Trump Should Embrace “Energy Innovation” Agenda

A recently released paper argues that President-Elect Trump and the Republican-dominated Congress “have a chance to embrace a mainstream energy agenda with support from both sides of the aisle and deliver on campaign promises to create manufacturing jobs and boost exports” by setting an energy innovation agenda that includes substantial policy reform. The authors argue that this position will resonate with the new Administration, pointing out that Exxon CEO Rex Tillerson and Texas Governor Rick Perry, Trump’s picks for Secretary of State and Energy, respectively, have both advocated for energy innovation.

Even T. Boone Pickens in a recent column on LinkedIn advocated for continuing R&D into new sources of energy: ” Wind and solar prices are going to continue to drop, and the middle of America is the ‘Saudi Arabia of Wind.’ States like Iowa have embraced wind energy and off-shore wind turbines are fast becoming commercially viable.” So, in other words, instead of talking about climate change or maybe even clean energy which is going to be a non-starter in the Trump Administration, the new language or wording is “energy innovation.” This is what I’ve been telling depressed friends in clean tech: If you want to accomplish anything, the language needs to change to fit the Trump agenda even if the aim remains the same.

Whatever the wording, energy innovation, but especially job creation and global competitiveness, are going to be key in a Trump Administration, as I’ve noted right after the election. The authors point out that:

“Asian countries have vaulted to the forefront of global trade in clean-energy technology. In particular, China is the world leader in the production of solar panels, batteries, and wind turbines, and it is quickly taking the lead in next-generation nuclear power and technologies to capture carbon . The United States is losing this race because Asian countries are out-investing the United States and dictating the terms of  competition, often flooding the market with low-cost, unimaginative products.”

The report urges the federal government to “reform a sprawling set of institutions to increase the commercial impact of federal energy research, development, and demonstration (RD&D) and maximize taxpayer return on investment. These reforms should draw inspiration from experiences in other sectors, including life sciences, semiconductors, electronics, and agriculture, where breakthrough technologies have been successfully commercialized.”

The federal government’s $6.4 billion clean-energy RD&D investment was spread across a dozen agencies in fiscal year 2016 (figure below). About three-quarters of this funding was channeled through the DOE. The authors say:

“Continued federal investment in such programs is essential for improving American energy security and making energy production and use less harmful to public health and the environment. But U.S. federal investment can produce more bang for the buck. Too much of it is spent today on a plethora of disconnected projects that lack focus.”

The authors present five principles for institutional change that they say should be applied to key federal agencies, especially the U.S. Department of Energy (DOE):

1. Connect basic science with technology priorities: “DOE has historically emphasized basic scientific research that is excessively insular, uninspired by end uses, and disconnected from applied research, development, demonstration, and commercialization.13 Explicitly linking basic energy-science funding to broader technology initiatives can more efficiently guide science without stifling it.”
2. Reorient the national labs to pursue commercially relevant RD&D: “DOE oversees 17 national laboratories, with a collective annual budget of $12.3 billion. These labs are extraordinary repositories of scientific and technical capabilities that have made great contributions to the nation since World War II. Many of these contributions have been in the fields of defense and pure science; surprisingly few have been in energy. One key reason is that the labs’ energy activities are too often disconnected from mission-driven, industry-relevant technology development, demonstration, and deployment. Moreover, DOE delegates the labs’ limited autonomy to marshal their considerable resources as coherent technology centers. Greater autonomy, stronger incentives to collaborate, and better connections to external partners, especially geographically proximate industrial clusters, could amplify the national labs’ impact on energy technology.”
3. Encourage more private investment in energy innovation: “Private investment in energy innovation has hit a rough patch over the past decade. The rate of new company formation has slowed. Venture capital investment has receded. Corporate expenditure on both in-house and external R&D has stagnated. A top priority for the new Congress and administration should be to reverse these trends.”
4. Support demonstration projects to de-risk private-sector investment: “Demonstration is a vital phase in the innovation process for many advanced-energy technologies. Demonstration projects seek to establish the safety, reliability, and affordability of technologies under real-world conditions, thereby reducing the risk facing later investors. Unfortunately, such projects have been woefully underfunded in recent years. President Trump and the new Congress should explore new models for judiciously filling this gap with federal resources to unlock private investment.
5. Complement “supply-push” policies with “demand-pull” policies: “The success of energy innovation depends ultimately on meeting the test of markets. Subsidies of indefinite duration are not acceptable. The creation of temporary protected market niches, however, may be vital in bringing costs down while production ramps up, and in providing working capital to early-stage firms. Such “demand-pull” policies have been shown to be vital complements to the “supply-push” provided by federal RD&D for many transformative innovations in the past.”

The authors say these reforms will help focus federal energy-innovation resources on urgent and coherent needs. Six candidates for these “Technology Missions” were noted:

1. Nuclear power
2. Solar energy
3. Energy storage
4. Carbon capture, utilization, and storage
5. Advanced cooling and thermal energy storage
6. Smart energy management and connected vehicles

Pointedly absent is advanced biofuels. To fund all of this, the authors recommended that the U.S. double its funding for energy RD&D, consistent with the Mission Innovation commitment that it and 19 other major economies have made. They say leading lawmakers on both sides of the aisle have expressed their support for boosting scientific research, so expanding doubling the budget for energy innovation to roughly $13 billion—a rounding error in the federal budget—is politically tractable.

It’s true that RD&D tends to have more bipartisan support than other energy (and especially energy-climate) initiatives. More problematic in my view are the suggested funding sources as I can’t see the energy industry supporting any of them, and therefore I can’t see either the Trump Administration or the Republican Congress supporting them. The authors suggest the following possibilities:

• Carbon tax: Despite Exxon’s support, this is not going to happen in a Republican-dominated Congress faced with a slew of what it sees as more pressing priorities (such as repealing the Affordable Care Act).
• Electricity wires fees: ” Congress could enact a small, nationwide surcharge on U.S. electricity sales that pass through the electrical power grid, known as a “wires fee.” A wires fee of just $0.001 (one tenth of a cent) per kilowatt-hour on U.S. electricity generation available to the grid would generate approximately $4 billion annually.”
• Proceeds from sale of petroleum reserves (SPR): “Congress could require oil companies to purchase the oil in the SPR and hold it in reserve, as other countries do, for use in emergencies to counteract a shock to the oil market. Given oil prices of approximately $50 per barrel, this strategy could raise over three-quarters of the additional funding required to meet the U.S. Mission Innovation commitment over the next five years.”
• Oil and gas extraction royalties: “By harmonizing the rate at which the federal government charges onshore and offshore oil and gas production, the Trump administration could raise substantial funding to support energy innovation.”
• Fossil-fuel export fee: “Congress could levy a small fee on U.S. fossil fuels that would apply only to exports. This fee would neither raise prices for American consumers nor materially impact the viability of U.S. exports.”

The authors say:

“By organizing the energy-innovation effort around overarching Technology Missions, the administration and Congress will be able to demonstrate to taxpayers a superior rate of return on the public’s investment. Dedicated and expanded federal funding will help to induce private investment, so that the United States not only has clean, affordable, reliable, and safe energy for its own needs, but also becomes a much more effective player in the burgeoning global advanced-energy market.”