Four Principles to Reform Federal Policy and Unlock Clean Energy Innovation

Climate requires the federal government to step up its game on energy innovation—working with industry to reduce risk, accelerate technology commercialization, and promote manufacturing (“innovate here, manufacture here”).

From July 27-August 7, 2020, the National Academies of Sciences, Engineering, and Medicine (NASEM) convened a series of virtual workshops on Enhancing Federal Clean Energy Innovation. Institute for Sustainable Energy Senior Fellow Dorothy Robyn chaired the planning committee for the workshops, which featured an all-star roster of speakers.

The following is adapted from remarks Robyn made at a subsequent event held to mark the publication of the NASEM workshop summary. David M. Hart, a professor at George Mason University’s Schar School of Public Policy and Government, contributed to Robyn’s remarks.

The bottom line of the workshop series was that the U.S. government needs to step up its game on energy innovation. Let me highlight four themes that emerged—think of them as “principles” for reforming federal policy to unlock our country’s capacity for clean energy innovation.

Principle #1

End users need to have a greater say in setting the R&D agenda. To put it a different way, our clean energy innovation system, which is characterized largely by “technology push,” needs a lot more “demand pull” (AKA “market pull”).

The Department of Energy (DOE) Laboratories are the heart of the U.S. energy innovation system. The Labs were created to fight World War II. When the war ended, to keep the talented scientists from returning to their jobs in industry and academia, the federal government offered them two things: generous funding for their research and autonomy. The labs are fenced off—and not just physically.

The result is a system that does superb basic research—it measures performance in Nobel Prizes won—but that discourages interaction with industry. MIT emeritus John Deutch, who was DOE’s first undersecretary, summed it up in our 3rd session: “There is an absence of focus [in the Labs] on how to get the private sector involved, and industry needs to be at the table.”

We need a cultural shift in DOE. Our speakers’ insights and recommendations as to how to achieve this shift fell into several “buckets.”

• One bucket is DOE’s organizational structure. There was high praise for the newest addition to the DOE org chart: Advanced Research Projects Agency-Energy (ARPA-E). However, many speakers criticized the gulf that exists between two other organizations: the Labs and the applied research offices. Physicist Cherry Murray, who spent 27 years with AT&T’s legendary Bell Laboratories, described what made it so successful: in sharp contrast to DOE, Bell Labs treated basic and applied research as equally important, and the activities were vertically integrated, with rampant teaming. In 2010, DOE created 5 energy innovation hubs in the image of Bell Labs. Argonne’s George Crabtree, the head of the energy storage hub, which boasts a dozen external partners and has launched three startups, credits the flexibility the hub structure affords. He and other speakers said DOE needs more hubs, and Murray urged DOE’s applied offices to create their own hubs.
  
  
• A second bucket is DOE spending. ARPA-E has been successful in part because most of its grant dollars go to industry and universities; only nine percent goes to the Labs. By contrast, DOE’s applied offices send a large fraction of their budgets to the Labs. When asked why more of DOE’s R&D budget doesn’t go to industry, Deutch cited the geographically based support in Congress that individual Labs enjoy—analogous to what prevents the Department of Defense (DoD) from closing military bases.
  
  
• Bucket three is the opportunity for DOE to leverage DoD, which is the country’s biggest energy consumer and spends $1.6 billion a year on energy R&D. According to former DoD scientist Jeff Marqusee and former Army Corps of Engineers commander Gen. Tom Bostick, the military’s energy technology needs—for thin-film solar, advanced batteries, long-duration storage, and power electronics, to name a few—overlap considerably with civilian clean energy needs. Moreover, DoD’s culture of demonstration and testing, and its willingness to be a cost-insensitive early adopter of new technology, are well suited to clean energy innovation.
  
  
• Finally, we heard some success stories that are, unfortunately, the exception rather than the rule. Exelon’s Chief Innovation Officer, Chris Gould, described a partnership with Argonne’s energy storage hub so successful it has even given rise to a venture fund. We also heard that DOE’s contracting and personnel rules, designed to protect nuclear secrets, must be reformed to facilitate such partnerships and encourage DOE personnel to spend time in industry and vice versa—another hallmark of Bell Labs. As former Lockheed Martin CEO Norm Augustine told us, the best way to move technology is to move people.

Principle #2

The federal government should invest in early commercial versions of clean energy innovations alongside end-users who are willing to adopt them. Advanced energy technologies can be extremely risky for a host of reasons. Absent government support for projects to demonstrate their technical and financial viability to potential users and investors, these technologies will be slow to deploy.

Yet-Ming Chiang, MIT’s serial battery entrepreneur, lauded ARPA-E’s new pilot program to support the demonstration and scaling of high-risk technologies. Success in these projects will allow U.S. innovators to raise capital and avoid having to sell their intellectual property to deep-pocketed foreign competitors.

Norm Augustine described the particular challenge facing large energy systems such as carbon capture that must be demonstrated at scale. To fill this critical gap in our innovation system, he proposed creation of an independent government corporation, modeled after In-Q-Tel, whose funding would come primarily from the Federal government. John Deutch has long championed a similar approach. In the closing session, former Energy Secretary Ernie Moniz voiced support for the idea as well and said the government corporation might even take over the function of DOE’s loan program office.

More broadly, Arati Prabhakar, who ran both DoD’s legendary Defense Advanced Research Projects Agency (DARPA) and the Department of Commerce’s National Institute for Standards and Technology (NIST) and was a cleantech venture capitalist, urged DOE to bring the same professionalism to demonstration and scaleup activities that it brings to basic research. We need to be able to make bold bets and abandon things that don’t work, she said.

Principle #3

The federal government should formulate clean energy innovation policy with an eye to global opportunities. As the world takes on the climate crisis, enormous markets—for power equipment, vehicles, industrial machinery, and even basic materials—will be up for grabs. China has set its sights on being a clean energy superpower, and other countries in Europe and East Asia are not far behind.

To help U.S. industry seize these opportunities, Varun Sivaram of Columbia University recommended five ways in which U.S. foreign policy could advance clean energy innovation, including leading international efforts to get agreement on technical standards, aligning our trade policy and export finance priorities with our domestic strategy for clean energy innovation, and partnering with our non-China allies to promote competition based on innovation as opposed to commodity prices.

Like Sivaram, Stanford’s Arun Majumdar, the founding director of ARPA-E, and his successor Ellen Williams called for a sectoral approach to key technologies such as grid storage and batteries for electric vehicles. As a possible model, several speakers cited SEMATECH, a partnership between DARPA and U.S. chipmakers to shore up their equipment suppliers.

Some speakers stressed the need for competition to remain “friendly.” David Victor from the University of California San Diego asked how we would have the large global markets needed to generate clean energy innovation if current U.S. conflicts with China continue. And Harvard Business School’s Willy Shih cautioned against the push for broad-scale “localization” (i.e., insourcing) we are seeing now in response to COVID-related shortages, which he believes will be prohibitively expensive given U.S. labor costs. In a different vein, Moniz said it should be easier to get global cooperation on technologies that address the tragedy of the commons—carbon capture, sequestration, CO2 removal—than on technologies with more proprietary intellectual property.

Finally, various speakers highlighted the key role of state and regional innovation systems, tailored to local energy resources and other assets, in achieving U.S. competitive and climate goals. Richard Kaufman, the head of the New York State Energy R&D Authority, described how NYSERDA leverages the state’s strengths as opposed to simply awarding individual grants. For example, its recent offshore wind procurement aggregated demand from multiple states and used New York’s authority to reduce bidders’ soft costs, which often exceed hard costs.

Principle #4

Policies to enhance clean energy innovation should emphasize manufacturing, broadly defined. As many of the proposals described above recognize, the benefits Americans receive from international competition in clean energy will depend considerably on where the manufacturing occurs. To avoid the fate of solar PV—a technology invented by Bell Labs but now produced almost entirely abroad—we need federal policies that support a strategy of “innovate here, manufacture here.”

Many of our speakers emphasized the importance of U.S. supply chains. Ellen Williams noted that every big technology we need is dependent on hundreds of smaller ones, and Laura Diaz Anadon of Cambridge University cautioned that suppliers of the more complex components of wind turbines are found in ever fewer countries. Willy Shih, in arguing for selective (as opposed to broad-scale) insourcing, called for heavy investment in process innovation, which can generate the kind of market disruptions that advantage higher-cost firms.

Process innovation is critical for another reason: the deep decarbonization needed to meet our climate goals will fundamentally alter advanced manufacturing. We devoted an entire session to this topic. Our speakers emphasized the need for DOE’s Advanced Manufacturing Office to focus squarely on the challenge of industrial decarbonization. They highlighted the critical role of synthetic biology and biomanufacturing. Here, again, regional innovation systems are key: many U.S. firms conduct their fermentation abroad because the regional infrastructure does not exist. Finally, our speakers urged DOE and the U.S. Department of Agriculture to tackle this issue jointly.

Let me close with three quick points that came up repeatedly in the workshop. One, as the example of biomanufacturing illustrates, climate is not DOE’s problem alone to solve. It requires a whole-of-government approach. Two, timing is everything. We need to double down on innovation in the coming decade so that we are ready for—and have options for—the massive deployment to come. As Arun Majumdar said, innovation-wise, this needs to be the Roaring 20s. Three, this is not a moon shot; we need something the scale and scope of the Cold War.

The opinions expressed herein are those of the author and do not necessarily represent the views of the Boston University Institute for Global Sustainability.