aeic catalyzing ingenuity 2011

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    C zC u :

    he ole of overnmentin nergy nnovation

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    4// A e ica E e I ova io Co ci // CAtAlyzIng AmErICAn IngEnuIty: thE r lE g ErnmEnt In EnErg

    About Us

    Ab A cA yvA c c

    www.americanenergyinnovation.org

    Who we aremerican nergy nnovation Co ncil ( C) members areorm Augustine,

    former chairman and chief exec tive of cer of ockheed artin;rsula burns ,chairman and chief exec tive of cer of Xerox;John Doerr, partner at KleinerPerkins;bill ates , chairman and former chief exec tive of cer of icrosoftcharles . ollida , chairman of Bank of merica and former chairman andchief exec tive of cer of D Pont;Je mmelt, chairman and chief exec tiveof cer of ; and im Solso, chairman and chief exec tive of cer of C mmi

    nc. he C is staffed and hosted by the Bipartisan Policy Center.

    Our missionhe mission of the merican nergy nnovation Co ncil is to foster strong

    economic growth, create jobs in new ind stries, and reestablish mericas entechnology leadership thro gh rob st, p blic investments in the developmenclean energy technologies.

    About the Bipartisan Policy CenterFo nded in 2007 by former Senate ajority eaders Howard Baker, om DascBob Dole and eorge itchell, the Bipartisan Policy Center (BPC) is a non-proorgani ation that drives principled sol tions thro gh rigoro s analysis, reasonnegotiation, and respectf l dialog e. With projects in m ltiple iss e areas, BPcombines politically-balanced policymaking with strong, proactive advocacy ao treach. For more information, please visit o r website: www.bipartisanpolic

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    Ac D S

    he merican nergy nnovation Co ncil ( C) gratef lly acknowledges the expertcontrib tions and g idance provided by Ken Caldeira, David arman, David Keithand axine Savit .

    n addition, the C wo ld like to express its thanks to John lic, Jabe Bl menthal,arry Boggs, lix B rns, Scott lrod, Karen Fries, lex iftman, Brian ormino, John

    Pinette and Jonathan Plowe for their important contrib tions to this report.

    astly, the C wo ld like to thank the BPC staff for their hard work s rro ndingthis effort.

    Acknowledgemen

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    cknowledgements

    Prel de

    xec tive s mmary

    Chapter one:Why does government need to play a role in s pporting energy innovation?

    Chapter two:How sho ld the government play a constr ctive role in energy innovation?

    Chapter three:How can the u.S. government pay for energy innovation in a new era of scal a sterity?

    Concl sion

    ndnotes 3

    Ab f c S

    2// A e ica E e I ova io Co ci // CAtAlyzIng AmErICAn IngEnuIty: thE r lE g ErnmEnt In EnErg

    Contents

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    Prelude America has a great deal to ambitious innovation invest

    P D

    he ability to access vital energy services, prod ced in an environmentally responsible way and ata reasonable price, has a f ndamental and direct impact on the economic health of the nation. he

    merican nergy nnovation Co ncil ( C) came together in 2010 aro nd a shared conviction: mericahas a great deal to gain from smart, ambitio s innovation investments in the energy sector.

    ast s mmer, we released a report,A Business Plan for Americas Energy Future , which called fora more vigoro s p blic commitment to energy technology development and presented actionablerecommendations to nlock the ingen ity needed to reach these goals. mero s st dies have sincecon rmed o r ndings and echoed o r recommendations.

    One year later there have been some signs of progress, b t o r recommendations remain largely nf l lled.

    Drawing on o r own experiences leading large b sinesses in competitive ind stries, we nderstand thatinnovation-based programs are essential to maintaining mericas long-term competitiveness. his istr e for b sinesses; it is also tr e for the co ntry, especially for its energy interests. ven in an era ofconstrained p blic reso rces, we strongly believe that government has a critical role to play in stim latingclean energy technology innovation.

    B ilding on o r previo s report, this pdate highlights the need for an active government role in energyinnovation, recommends ways to improve the effectiveness of government innovation programs, andhighlights options to pay for energy innovation investments.

    ow is the time to make smart, aggressi e in estments to address Ameri as energ hallenges.

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    x c v S A y

    nnovation is the core of mericas economic strength and f t r

    prosperity. ew ideas and technological advances f ndamentally

    shape o r q ality of life. hey are the key to fostering s stained

    economic growth, creating jobs in new ind stries, and contin in

    mericas global leadership.

    hro gho t the history of the united States, the federal governmen

    played a central role in cataly ing and driving innovation and techn

    development in a variety of strategic areas defense, health,

    agric lt re, and information technology, to name a few and it ha

    often done so with strong res lts.

    However, of all the sectors in the economy where innovation has

    critical role to play, the energy sector stands o t. eady access to

    reliable, affordable forms of energy is not only vital for the f nct

    of the larger economy, it is vital to peoples everyday lives. t alssigni cantly impacts the co ntrys national sec rity, environmen

    well-being and economic competitiveness.

    Executive S

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    unfort nately, the co ntry has yet to embark on a cleanenergy innovation program commens rate with the scale ofthe national priorities that are at stake. n fact, rather than

    improve the co ntrys energy innovation program and invest instrategic national interests, the c rrent political environmentis creating strong press re to p ll back from s ch efforts.

    ncreasingly, three principal arg ments are being madeagainst an increased federal role in energy innovation:

    ~ nergy innovation sho ld be the responsibility of theprivate sector.

    ~ f there is a role for government in energy innovation, o rc rrent federal government is not eq ipped to invest taxpayer

    dollars wisely and in a way that is likely to yield real res lts.

    ~ ven if there is a government role and governmentprograms are organi ed and empowered to achieves ccess, there isnt any money to f nd these activities inthis scal climate.

    based on histor and on our own e perien es leadinginno ati e ompanies, we dont su s ri e to an o these arguments.

    1. Why does government need to play a role insupporting energy innovation?

    ltho gh we agree that the private sector is and willcontin e to be an important so rce of innovation, webelieve the federal government has an integral role to playin advancing energy innovation.

    he u.S. government has a long and s ccessf l history ofs pporting p blicly-f nded research and development ( &D)projects that foster the development of new technologies.

    History shows that s pport for innovations that serve af ndamental national interest cannot be left to the privatesector alone for two primary reasons:

    Private markets generally do not exist for certain bene ts,s ch as providing for a strong military, improving p blichealth, and protecting the environment.

    he private sector has tended to systematicallynder-invest in &D relative to the potential gains to

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    society even where a market for the desired technologyexists beca se it is dif c lt for any individ al rm tomoneti e all the bene ts of these types of investments.

    he energy sector in partic lar has s ffered from nder-investment in research, development and demonstration( D&D), for three main reasons:

    nergy is not val ed in and of itself, b t rather for thegoods and services it provides. his means that prod ctdifferentiation does not drive innovation in energy s pplyoptions in the same way that it wo ld for other types ofprod cts and services.

    any energy technologies are capital-intensive and

    long-lived, with the res lt that many req ire signi cantp-front cash with a slow ret rn. Slow t rnover ofcapital assets combined with the need for large p-frontinvestments mean that the sector as a whole is s bjectto a high degree of inertia, a tendency to avoid risk, anddomination by inc mbent rms.

    nergy markets are not perfectly competitive, d e toreg latory ncertainty, market fragmentation, anddistortions introd ced by past policiesall of whichgenerally slow the adoption of innovative technology.

    overnment-f nded &D programs in a n mber ofareas s ch as defense, health, agric lt re, andinformation technology ( ) have enabled the unitedStates to lead not j st in speci c technologies b t in entireind stries. unfort nately, federal efforts th s far in s pportof clean energy &D have been inadeq ate to the task andpaltry in comparison with other sectors.

    We strongly recommend increased government s pportand leadership to develop and demonstrate new energytechnologies to meet this cent rys chal