tax would not stimulate the long-term investment that we need.  Under a tax, the incentive is to adopt the next cheapest technology rather than the best long term option.  Private investment would flow to natural gas or wind and neglect the long-term potential of other technologies.  As an example, even though solar shows great long-term promise, with current technologies a carbon tax of over $100 would be necessary to make solar power cost-competitive in the market.  A tax at that level would be an easy political target likely to stimulate major public opposition and unlikely to last.

Market-based cap and trade or carbon taxes would not create the long-term technological growth that we need.  These policies will not improve our basic infrastructure or produce the enabling technologies, such as batteries, that are necessary for the adoption of many sustainable technologies.  Global energy demand is exploding and the United States needs to ensure that it can compete on the global market in the coming years.  Once the necessary technology is developed the market-based approaches will be vital toward promoting adoption, but there must be clear alternatives at a competitive price to stimulate widespread adoption.

None of the above arguments should diminish the importance of free market principles.  A free capitalist system is one of the most important reasons why the United States has and will continue to prosper.  However, the broad and pressing need for new energy development requires government investment.  Time is not on our side, China hasalready begun investing heavily in sustainable energy technology to save itself from a dependence on imported fuels.  Over the next 5 years Japan, South Korea, and China together will invest three times what the United States will invest.  If we don’t take action soon the United States will find itself buying Chinese energy technologies rather than exporting American technology to the world.

Relying on private research and development will not bring us the technologies that will reduce foreign oil consumption, improve transmission efficiency, or reduce greenhouse gas emissions.  The private profit motive does not incentivize basic and applied energy research at the levels or in the fields that are necessary to solve our long-term energy problems.  This investment must come from government.

Simultaneously, the New York Times “Green” blog posed a rarely uttered question, is this the “Twilight of the Coal Era?”  The story focuses on a Siemens contract to build two natural gas turbines for power plants in North Carolina.  The catch is that these power turbines are being built to retrofit old coal plants.  Randy H. Zwirn, president of the Siemens Power Generation Group, believes that this is in fact indicative of a larger trend, America moving away from coal fired plants.  While orders for new natural gas turbines are up, Siemens has no new coal related contracts for America in the pipelines.

So the question becomes, in the face of potentially dwindling demand for coal-burning power plants, should large sums of government money for research, development, and deployment of clean energy solutions go towards carbon capture and storage?  The arguments for both sides are abundant, but at the heart of the issue is that coal is one of the world’s cheapest energy sources and also one of its dirtiest.

While coal may be on the out in America, investment in CCS is still a necessary part of the United States’ energy plan. Unlike the politics which govern energy policy, the economy and environment are international issues.  Today 1.6 billion people in the world don’t have access to power.  When these people do get access to power it will be in the form of the cheapest and most accessible technology, which today has proven to be coal. The Finance Minister of South Africa, defending his nation’s decision to build a new coal plant with World Bank money, summed up the conundrum perfectly in an op-ed in the Washington Post:

If there were any other way to meet our power needs as quickly or as affordably as our present circumstances demand, or on the required scale, we would obviously prefer technologies — wind, solar, hydropower, nuclear — that leave little or no carbon footprint. But we do not have that luxury if we are to meet our obligations…to our own people…

For better or worse the amount of energy created by coal power in the world will only increase for the foreseeable future.  China builds roughly one coal fired plant a week and will have built 550 new plants between 2004 and 2012.  Even Europe seems to be increasing its use of coal power.  European countries were recently reported to be constructing 50 new coal plants.  The Energy Information Administration (EIA) projects that global coal consumption will double by 2030. It may be the twilight of the coal era in America, but it is the dawn for the developing world.

Accepting this reality, it becomes imperative that potential technologies that make coal burning plants cleaner are explored.  This is not to say that CCS is an ideal solution or even a reliable technology, but that we must at least fund its research, development, and deployment if we hope to meet carbon emission reduction goals and close the United States’ trade deficit.  The point here is not to advocate for greater investment in CCS than is already proposed by the Waxman-Markey bill or America Powers Act, but to put an end to an essentially distracting debate.  The debate shouldn’t be about whether we fund CCS or wind and solar, but how we can fund all potentially helpful technologies. To meet the gargantuan challenge of combatting climate change we will need every tool in the toolbox.

While increased funding in R&D leading to breakthroughs in low emission energy technologies is necessary, it alone will not solve our climate challenge.  The international consensus is that greenhouse gas emissions (including carbon dioxide) have to be reduced by roughly 80% in the developed world and 50% worldwide by 2050 to avoid the worst effects of global warming.  If we are to seriously strive for the President’s goal of an 83% reduction of CO2 in the U.S. by 2050, while also trying to achieve the same for the developing world, we are going to have to find ways to make already existing and under construction coal plants cleaner.

In an ideal world giant leaps in solar and wind power technologies could solve our climate problem, but the scale of the challenge is such that we must both make our future and past sources of energy cleaner.  Nonprofit think tanks and research institutes are beginning to rally around this reality, stated concisely by the Clean Air Coalition, “there is widespread agreement that technologies for carbon capture and sequestration from coal power plants are an essential tool to mitigate global climate change …”

As a integral piece of the energy puzzle, CCS must be funded properly or it will be a waste of taxpayers’ money.  Carbon capture technologies will be expensive to develop especially in the latter phases.  The demonstration phase,  known ominously as the technology “valley of death,” will necessitate large amounts of capital without an assurance of positive results.   For this reason it is especially critical that the federal government provides funding not just in early research but all the way through deployment.

To America CCS represents more than an environmental cause but also an economic opportunity.   The current recession highlights what has been a persistent problem, an American trade deficit estimated by the Department of Commerce to be $695 billion anually.  The energy sector promises to be an area of major growth in the world economy.  New technologies necessitate new factories which in turn means new jobs.  But already America is falling behind in the race to capture the emerging clean energy market.  The Breakthrough Institute’s comprehensive report on national progress in clean energy, Rising Tigers, Sleeping Giant, makes it clear that America has fallen behind China, South Korea, and Japan in the production of clean energy products as well as in the investment in future capacity, most notably in solar and wind power technologies.  While America can still catch up in these highly competitive arenas with large direct government investment in R&D, education, and other innovation policies, it can move ahead now in the relatively unexplored realm of CCS.

As the U.S. begins to wean itself off coal power it will continue to have the world’s most abundant stockpile of the precious resource.  Trends in coal exports point to a growing market in developing nations for American coal.  From 2008 to 2009 percentage increases in coal exports were startling.  Brazil increased its purchase of American coal by 23 %, India 29.9%, South Korea 61.1 %, and China imported coal from the U.S. for the first time since 2004.This provides the U.S. with a unique opportunity to begin closing its trade deficit.  But exporting coal alone would be environmentally and economically irresponsible, making it necessary for the U.S. to develop CCS capabilities to sell alongside its vast coal resources.  Using trade agreements we could mandate the purchase of CCS technologies in order to gain access to cheap American coal. In essence America would be killing two birds with one stone, maintaining those jobs related to coal production while also creating high value jobs in CCS research, development, deployment, and eventually private production.

Today our nation faces daunting challenges, an environment heading towards disaster and an economy trying to pull itself out of one.  Yet we have faced such challenges before.  The U.S. emerged from the Great Depression to defeat one of the most powerful war machines the world had ever seen and sent the first man to the moon after watching the USSR beat us into space.  To curb greenhouse emissions and revitalize our economy we will need every tool available and all hands on deck. What we need now is the same spirit of innovation, the same courage to go where no man had gone before, and the audacity to risk failure in the pursuit of progress that we have mustered so many times before.

As the country’s energy infrastructure ages and global energy demand multiplies, public investment in clean energy can become the backbone of a growing industry and provide an estimated tens of thousands of American jobs.  Chu’s speech emphasized, “America has the opportunity to lead in this new industrial revolution and build the foundation of our future prosperity.” To produce these green jobs for our graduates, the federal government needs to make the necessary investments in energy research and development and private-public partnerships to compete with the billions invested in wind and solar technology in Germany, the Netherlands and other countries. China, Japan and South Korea have already surpassed the United States in clean energy production and investment. Without the necessary attention to a green revolution, “we will be importing the new energy technologies developed by Europe and Asia” concluded Chu.

The future of clean energy in the United States depends on more than current graduating classes and something must be done to improve recruitment into STEM fields. Recruitment for science, engineering and other energy-related jobs needs to be improved at the K-12 level. To sustain our current level of scientific advancement, new scientists and engineers need to replace the 45 percent of electric utility engineers and 40 percent of university power engineering professors eligible to retire in the next five years. Nor is enough being done to recruit students to major in science and engineering.  Reports show only one out of three four-year university students pursue science and engineering fields compared to 51 percent in Singapore, 53 percent in China and 63 percent in Japan.

Just as the education programs in the shadow of Sputnik quickly narrowed the gap between the United States and the Soviet Union in the space race, so too can today’s universities increase our preparedness for a new energy economy. The RE-ENERGYSE (Regaining our Energy Science and Engineering Edge) initiative, currently being considered by Congress, will educate thousands of scientists and engineers in the clean energy industry though programs in education at the K-12 and college levels administered through the Department of Energy and National Science Foundation. With these necessary investments in clean energy jobs and education, students can do something to regain the nation’s leadership in the clean-tech race.

With oil flooding the Gulf, General David Petraeus fainting before Congress as he tries to salvage the war in Afghanistan, and many Americans still out of work, President Obama faces compound crises assailing the United States. But despite the ambiguities of his speech last Tuesday, the President still needs to frame these issues as components of a single problem facing all Americans: dependence on foreign carbon-based energy. The President’s bipartisan meeting with Senators tomorrow provides a second golden opportunity to pitch clean energy legislation to voters.

Clean energy advocates have traditionally been labeled “greens,” their ranks presumably abundant in the hills of Berkeley and on Manhattan’s Upper West Side. Indeed, the most enthusiasm for a new energy economy still comes—for better or worse—from the environmental community. But as the President must communicate, one needn’t wear Birkenstocks or compost in the backyard to understand the critical urgency of developing a clean energy economy. He must demonstrate that there are good reasons for every working American to embrace immediate and transformative energy policy.

First, at the cost of countless good-paying jobs, he must emphasize that the United States stands to lose its competitive edge in the global economy if it fails to stimulate a clean energy sector. The global energy industry is a $5 trillion business and new markets for clean energy firms are expanding more rapidly in Asia than they are here in the United States. In particular, China, Japan and South Korea all stand to surpass the United States in dominance of future clean energy markets due to their substantially larger government investments supporting energy research and innovation. According to statistics published by the International Energy Agency (IEA), for every dollar of U.S. economic output, only 0.03% is currently devoted to clean energy research and development—less than half the rate in South Korea, and barely a third of the rate in Japan. Over the next five years, China alone will invest $209 billion to energy technology research. By contrast, the United States, in even the most generous assessment of the most ambitious proposed legislation, will only invest $92 billion.

If the late twentieth-century saw the United States fade as a global supplier of energy through the gradual exhaustion of its petroleum export capacity and rise as an importer of foreign fuels, the early twenty-first century could see the U.S. importing the majority of its energy producing technologies and relying on foreign innovation to dynamically reformat its decaying infrastructure. As Senator Lindsey Graham said in March, “You don’t have to believe that Iowa is going to become beachfront property to want to clean up carbon. It is not about polar bears to me, it’s about jobs.”

Second, beyond employment levels, he must stress that the costs of limiting our energy options imperil the entire U.S. economy. Without a commitment to developing domestic clean energy sources, the U.S. is exposed to the sort of energy price volatility that has produced devastating recessions in 1973, 2001 and 2008, and which nearly collapsed the state of California in the summers of 2000 and 2001. According to the American Energy Innovation Council (AEIC), the 2008 recession cost the U.S. economy $500 billion in 2008 alone. Constrained energy sources also balloon the trade deficit, and send nearly $1 billion abroad for fuel each day. A clean energy economy will not only usher in a period of economic expansion and hiring, but also insulate American workers from foreign market shocks and help scale one pillar of America’s daunting twin-deficits.

Third, he must explain that there are significant advantages for U.S. national security and foreign policy embedded in the development of a clean energy economy. Recent adventures in the Middle East have made all too clear the barrels of blood and treasure that the United States has spilt and spoiled in distant deserts that happen to teem with oil. Less obvious, however, is the cost of continuous global military deployment to protect shipping lanes, refineries, and oil-bearing allies. The Institute of Policy Studies has estimated that the U.S. spends $250 billion annually for this type of force deployment—the very sort of “hegemonic overstretch” that international relations theorist Robert Gilpin discusses in his treatise on the fall of great powers, and which military expert Andrew Krepinevich has been warning about since Vietnam.

As the AEIC—a group of business leaders including Bill Gates—concludes in its just-released Business Plan for America’s Future, “This is a serious nexus of problems. Each individually should merit national attention; together, they should be at the top of the national agenda.” The President, and Congress, should take heed.

Unfortunately, the energy policy debate in Washington has been mired in the antiquated framework of neo-classical economics and regulatory signaling. Cap-and-trade is a policy that essentially waits for the winds to change. It relies on market mechanisms to make carbon relatively expensive, instead of investing in innovation to make cleaner technologies relatively cheap. This approach is intrinsically flawed.

To make carbon expensive enough to spur investment and growth in alternative technologies, the voting public would need to accept a significant increase in the cost of consumer energy. By all accounts, and given the present political climate, this is not at all likely. As a Senate aide working on energy legislation told Politco’s Mike Allen, “anything that looks like a tax is going to be almost dead on arrival.” Consequently, each and every proposed cap-and-trade policy contains provisions to prevent the price of carbon from floating above $12-$15/ton. But by preventing the price of carbon from rising to the uncomfortably high levels needed for alternative energies to become cost-effective (in excess of $130/ton in some cases) these price “off-ramps,” “safety valves,” “allowance reserves,” and “offsets” defeat the purpose of any cap-and-trade legislation.

Instead, it is time for the President to reiterate the call issued in his inaugural address, and throughout his campaign, for a $15 billion a year direct public investment in energy innovation. To grow the U.S. economy into the new century, the President needs to break with market orthodoxies and embrace the realities of what economist Robert Atkinson calls “innovation economics.” In the words of Stanford’s Paul Romer, whose endogenous growth model gives innovation economics its theoretical basis, “Economic growth occurs whenever people take resources and rearrange them in ways that are more valuable…. Ideas remain to be discovered.” From this perspective, when prominent economists like Michael Mandel report on “the failed promise of American innovation,” and Harvard Business School professors no longer find the U.S. to be a “major player” in certain emerging energy technologies, there is cause for concern.

But there is reason for optimism, as well. We cannot know what technological innovations lie dormant in the minds of Americans unless we provide them with the resources to unleash them.

Though we Americans pride ourselves on being innovative, our cultural narratives dating back to Whitman and Thoreau too often overlook the involvement of federal investment as the key to unlocking that innovation. In Whitman’s time, federal spending championed by Whigs from Henry Clay to a young Abraham Lincoln made the extension of railroads and power lines possible, and the dredging of canals and harbors affordable. More recently, vast federal funding for technological research and development has produced nuclear fission (the Manhattan Project), the aerospace industry (the Saturn and Apollo programs), and the Internet (the ARPANET program)—all technologies that we have exported worldwide to the great benefit of American industrialists and laborers alike.

In the 1950s, America devoted more than 4% of its GDP to various forms of research and development. Today, that number has been halved, and, for the first time since World War II, we are no longer the world’s leader in technological research: Israel, Sweden, Finland, Iceland, South Korea, Japan and Switzerland all spend a higher proportion of their output on various R&D projects than we do.

Much of our once superior innovation investment followed the Soviet launch of Sputnik, when, in 1958, Congress enacted the original National Defense Education Act (NDEA) and ramped up its investments in “critical” technological research. The NDEA inspired generations of U.S. students to pursue fields vital to national security and, in conjunction with federally funded research, aided the nation in establishing its dominance in science and technology for the next half century.

Today, we have a similar opportunity to make similar critical investments in education and research that will meet the major policy challenges of the time. The Deepwater Horizon presents more than a “Sputnik moment.” It is an opportunity to reinvent and redirect the future of this country by investing in the talents and curiosities of its brightest minds and youngest generations. It is an opportunity the President must not neglect, and which Congress must seize upon in the weeks ahead.