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Wednesday, November 17, 2010

The Energy Independence Trust: Where’s the Innovation Beef?

By Matthew Stepp and Matthew Hourihan

The Coalition for Green Capital (CGC) and the Center for American Progress (CAP) have thrown their cap into the policy maelstrom left in the wake of failed cap and trade by offering their Cutting the Cost of Clean Energy 1.0 Plan.

The plan focuses on infrastructure, regulation, and deployment financing. It would create an Energy Innovation Trust that can borrow funds from the Treasury to offer low- cost financing for clean energy development projects, smart grid development, and energy efficiency projects for homes and businesses. Complementary tax breaks would further incentivize energy efficiency retrofits and investment in clean energy facilities and manufacturing.

There are definitely some things to like here. The plan has the right message of “making clean energy cheap,” and it also addresses the critical gap in government support for clean tech deployment. But despite its being advertised as such, it is not a comprehensive” approach to dealing with energy because any comprehensive and effective clean energy plan would put the majority of its efforts in supporting clean energy innovation, not deployment.

The plan wrongly assumes that the U.S. has all the clean technology it needs, and that innovative energy technologies already have adequate support. As we have argued previously, these assumptions are more myth than fact. But they are at the heart of the CGC/CAP plan.

A narrow, short term focus on deployment and energy efficiency loses sight of the fact that clean energy technology is not ready for widespread adoption. In fact, current clean energy technologies have only been deployed on a small scale because of extensive government subsidies and because they’re incapable of standing on their own in the marketplace. Extending subsidies of those technologies will not magically drive down its unsubsidized price in every technological case.

The real key to creating unsubsidized, affordable clean energy is innovation to create the next generation of technology: e.g., cost-competitive metal-air batteries that can run a car for 250 miles per charge at the same or lower purchase price as a gasoline-engine car; new solar panels with higher energy conversion rates enabled by new nanotechnology manufacturing processes; and radical carbon capture systems.

The CGC/CAP plan assumes that its plan will create a clean energy market and these innovations will follow. But history has shown that market demand rarely induces radical innovations of the kind we need. An expanded market may inspire a marginal increase in private sector investment in existing technologies, and would likely spur further deployment of these technologies, thereby resulting in declining costs where possible. However, an expanded market would not yield the radical technological advances we need.

The needed support for these radical technological advances is nowhere to be seen in the CGC/CAP plan. It is simply wrong to assume early stage clean energy innovation is already supported. Beginning in 2011, there will be sudden drop in support for clean technology R&D and basic science as the Stimulus money dries up. Requested 2011 budgets for clean energy projects don’t make up the loss in funding and austerity measures in the new Congress could easily widen this gap. And assuming the 2011 budget is passed as it, the U.S. would be spending about $4.5 billion on clean energy innovation – a fraction of the $15-30 billion recommended by the expert policy thinkers and business leaders. So, U.S. policy action addressing this gaping hole of support is the key policy question of any new energy policy.

To be clear, a real comprehensive energy plan must address the entire spectrum of technological innovation – basic science, R&D, scale up, education, deployment, infrastructure, and manufacturing. The U.S. desperately needs a cohesive national energy plan. Only innovating towards a new generation of technologies will make clean energy cheap, reduce fossil fuel consumption, and spur an industry that will create jobs. The CGC/CAP plan is a good start, but just one part of a much larger energy innovation agenda.

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