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Business Leaders Call for More Energy Innovation from Uncle Sam

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September 28, 2011

Business Leaders Call for More Energy Innovation from Uncle Sam

By Cheryl Kaften
TMCnet Contributor

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American industry leaders think that the federal government should be doing more to encourage clean-tech energy innovation, and they are not hesitant to give Uncle Sam a poor performance review.

Coming on the heels of a business plan that proposed establishing an independent national energy strategy board and investing $16 billion annually in energy innovation, the American Energy Innovation Council (AEIC) has now released a report that outlines how to jumpstart technological advancement and how to pay for it.


Formed in 2010 by the chairmen of several top U.S. corporations -- among them, Bill Gates of Microsoft (News - Alert), Jeff Immelt of General Electric, and Chad Holliday of Bank of America -- the AEIC advocates re-establishing America’s energy technology leadership through robust, public investments in research and development.

“Only when [government] research is pointing toward the product; then, we can expect the private sector to kick in,” said Bill Gates (News - Alert) in a video accompanying the new report, "Catalyzing American Ingenuity: The Role of Government in Energy Innovation."

The report charges that the United States “has yet to embark on a clean energy innovation program commensurate with the scale of the national priorities that are at stake. In fact, rather than improve the country’s energy innovation program and invest in strategic national interests, the current political environment is creating strong pressure to pull back from such efforts.”

What’s more, it argues that, even in times of budget austerity, such investments are crucial to U.S. economic competitiveness and to the development of clean, affordable, and secure supplies of energy.

"We are in critical need of a government commitment to research into new energy technologies that can free us from our dependence on foreign oil and create affordable clean-energy alternatives," Gates said. "Yet today, the U.S. government spends only one-sixth as much on energy innovation as it does on medical research."

He continued, "Understandably, especially in this period of tight budgets, people ask why the private sector can't fund the necessary R&D into energy alternatives. No matter how well-intentioned, utility companies and other private investors simply are not going to invest deeply in the kind of R&D needed to create scalable, low-cost, low-carbon energy innovations. They have little or no economic incentive to do so. This is a unique, but critical, role for government -- one central to our long-term economic competitiveness."

"Neither the private sector nor the government [is] making investments in research even remotely commensurate to the vast opportunities in the $5 trillion global energy market," said a fellow AEIC member, Norman Augustine, who is the former chairman of Lockheed Martin (News - Alert), as well as the former Undersecretary of the Army. "Energy innovation is a matter of national and economic security given oil reliance, nuclear power, climate change and related issues, and must be treated that way by Congress and the Administration in terms of investment priorities."

Specifically, the report:

1) Finds that a more robust government role in energy innovation is needed, because:

  • The energy sector has suffered from chronic under-investment in R&D. Across all U.S. industries, private firms spend an average of 3.5 percent of revenues on R&D. By contrast, utility spending on R&D averages 0.1 percent of revenues. Likewise, the U.S. government investment in energy was about $5 billion in 2010, compared to more than $30 billion for medical research and more than $80 billion for defense R&D.
  • Energy technologies are capital-intensive and long-lived, requiring significant up-front cash with a slow return. Slow turnover of capital assets combined with the large up-front investments required for many new energy technologies means that the sector as a whole is subject to a high degree of inertia, risk-avoidance, and domination by incumbent firms.

2) Proposes government reforms to more effectively leverage public research for private sector use, including:

  • Developing and implementing a comprehensive, government-wide Quadrennial Energy Review (QER) that pinpoints key market failures and technology chokepoints in order to better deploy federal programs and resources.
  • Supporting "innovation hubs” that concentrate resources and knowledge, and can accelerate the development of new technologies. AEIC strongly supports the direction of DOE's Innovation Hubs, Bioenergy Research Centers, and Energy Frontier Research Centers and believes they should receive full funding.
  • Supporting and expanding ARPA-E, which the report finds being managed as a highly efficient, risk-taking, results-oriented organization. At a minimum, it recommends that ARPA-E should receive at least $300 million per year.
  • Developing a first-of-its-kind technology commercialization engine along the lines of the proposed Clean Energy Development Administration (CEDA). Previously, AEIC called for a new government-backed institution dedicated to overcoming financing hurdles for new advanced, commercial-scale energy technologies. CEDA aligns with the original recommendation and would mobilize significant private-sector capital to bridge the transition from demonstration to commercialization.

3) Outlines options for the federal government to pay for increased investment in energy innovation, among them:

  • Developing a funding platform that is dedicated, consistent, and not beholden to annual appropriations.
  • Providing funding offsets for investments in energy innovation, such as:

- Diverting a portion of royalties from domestic energy production;

- Reforming and redirecting energy technology subsidies;

- Collecting a wires charge on sales of electricity;

- Levying fees on other energy or pollution sources; or

- Streamlining DOE.

AEIC does not advocate for one revenue option over another; the only unacceptable option is to fail to make these investments.

"We know the federal government has a vital role to play in energy innovation. We know the federal energy innovation system can be structured effectively to achieve real results. And we know there are several ways to pay for public investments in this domain," the report states, and goes on to urge, “If

[America] successfully innovates in clean energy, our country stands to reap enormous benefits. It is time to embark as a country toward our clean energy goals.”

Other members of the AEIC team include the Ursula Burns, chairman of Xerox Corp.; John Doerr (News - Alert), partner Kleiner Perkins Caulfield & Byers; and Tim Solso, chairman of Cummins Inc.


Cheryl Kaften is an accomplished communicator who has written for consumer and corporate audiences. She has worked extensively for MasterCard (News - Alert) Worldwide, Philip Morris USA (Altria), and KPMG, and has consulted for Estee Lauder and the Philadelphia Inquirer Newspapers. To read more of her articles, please visit her columnist page.

Edited by Tammy Wolf

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