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Power Surge

A pathway towards next generation energy

Oct 25, 2010, Vol. 16, No. 06 • By STEVEN F. HAYWARD
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Start with the last point. America’s energy sector invests comparatively little in basic research on energy innovation, and most research investment is directed toward improving existing production technologies for fossil fuels (such as the directional drilling that has unlocked shale gas), or increasing electric generation efficiency, rather than developing next-generation technology. The energy industry invests only about 1 percent of revenues on R&D, a small fraction of the 15 or 20 percent that innovation-intensive industries such as semiconductors and pharmaceuticals typically invest. Even with ramped up energy research spending under the stimulus, the government still spends five times more on medical research through the National Institutes of Health, and over ten times more on defense research. While this underinvestment may not be a market failure strictly speaking, the importance of energy to modern life—it is rightly called the “master resource” that makes all other economic activity possible—combined with the geopolitical vulnerability of the sector, makes it an area deserving a serious long-term policy.

Shellenberger and Nordhaus broke with environmental orthodoxy with a blindingly simple insight that became the touchstone for our working group: The path to a green or clean energy future lies not in making fossil fuels artificially more expensive but in making new energy sources cheaper than fossil fuels, and on a large scale. In other words, innovation instead of taxation. Current energy research and deployment policies do little to advance this goal. Federal subsidies and tax incentives for wind and solar power, for example, are primarily focused on supporting the deployment of existing technologies at current high prices, rather than on driving technology improvement to reduce their unsubsidized price. Renewable portfolio standards, which require that utilities purchase a certain percentage of electricity generation from renewable sources, encourage deployment of the lowest-cost renewable energy technology available—generally wind power—while doing little to drive down the price of other, higher-cost clean energy technologies, such as solar panels, that may have the potential to become much cheaper in the long term. Ethanol mandates and subsidies, meanwhile, threaten to make us dependent on an inferior, environmentally damaging fuel that might inhibit the adoption of potentially more promising fuels such as algae-based diesel. All of the subsidies and tax breaks for current-generation renewable energy should be phased out.

So how can the government sponsor energy research and development that delivers the boon without the doggle? The first step is a long-overdue increase in energy science funding, something that liberals and conservatives have long agreed is necessary. This should be targeted to solve the well-known obstacles to improving the performance of energy technologies. Advances in materials sciences could result in future generations of far more efficient solar panels and more powerful batteries. Genetic engineering and advances in biology are required to manufacture clean-burning biofuels more cheaply. The nation should also train and retain a new generation of energy scientists and engineers. We propose a national commitment to spend $500 million annually on energy education scholarships, postdoctoral fellowships, and graduate research grants to create a cadre of “energy engineers” similar to the national commitment that produced a generation of aerospace and computer engineers after Sputnik.

 

Second, we should transform the way energy innovation is carried out. Currently, most energy research is pursued in settings and through programs that keep it divorced from the demands of the private sector. Universities and national laboratories need to work much more closely with private firms, entrepreneurs, and investors. The need to transform America’s energy innovation system has been broadly recognized in a slew of recent studies. While the details may vary, the consensus is clear: America should create a national network of decentralized energy innovation institutes—whether we call them Energy Discovery Innovation Institutes or the National Institutes of Energy or something else—that can bring corporate, university, and government scientists together to tackle big energy problems, while strengthening diverse, regional clean technology clusters. Modeled after sustained federal investments made in the ’40s, ’50s, and ’60s that assisted the rise of Silicon Valley, this effort would cost about $5 billion annually.

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