In Chapter 1 we describe the urgent challenges posed by the current U.S. energy system and make the case that accelerated innovation in energy technologies will be essential in meeting these challenges. In this chapter, we explore the question of determining the appropriate role for the U.S. government in fostering energy innovation. This is a complex issue because the U.S. energy system encompasses many functions (e.g., invention and discovery, R&D spillovers, economies of scale, clustering, learning by doing, deployment, etc.); government actions to facilitate innovation interact with private actors in many markets; there are a multiplicity of actors (e.g., national and regional public organizations, private firms, universities, consumers); there is deep uncertainty in future technology performance rooted in many factors (e.g., the rate of technological change, economic growth, energy prices, consumer adoption, etc.).

In this book we take a systems approach to the innovation process. The chapter starts by focusing on selected key government functions, and in Chapter 6, we integrate the analysis from this chapter with analysis and holistic recommendations that cut across the entire system. Our analysis in this chapter starts with the energy research, development, and demonstration (RD&D) investments of the U.S. Department of Energy (DOE) – the single largest public funder of energy RD&D in the United States. Despite the broader scope of DOE's jurisdiction, which we trace to its historical roots, we limit our analysis to only the department's energy RD&D funding activities. After describing DOE's current role investing in energy RD&D, we analyze how DOE makes decisions about its energy RD&D investments. We argue that a method to inform public energy RD&D funding decisions that allows for an integrated, consistent, and transparent analysis among competing technology areas is needed.

A World of Competition and Cooperation

Energy technology innovation is not a U.S. phenomenon; it is a global phenomenon. All over the world, research institutions, companies, and governments alike are intensifying their investments in energy research, development, demonstration, and deployment (ERD3).

In 1999, a report by the President's Committee of Advisors on Science and Technology (PCAST) called for more than doubling U.S. federal spending on international ERD3 cooperation and for establishing new institutions to develop a strategy and to oversee the effort (PCAST, 1999). It recommended a wide range of international ERD3 cooperation activities over a large number of different energy technologies.

The international energy landscape has been transformed since then, in particular by the rise of emerging economies such as China and India both as energy markets and as energy innovators. Overall, these changes have only made the case for such cooperation stronger. Indeed, the process of innovation has globalized, with ideas, resources, and manufacturing coming from different countries throughout the value chain (Gallagher, Gruebler, Kuhl, Nemet, & Wilson, 2012); there are now few high-tech products that do not include contributions from multiple countries. Countries and firms that attempt to go it alone in developing new energy technologies and bringing them to market are likely to be left behind by those who are sharing in the global flow of ideas and resources.

The Need for an Energy Technology Revolution

How will countries provide the reliable, affordable energy needed to fuel a growing world economy and lift billions of people out of poverty without causing catastrophic climate change and other environmental disasters? Answering this question is perhaps the greatest challenge human civilization faces in the 21st century. It cannot be done without a revolution in the technologies of both energy production and use. And for that revolution to arrive in time will require a dramatic acceleration in the pace at which new or improved energy technologies are invented, demonstrated, and adopted in the marketplace.

This book outlines policies the U.S. federal government in particular can adopt to foster such an energy technology revolution. These approaches will help meet the myriad energy challenges of the 21st century – and help ensure that the United States plays a leading role in doing so, capturing its share of the multi-trillion-dollar energy technology markets of the coming decades.

This book seeks to answer four basic questions. First, how much should the U.S. government spend on energy research, development, and demonstration (RD&D), and how should that money be allocated? Second, how can the U.S. government best work with the private sector and encourage it to invest its own funds in researching, developing, demonstrating, and deploying new energy technologies? Third, how can the U.S. government manage its energy RD&D investments and the institutions through which they flow to get the most beneficial energy innovation per dollar invested? Fourth, how can the U.S. government best manage competition and cooperation with other countries in energy technology innovation?

Introduction

Private sector firms are critical players in energy technology innovation. As described below, the private sector funds and carries out the majority of energy research, development, and demonstration (RD&D) in the United States. New energy technologies can make significant contributions to major energy challenges only if they are adopted on a broad scale by the private sector.

In this chapter, therefore, we explore two sets of questions. First, what kinds of energy innovation are taking place in the private sector in the United States today, and how can the federal government best encourage them to do more? Second, how can U.S. government energy RD&D partnerships with the private sector – a major part of the federal investment in energy RD&D – be made more effective? As we show in this chapter, improving the U.S. Department of Energy (DOE)'s work with the private sector is important not only because the private sector will ultimately take technologies into the market, but because collaborative work between DOE and others makes up about 30% of the energy RD&D budget and 55% of the Science budget through grants and collaborative agreements. Within energy RD&D especially, for-profit firms receive 60% of all funding for collaborative work, and firms contribute more than they receive to jointly funded projects, so that firms represent 65% of the total collaborative effort.

Introduction and Motivations

The large new investments in energy research, development, and demonstration (RD&D) recommended in the last chapter will not be justified or sustainable unless they are managed in a way that maximizes the effectiveness of the investment. Hence, the U.S. government must ensure that its energy innovation institutions are as efficient and effective as they can be.

The Bush and Obama administrations have seen substantial innovation and reform in U.S. energy innovation institutions, with the creation of the Advanced Research Project Agency-Energy (ARPA-E), the Energy Innovation Hubs, the energy frontier research centers, and strengthened connections between Basic Energy Sciences and the applied R&D offices at the Department of Energy (DOE). But as we will outline in this chapter, there is a great deal more to be done to ensure that DOE's energy innovation institutions are as effective as they can be.

DOE's national laboratories, in particular, are a core element of DOE's science and innovation system. In addition to goals of nuclear security and scientific exploration, DOE also aims to contribute to new discoveries and inventions in energy technologies. DOE itself is part of a larger innovation regime in the United States and globally that includes different actors and institutional models for conducting research. For energy innovation, a successful national laboratory outcome is often the commercialization of a technology product. Whether a laboratory's research is fundamental inquiry or it sits on the applied end of the research spectrum, it must contribute to knowledge or technologies that can eventually find use and enhance the energy system's impact on national security, the environment, and the market.

As we argued in Chapter 1, the United States and the world need a radical acceleration in the rate of energy technology innovation to meet the profound economic, environmental, and national security challenges that energy poses in the 21st century. If the U.S. government does not act now to improve the conditions for innovation in energy, even in times of budget stringency, it risks losing leadership in one of the key global industries of the future, and the world risks being unable to safely mitigate climate change and to reduce vulnerability to disruptions and conflicts – both domestic and international. Waiting is not an option.

The previous chapters of this book have laid out a broad agenda of policy changes that could help cause such a transformation in U.S. energy innovation. We believe that implementing these recommendations would bring the United States much closer to meeting the CASCADES criteria for an effective energy technology innovation strategy that we laid out in Chapter 1 – an approach that is comprehensive, adaptable, sustainable, agile, diversified, equitable, and strategic. In this chapter, we summarize the recommendations of the previous chapters, build on crosscutting themes that run through them all, and offer a preliminary discussion of the steps that would be needed to put the United States on the trajectory we suggest.

A Major Expansion in Energy Technology Innovation Investments, with More Stability and Better Targeting

As discussed in Chapter 2, the U.S. government should improve its approach to making decisions about energy RD&D investments in different technology areas. We have developed an approach to support these decisions and concluded that dramatically expanding the Department of Energy (DOE)'s investment in energy research, development, and demonstration (RD&D), focused on a broad portfolio of different energy technologies and stages of innovation, is justified by the expected social benefits.

Executive Summary

Innovation and technological change are integral to the energy system transformations described in the Global Energy Assessment (GEA) pathways. Energy technology innovations range from incremental improvements to radical breakthroughs and from technologies and infrastructure to social institutions and individual behaviors. This Executive Summary synthesizes the main policy-relevant findings of Chapter 24. Specific positive policy examples or key takehome messages are highlighted in italics.

The innovation process involves many stages – from research through to incubation, demonstration, (niche) market creation, and ultimately, widespread diffusion. Feedbacks between these stages influence progress and likely success, yet innovation outcomes are unavoidably uncertain. Innovations do not happen in isolation; interdependence and complexity are the rule under an increasingly globalized innovation system. Any emphasis on particular technologies or parts of the energy system, or technology policy that emphasizes only particular innovation stages or processes (e.g., an exclusive focus on energy supply from renewables, or an exclusive focus on Research and Development [R&D], or feed-in tariffs) is inadequate given the magnitude and multitude of challenges represented by the GEA objectives.

A first, even if incomplete, assessment of the entire global resource mobilization (investments) in both energy supply and demand-side technologies and across different innovation stages suggests current annual Research, Development & Demonstration (RD&D) investments of some US$50 billion, market formation investments (which rely on directed public policy support) of some US$150 billion, and an estimated US$1 trillion to US$5 trillion investments in mature energy supply and end-use technologies (technology diffusion).