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US should triple R&D investment in clean energy, says high profile business group

Tony Chan | July 16, 2010 | 0 Comments

A group representing some of America’s top business leaders is calling for the U.S. government to develop a national energy strategy, including a more than tripling of the current investment level on R&D into clean energy.

The American Energy Innovation Council (AEIC), whose members include Bill Gates, chairman and former chief executive of Microsoft; Norm Augustine, former chairman of Lockheed Martin; Ursula Burns, chairman and chief executive of Xerox; John Doerr, partner at Kleiner Perkins; Chad Holliday, chairman of Bank of America and former CEO of DuPont; Jeff Immelt, chief executive of GE; and Tim Solso, chairman and chief executive of Cummins — said in its report, “A Business Plan for America’s Energy Future,” that reforming and strengthening U.S. investment in energy innovation is the most critical element to securing America’s future.

“The world faces many challenges, but none more important than taking immediate and decisive action to develop new, inexpensive clean-energy sources that avoid the negative effects of climate change,” Gates said during the launch of the report. “Low-cost clean energy is the single most important way to lift poor countries out of poverty and create more stable societies. The whole world would benefit from this, and the United States can and should lead the way. The time for action is now.”

“We must reinvent our energy future,” said Chad Holliday, who serves as AEIC chairman. “A giant leap in energy technology investments and reform of our current system can make America a global leader in what will be the largest new market of the 21st Century. We have seen huge dividends from similar American investments before—in information technology, defense technology, and medical technology. But up until now, energy investments have gotten short shrift. That has to change if we are to control our energy future. This has to be at the top of America’s agenda.”

Five recommendations

The AIEC plan contains five (denoted by 1 – 5 in the following) recommendations, including the formation of a (1) National Energy Strategy Board, as well as increasing annual investments (2) in clean energy RD&D (research, development & deployment) by US$11 billion, from the current level of about US$5 billion.

The United States does not have a coherent national energy strategy. Without such a strategy, there is no way to assess the effectiveness of existing energy policies, nor is there a logical framework for the development of new energy technologies. The result of this neglect is reflected in our nation’s history—with oil-driven recessions, environmental degradation, trade deficits, national security problems, and increasing CO2 emissions.

“In order to seriously address our energy future, the AEIC recommends the creation of a Congressionally mandated Energy Strategy Board charged with developing and monitoring a National Energy Plan for Congress and the executive branch, and oversight of a New Energy Challenge Program,” the group said.

“Instead of a series of fractured challenges and solutions, we should manage the future of our energy system as an integrated whole, and build a pipeline of technologies that will solve the serious problems our world is facing,” said Ursula Burns, chief executive of Xerox. “These recommendations are the beginning of such a solution. I urge Congress and the President to act on them.”

At the same time, government investments of $16 billion per year – an increase of $11 billion over current annual investments of about $5 billion – is the minimum level required, the group added. “For comparison, the U.S. government currently spends approximately $30 billion each year on health research and more than $80 billion on defense research and development. The public investment called for by AEIC would bring U.S. energy investment in line with those of our trading partners and competitors.”

According to a chart provided by the release, the US spends about 2.5% of its GDP on public energy RD&D, compared to 4% for China, close to 5% for France, 6% in Korea, and as much as 8% in Japan.

Additionally, the group also calls for the establishment of “centres of excellence” (3) in energy innovation, noting that such initiatives in healthcare, IT, and defense fields, have achieved large-scale market success. These centers can drive down the cost of technologies and accelerate their deployment. To function effectively and deliver real results, each of these centers will require annual funding in the range of $150 million to $250 million as a part of the $16 billion total.

Tim Solso, CEO of Cummins said, “Creating regional centers of excellence is central to incubating innovation across different fields and institutions. These can be our new hubs of invention. Our company has found that we win in the market by using our technical innovation to meet public standards while also developing products that meet the needs of our customers. The entire American economy can benefit from similar investments in innovation to help address our energy challenges.”

In the same vein, US$1 billion of annual commitment should be granted to the ARPA-E program, which is challenging innovtaors to come up with “truly novel ideas and ‘game changers’,” the group said.

“Ultimately, energy innovation is a matter of national security, and must be treated that way by Congress and the Administration,” said Norm Augustine, former chairman of Lockheed Martin and former Undersecretary of the Army. “This is true because disruptions in the supply of energy and environmental change are among the most likely causes of future military conflicts. DARPA was a huge success in creating high payoff returns on investments in military technologies. ARPA-E—its energy equivalent—can have a similar transformative impact on energy technology, but it must receive adequate funding.”

Lastly, the group calls for the establishment of a “New Energy Challenge Program” (5) for large scale demonstration projects, citing the lack of a mechanism in America’s energy innovation system to help turn large-scale ideas or prototypes into commercial scale facilities.

The need for complementary policies

The AEIC plan also notes “the need for complementary energy policies to drive market adoption of new technologies. A vigorous demand signal will increase the intensity of research, add large private-sector commitments, reduce barriers between the lab and market, and ensure technologies perform better and cost less over time. The United States will not succeed in this field without policies to ensure there are vibrant markets for clean energy technologies. Those policies may include some combination of a price or a cap on CO2, a clean energy or renewable energy portfolio requirement, or technology performance standards. The effect of such policies should be to create a large, sustained market for new energy technology. Our nation cannot succeed without it.”

The report states that increased investment for energy innovation is such a high national priority that it should be undertaken even in the midst of tight federal budgets. The group also notes that options for generating new revenue for energy innovation investment from the energy sector include reductions in subsidies for fossil fuels, license fees for offshore oil and natural gas production, creating an oil import fee, increasing the gas tax or putting a price on carbon emissions. The report does not specifically advocate any of these approaches.

“The U.S. is falling behind because we don’t have the markets or the will – our policies are shortsighted and our markets aren’t set up to reward energy innovation. We have the power to transform our energy future and address many of our economic, energy security and climate challenges with the right policy clarity and robust market demand. You have to do both to drive innovation and compete,” said Jeff Immelt, CEO of GE.

“I am convinced that the right technologies and the right policies we can solve our energy and climate challenges,” said Bill Gates. “But we need a much more serious commitment to do so.”

AEIC Chair Chad Holliday said, “During my time at DuPont, when science linked CFC use and ozone depletion, we knew the world had to change the model. DuPont used this challenge to invent entire new businesses. The United States can do the same to meet our energy and climate challenges. But we must begin investing at a much larger scale now.”