Transcript: “Energy Innovation and American Competitiveness”

Sponsored by OurEnergyPolicy.org and
the Congressional Research & Development Caucus

12 noon to 1:30 p.m.
Thursday, March 3, 2011
B340 Rayburn House Office Building
Washington, D.C.

Opening Remarks:
WILLIAM SQUADRON, President, Our Energy Policy Foundation

Panel Speakers:
NATHAN S. LEWIS, Director, U.S. DOE Innovation Hub; Professor of Chemistry, CalTech
MARK MURO, Senior Fellow, Brookings Institution
DAVID KREUTZER, Research Fellow in Energy Economics and Climate Change, The Heritage Foundation

Moderator:
YOSSIE HOLLANDER, Founder and Chairman,
Our Energy Policy Foundation

MR. SQUADRON: I’d like to welcome everyone here today. I’m Bill Squadron. I’m the President of Our Energy Policy Foundation, and we’re very excited to be hosting this event with the Congressional R & D Caucus. I would particularly like to thank Representatives Biggert and Holt for helping us with this, and Cade Clurman and Will O’Neal and their offices for helping us put this together.

This luncheon is part of a series of luncheons that we’re doing to highlight what Our Energy Policy, which is a very young organization but one that is growing quite fast, is all about. We have a very unique mission, which is to create on a nonpartisan basis an online dialogue which allows people with substantive knowledge in the energy field from all different sectors, from all over the country to participate in an ongoing discussion that’s substantive and visible to the whole American public. The discussion itself is limited really to people who can contribute in a valuable way to the discussion and through that discussion provide assistance to people who are involved in the policy-making process, whether it’s here in Washington or in State capitals or in local governments, and provide support to the media as they work to shine light on a lot of the issues that often get discussed behind closed doors or in individual silos where people aren’t talking to each other.

So today’s discussion, which we’re very excited about because it’s on a topic that has gotten tremendous attention in the last few months, it’s critically important to whether we are going to have successful solutions to our energy problems and a competitive position in the energy economy over the next several decades on energy innovation. We have a tremendous panel today to discuss that, but really this is just the start of the discussion because what we are about as an organization is to have this discussion be ongoing and to have it include dozens and hundreds of people from around the country who have perspectives that can be brought to bear on these issues that are interesting, useful, and valuable to people in policy-making positions trying to address these problems.

If you’re not already registered as an Expert on www.OurEnergyPolicy.org, we’ll be getting in touch with you to encourage you to register and begin to participate in the discussion. If you are already registered as an Expert participant, we really would like you to follow the dialogue that happens today – the transcript of it will be online, on the site – and then continue the discussion, so that we can really add many voices to the discussion we have here today on these topics.

I’m going to turn it over in just a minute to Yossie Hollander who is the Chairman and Founder of OurEnergyPolicy.org. He really was the visionary who could see how to use software and Internet technology that was part of what he created as an entrepreneur in the ’90s and bring it to bear on something that it’s deeply committed to, which is solving serious issues on energy policy. He’s on the Board of the Weizmann Institute, has been one of the bigger supporters of energy research worldwide, and will be moderating the panel.

We have a great group. All these guys, I could spend about an hour just introducing them, but I’m going to just give you very brief introductions.

To my far left is Mark Muro, who is a Senior Fellow, Director of Policy at the Metropolitan Policy Program at Brookings, and he manages the program’s public policy analysis, leads key policy research projects. He’s the co-author of Energy Discovery-Innovation Institutes as well as numerous writings on energy and innovation policy.

To his right is Nate Lewis. Dr. Lewis has been on the faculty at CalTech since 1988. He’s the Director and Principal Investigator of the Joint Center for Artificial Photosynthesis, which is the DOE’s $122-million Energy Innovation Hub in fuels from sunlight, and over the next five years, that Hub will develop and demonstrate a manufacturable solar fuels generator that will take sunlight, water, and carbon dioxide as inputs and produce fuel from the sun 10 times more efficiently than typical crops.

And finally, to his right, David Kreutzer who is a Research Fellow in Energy Economics and Climate Change at The Heritage Foundation Center for Data Analysis, and in that position, David researches how energy and climate change legislation will affect economic activity at the national, local, and industry levels, and he’s written and spoken extensively about energy and energy innovation.

So we’ve got a great panel. As I say, it will be the kickoff to a larger discussion on OurEnergyPolicy.org, and I’m going to turn it over to Yossie to be in the discussion. Yossie?

MR. HOLLANDER:Good morning. Thank you for coming to our session today. Energy innovation is a pretty big subject. It encompasses a lot, but our goal today is not to tell you about energy innovation but to hear from you and to ask questions. So I will be asking a lot of questions, and there will be plenty of time for you to ask questions.

So, therefore, we limited the speakers’ amount of time a speaker will have to present their issue for eight minutes, which is a little bit less than giving justice to the amount of work you have done in that, but I think it is more important, because the report can be read by everybody, and I think some of you might have probably read the reports. I think we want to get a quick introduction about what they have done and then really clear it all more for questions because I think the issues are the questions, not what’s written in the report so much.

I will start with Nate Lewis, I think. There basically have been quite a few reports about energy innovation in the last two years, but I think the leading one that came recently this year was authored by, part authors of those reports, so I’ll let Nate introduce what they have found out and how they came about, then Mark and let David maybe present another angle on that.

DR. LEWIS: Great.

MR. HOLLANDER: Nate, please.

DR. LEWIS: Thanks very much, Yossie. I don’t know if [the microphone is] on. It’s probably not on. Forget it.

[Laughter.]

MR. HOLLANDER: I think it’s on.

DR. LEWIS: I teach 230 freshmen, so you can hear me.

[Laughter.]

MR. HOLLANDER: Come to office hours.

DR. LEWIS: Yeah. If you need the cheat sheet, come to office hours.

Let me preface what I’m going to say, but I hope in the questions, you take the opportunity to ask me about what it’s like to actually be in the lab innovating in energy. You know, there are a lot more people that talk about it than do it, and I actually do it. That’s my job. This is a hobby. So I’m happy to tell you about my day job.

That being said, let me topline things. This is what went in. I had a lot of input into [A Business Plan for America’s Energy Future] with my friend, Bill Gates, that he and Chad Holliday and other people came out with. We had a topline level of discussion, that I think is useful.

The energy industry and the U.S. is probably, roughly $1.5 trillion a year, bigger than everything but health care. This is not a small enterprise. Let’s look at examples of innovative industries, the shining stars of the United States, pharma and [information technology]. They have guidelines that say you should invest between 10 and 15 percent of revenue in R & D in order to run fast or die to beat your foreign competition, to beat your internal competition, to beat the bugs and make the next generation of pharmaceuticals and any reason you want to just survive in this thriving economy.

What does the energy industry spend, by that same metric? The major energy companies spend 0.5 percent of revenue on R & D as opposed to pharma and IT that spend 10 to 15 percent of revenue. The electric utility industry as a percentage of revenue spends less on R & D than the dog food industry does. Where do you want your next high-tech products to come from, the dog food industry or clean, secure electricity? So this is the baseline we’re starting from.

Now, we can spend money smartly, but if you did quick math and you said you spend 10 percent of revenue on R & D, then we’re really talking about $150 billion a year to really remake the energy industry within a generation or two. That’s what industry guidelines would say.

I personally think two-thirds of that at least could come from the private sector. We need to find a way to inject innovation into an industry that simply doesn’t have it in its DNA. The last innovation in energy, arguably, was nuclear power in 1955. Maybe we’ve got hybrid vehicles. They’re still not a real market penetration success. So the last big thing we did was 50 years ago, arguably. We don’t have an innovative industry in its culture, so we have to find a way to change that.

On top of that, let’s give the industry motivation with policy instruments and tools and other incentives to actually innovate, because I think it’s clear without that, we’re going to be stuck where we are right now, like we’ve always been, and let’s say we get a $100 billion out of the $150 billion or so we need from the public sector, from industry, well, that still leaves a whole, cool $50 billion. Bill [Gates] said, “You’ll never get that from Congress. Divide it by 2 or 3, let’s ask for $15 [billion],” and that’s what they came out with.

So the Federal Government should spend 15 or 20, I say $30 [billion], because that’s what we spend on health care to give us NIH and R & D, that gives us the next generation of pharmaceuticals and proven kind of level. You can argue if it’s 20 or 15, but it’s not, 1 or 2, which is about where we are now. So we need to get the zero right, probably, if we’re going to really make headway on a rapid time scale.

What should we be doing with that? Well, I think that it’s pretty obvious what we should be doing with that. First of all, if you ask people about building efficiency. If you wanted to say, well, how much could you save and how much of that is existing technology now, they say between 30 and 50 percent of it is cost effective today.

The rest is projected under a learning innovation scenario to be cost effective in the next 30 years, but that doesn’t come without investment in innovation to get building materials, to not have deep retrofits cost, $100,000 to get building energy savings down by 70 percent, which you can do today, but the up-front costs are just prohibitive to get really smart windows. I mean ones that change their tint in the sunlight, so that they reflect more light, transmit less when it’s really bright, and these technologies exist. We just have to innovate to get them to be deployable by – me, I mean, I can’t do it because I can’t afford to do it, even though I know it exists, in my house. So, clearly, in the efficiency side, we need to innovate smart sensors, room occupancy, much more than just light bulbs. We should be doing that, too, of course, with LEDs.

Transportation. Where should we innovate? Yes, we should have mileage standards. Yes, we should encourage hybrid vehicles, but as long as we have 2,000 pounds to move around somebody that weighs 150 pounds, there’s a lot of physics that says that’s not going to be so simple to do because the friction is directly proportional to the mass you’re moving. We should figure out how to make lightweight materials that are as cheap as steel, that are as strong as steel. We have such materials. They’re just not quite cheap enough to be cost effective.

If you did that, tomorrow we could double the fleet mileage with no legislation, and then, all of a sudden, the ability to make hybrids, the ability to make plug-in hybrids, the ability to make battery-powered vehicles that have [significant] range doesn’t need new batteries, it doesn’t need new technology, it just needs lightweight, safe vehicles. This is a materials problem in chemistry and material science.

Let’s remember that the first 50 percent of the savings in mileage goes a lot further than the next 50 percent, all right, because the first 20 billion gallons saved every day is worth a lot more than the next half of that, 10 billion gallons, those diminishing returns. So it’s pretty clear that we’ve got the horse before the cart here, literally in this case. Figure out a way to the make vehicles lightweight to enable everything else to happen.

Then, of course, batteries. Seventy-five percent of the cost of a lithium battery today is in the raw materials to make the battery. So, if you think we are going to lower the cost of battery vehicles by a factor of four by learning how to manufacture them at scale, arithmetic says think again. We’ve got the same battery chemistry we had 25 years ago. There are things on the board that can have five times the energy density, or more, of lithium secondary batteries that the ones we know how to manufacture today. We hardly invest anything in people thinking about new battery chemistry because we’re pretty obsessed with just learning how to manufacture them today, but the gains in performance are not going to be disruptive. They are going to be incremental.

That’s the way they’ve been over the last 20 years because, at some point, the chemistry is the chemistry, and unless you invent new materials to make the battery out of that are fundamentally much more energy dense, you can’t really go very much further on your car than where you can go now, so, clearly, new battery chemistry is important.

That’s why we should have an energy innovation hub in storage. Actually, the President and Secretary Chu just asked for one. It clearly makes sense to me.

Nuclear power. We talk about the next generation of nuclear reactors. Those next generation are higher temperature than the materials we use today, a higher neutron flux. You ask the NRC how long would it take you to permit, even if we had the technology in hand, one new nuclear reactor, and they say if you wanted to operate for 40 years, we want 20 years on the ground of experience before we’ll declare it can be commissioned for the public for 40 years and manufactured. That means that if we had the new technology today, we couldn’t build the first one and license it until 20 years from now. We could build existing ones. We couldn’t build new ones.

The global capacity to forge domes today for nuclear powerplants is five per year, all done by Mitsubishi Steel Works in Japan, the only place in the world that can forge the domes. So five per year is the total global capacity today to build existing nuclear powerplants. Pretty clear if you want to foster that industry what you have to do. You have to find a way to up the capability to do manufacturing, and you have to find a way to accelerate the rate at which we develop, simulate, model, and test materials, so we don’t have to wait 20 years from when we have them to know that they’re safe to build the first one. That’s why there’s a hub. That’s why there’s a hub in nuclear modeling in the DOE.

Now let’s turn to one more of my favorites. I have four or five of these, but I’m going to run out of time. The biggest energy source we have is the sun. More energy from the sun hits the earth in one hour than all the energy consumed on our planet in an entire year. Nothing else comes close. More energy from the sun in a year hits the earth than [has been] consumed in human history, and that’s going to be the same a hundred years from today as it is from today.

On the other hand, it’s got this one little problem: it goes out, last time I looked, every single night. That’s going to happen, and humans want energy all the time. You can only demand manage and shift so far. If you are having 50 percent of your energy from the sun or 30 percent from the sun and wind, on the one cloudy day when the wind doesn’t blow, you can’t have the big red switch that you flip that says “United States of America” on it. All right? It’s not going to happen. So we’ve got to find a way to store massive quantities of energy, or you can’t bring on significant amounts of intermittent renewables into the mix. Just obvious conclusion.

So, if you want to take the sun and store its energy, the most energy-dense way to store it is in chemical fuels. The only way we store electricity now is pumping water uphill. 55,000 gallons of water is needed, pumped up the height of Hoover Dam to store the energy in one gallon of gasoline. That’s the difference between the energy density of the chemical fuel you put in your cars and the only way we store electricity, which is pumping water up dams. We got to find a way to take the sun, the biggest source, and store it in chemical bonds. That’s what biofuels do. It’s just they’re very inefficient. Less than 1 percent of the energy that hits a square meter over a year goes into the biofuels created. That’s why we trade food for fuel. Nature gets an F1 in engineering design because it built a less-than-1-percent-efficient machine.

We know there are systems that can do 10 times better. We’ve got them in the lab. We know we can directly, with no bugs no wires, make fuel from sunlight. If I gave you fuel from sunlight, carbon-neutral fuel, you saw the storage problem, you saw the transportation problem. You keep our airplanes flying. There’s no such thing as a battery-powered, plug-in airplane. You keep our ships moving. So this is a huge game-changing potential win.

We know how to do two out of three things. We know how to make things that last, make things that are cheap, make things that are efficient. You get to pick two. Not the third. Cheap and efficient doesn’t last. Cheap and last? Not efficient. The efficient and last? Not cheap. That’s why there’s a DOE Energy Innovation Hub in making fuel from sunlight where we bring together 200 scientists and leverage a lot of the other R & D community to try to work on this problem because, in principle, the game changer is so big, the prize is so big that we want to do it.

And I’ll preface the end that after we established our hub, it took less than three months for Japan, for China, for Korea, for Brazil to establish their own hubs, all of which are funded at least as high as ours, pending Congressional appropriations here, and if we stop what we started, we will have given the rest of the world the blueprint on how to do this, how to set it up, because our plans are open. I’m the director of this hub. So it’s clear what we have to do.

My eight minutes are up. Thanks for – and I’m happy to answer questions.

MR. HOLLANDER: Mark, please.

MR. MURO: Well, that was terrific. While there’s not much more to say once Nate has finished things. I want to talk to you, though, about – I want to change gears and talk in a little different way about a little bit more political framework that I helped develop last fall.

This is a report called “Post-Partisan Power.” I released this in October in conjunction with a somewhat provocative or fresh group of co-authors, Steve Hayward at the American Enterprise Institute, and two colleagues from the Breakthrough Institute. So it’s not new research like Nate and I and a bunch of others worked on with Jim Duderstadt of the University of Michigan to help conceptualize this hub’s idea and another work that I’ve been involved in, in catalyzing regional innovation networks and clusters to support all this work.

This was a well-timed reframing and somewhat political exercise. We seized on the moment after the collapse of the Copenhagen cap and trade discussions, following the Senate’s abandonment of cap and trade, and decided it might be useful to see what could be agreed upon among somewhat ideologically varied and visible think tanks, American Enterprise Institute to the right, Brookings in the center, Breakthrough to a kind of eclectic left. And we started assuming what had become obvious, that cap and trade was not going to happen. This had seemed blindingly obvious to all of us for quite a while. It was strange that saying this seemed to prompt a lot of buzz. We thought it was the least interesting part of the proposition. So we just tried to see over a few months what we could agree upon, obviously with Steve Hayward of AEI being, you know, a different perspective, certainly.

And we wanted to see if there was a kind of meaningful policy mix in the center that could actually become a focal point of diverse points of view, you know, a place where various points of perspectives could coalesce, so we wrote down a few basic home truths. We agreed cap and trade isn’t happening and won’t happen for a long time. We won’t likely have a high carbon price anytime soon. Price solutions alone won’t deliver sufficient energy system transformation, the kind of things that Nate is talking about. Price signals might drive more energy efficiency and more outcomes that would be beneficial to the energy system, but they’re not going to get us to the kind of transformations we need that will really generate huge numbers of jobs as well as clean up the energy system.

But we all agree that we can and must move towards clean energy sources. We agreed that would be a good thing, and we thought a key problem is that clean energy sources are simply too expensive. That means that the central challenge today should be to make new clean energy sources much cheaper, so they could truly compete with fossil fuels and displace them in their own right.

So that led us to the last point. The only path, agreed these three diverse perspectives, to accomplish this objective, making energy cheap, is vastly expanded innovation, which would include vastly expanded R & D, early stage commercialization efforts, and also I think more thought about deployment of clean energy technology. So we agree that there is plenty of existing technology and energy efficiency strategies in place that could be drawn on, but by and large, we do not have the suite of technologies we’re going to need over the next 20 to 25 years.

So, given that agreement, we then proceeded to frame out what we styled – and maybe this seems ironic now. Maybe it’s been overtaken by time, but we called it a “potentially post-partisan energy system agenda.” And we agreed that Congress needs, in the absence of cap and trade, to get on with making those kind of game-changing R & D investments. So we recommended a bipartisan coming together around the concept of investing much more in basic energy, science, and education, investing about $6 billion a year more in energy innovation, R & D breakthrough technology, commercialization, education, and then regional innovation systems, fostering the kind of matrix of innovation clusters in which some of this work happens and is expedited into the private marketplace.

We thought we needed new paradigms. We think just upping the investment level is not going to get us where we need to go. We believe that we have a stovepiped legacy energy system, and especially there are significant problems with the institutional structures we have in the Federal Government. We agreed that expanded government procurement, especially out of [Department of Defense], was a powerful tool that we have not deployed, and we think subsidy form is part of the picture as a way to drive steady price improvements and scaling ideas up.

We talked about how we would pay for it, and we thought there were some things we could do, phasing out unproductive energy subsidies. We have plenty of those. There have been multiple reports in recent years, and we would think not just fossil fuel subsidies, which are the favorite of the left, I think correctly, but we think there are also excessive and sometimes static subsidies for renewables that actually may ultimately mute price competition. We think we should have declining subsidies that are aiming various technologies on different time frames towards competing on their own.

We think directing revenues from oil and gas leasing to energy innovation is a good idea. We think imposing a small fee on imported oil or electricity sales might be a way to generate. We begin with the assumption that we are not going to have cap and trade revenue, and we are probably not going to have significant carbon price revenue to play with, but we do think imposing a very low carbon tax might be a way. What if we think of carbon pricing as actually a revenue source for what we think is the crucial agenda of innovation?

I know this seems fairly grandiose in this atmosphere of doing energy system change by chunks. We think it’s a fairly huge block of building material, in fact, but I just want to give you a little sense of why we think this has gotten more attention than we expected, even pre-Egypt and Libya, and why we think it has the potential to attract bipartisan convergence. And we have seen a lot of inquiries from across the aisles.

Three reasons. We think it’s ambitious, but it’s also coherent. We think it’s highly American and growth oriented. It is not puritanical. It is not about regulations primarily, but it speaks to a positive sense of technical optimism in this country that I think it still alive as well as current anxieties about jobs. It consists of familiar, vetted stuff, by and large. We don’t think any of these initiatives are at this stage novel or untested in some ways.

And then with oil prices rising, it seems like this kind of architecture provides a framework for thinking across the party lines, as I would think. I think that’s something we should talk about now, as it seems that Congress is going to have to respond to $4, $4.50 gasoline much sooner than we thought. We would trot out $4.50 gas. Steve Hayward loved saying that, “Oh, this seems remote now, but you watch when we hit $4.25 gas. Everybody is going to pile on.”

The last thing, I would say this looks and feels a bit like the American Energy Act, the 2009 all-of-the-above energy plan issues by House Republicans last year or 2009. That at its center had this sort of circuit of expanded oil and gas drilling and nuclear development tied to investments in renewable and alternative energy.

So I think a question for us is how do you rate this kind of architecture, and how are you going to act in a potentially, quite instable year in petroleum market?

So I just want to give a little outline there and perhaps something we can talk about and hand it to my colleague.

MR. HOLLANDER: Thank you, Mark, and I think David will try to present maybe another side of the argument.

MR. KREUTZER: Okay. Maybe another side of the argument. I am glad to hear that people have given up on cap and trade. Even if it were enacted, it would have done very little, but I’m surprised that Mark thinks that it’s a new way of looking at a carbon tax to think of it as a revenue source because I believe that always what the intent was for both the carbon tax and the allowance revenue.

I would like to disagree perhaps only on definition with Nate about innovation and new energy technologies. A recent unpublished report – or at least as recently discussed – from McKinsey & Company estimates that the European Community could save over $1 trillion in meeting their carbon targets by 2050 if they were to use natural gas instead of windmills. Maybe that’s why it wasn’t published. I don’t know. And this would be using natural gas whose resources are increased in Europe because of a new technology or a new combination of existing technologies and tweaks of older technologies.

How did this technology come to be? Because of rising demand domestically in the U.S., it’s an American technology. Because of rising demand in the U.S., dwindling conventional supplies of natural gas, clever, risk-taking entrepreneurs were motivated to find a way to get more natural gas. It used to be about twice the price it is now.

What did they come up with? Directional drilling and hydraulic fracturing that allows them to get access to gas reserves that are both wide and shallow and in rocks that previously weren’t porous enough to deliver the gas that was there.

The inspiration for this work wasn’t additional government funding. This was markets at work, responding to incentives, seeing a need, and the need reflected in the price, and so I am certainly not against innovation. I’m not even against basic research funded by the government. What I am against, because I simply think it hasn’t worked and even with new tweaks and bells and whistles and using initials from successful programs and your own program, are unlikely to be successful if we say we are going to create commercialized energy products through government investment.

The hydraulic fracturing directional drilling, rough estimates are that it’s added $1.5 trillion to the value of the natural gas reserves just in the U.S. The developers of that technology are only going to capture a small fraction of that. Nevertheless, that small fraction is a big number and enough to get them to do it.

Has the government-sponsored research that has led to successful commercialized technologies – certainly, this is true. Global Positioning System satellites. All right. We all have GPS in probably something we have on us right now or something we drive. The GPS was not developed with the intent of getting you to the restaurant more directly. It was developed by the Department of Defense, so that they could have their ICBMs (intercontinental ballistic missiles) hit the Soviet silos within 10 feet. A hundred feet wasn’t good enough.

Now, that didn’t initially seem to generate a commercializeable technology. In fact, the Department of Defense worked against allowing other people to use it for the obvious good reason we didn’t want the Soviets guiding their missiles to our missile silos. So the Department of Defense would put at random times an error into the signals sent out by the GPS. Only the U.S. Department of Defense had the code for when that error would be sent and how to adjust. Somebody figured out, well, if I put a receiver here and I know the exact location of that receiver, the put in the error term that moves it over 50 feet, I know this didn’t move over 50 feet. I now know the correction. So clever entrepreneurs figured out a way to undo the attempt and to further develop, okay, GPS commercially.

Let me ask. What if the Department of Defense had never developed global positioning satellite systems. Does that mean we would never, ever have a gizmo on your car that would help you get to that restaurant?

I don’t know about you, but my cell phone claims to have GPS. But I’m quite certain it’s not actually GPS. What it does is it triangulates off of the cell towers and gets accurate locations. So it seems to me that it doesn’t take a huge amount of imagination to think that we could have had, at least in areas covered by cell phones, something similar to the technology that we have now to get us to the restaurants.

The Internet, there’s the granddaddy of them all. No DARPA, no Internet, we’re still clipping coupons out of the Sears catalog and mailing them in, licking the envelope. Okay, it’s great. I don’t want to say we should invent a time machine and go back and unfund that. All right? You know, that was a great thing. I’m glad we’re using it. I love the Internet. I love Google and so on.

But to ascribe all the benefits, 100 percent to that invention, to that development is illegitimate. Certainly, somebody would have come up with ways to hook computers together. We have telephone systems. We have other ways. Would it have been as amazing as it is now? I’m not going to claim that it absolutely would be, but we would have captured certainly some portion of that.

The real problem is what happens when the government intentionally tries to develop commercialized energy products. Now, I’m assuming Nate is in the deep research part, but if he’s telling us his stuff is going to be ready in five years – is it going to be that soon?

DR. LEWIS: I didn’t say that.

MR. KREUTZER: I know you didn’t say that, but I’m saying if you were, then I’m thinking we shouldn’t be doing that research, all right, because then Yossie should be funding it, so he can have the magic to turn sunlight and carbon dioxide into gasoline.

But what all too often happens when we run billions of dollars through the halls of this building and this city, to try to generate something that is commercial viable, we all too often get Solyndra. And I apologize if we have Solyndra investors here, but they are my poster child.

A $535 million loan from the Recovery Act goes to Solyndra to build a new plant. That’s a lot of money. I don’t know if we’re up to the dog food research investment yet, but it’s a lot for one company. What happened? Well, they tried to go public several months later. They were unable to do so because they could not get a good independent audit that said they were a viable company.

In good Washington fashion, what’s the solution? They came with their lobbyists to ask for the remaining part of a billion dollars, which I’m glad to say I don’t think they got. A year later, not only were they not expanding, they were shutting down a factory, not the new one that they built.

Evergreen Technologies in Massachusetts got $76 million from Massachusetts after some millions of dollars from various government-funded research labs to build the factory to create the jobs in Massachusetts. What happens? Within a year, they shut down, shift production to China.

So, if we are pretending, two things, one, that the government can pick out the winners in the near term, we’re foolish. If we think that if we invent the technology here, we are going to produce the products here, we’re equally foolish. Yeah, we may have – I think it’s a good thing to have the knowledge here, but we can have foreign high-tech people here, we can have American high-tech engineers in India. We still get the goods, and if China has set up a hub for researching how to turn sunlight into liquid fuels, I don’t feel like I’m losing. This is not a war. If they are developing technology that is so far down the road that it really can’t be patented or it can’t be internalized, then good. Let them do it as well. We can do it; they can do it. If they want to do more, let them do it.

Roughly, I guess if I were to sum things up, I would say political investment looks for different returns. Sometimes maybe that’s good. We are not going to have national defense if we leave it entirely to markets. On the other hand, it isn’t subject to the discipline of making sure you don’t keep putting money down a rat hole. In markets, if you fund losers over and over, you’re out of money, and you’re not misdirecting capital any longer. If you fund winners, you get more capital. If you fund good ideas, it reinforces, and that is the beauty of markets, so I would argue we need to be very, very careful about a Polly Anna-ish look that we can fund our way out of this problem, that problem, and another problem by shifting some billions of dollars through the Federal Government.

So I look forward to questions and Nate’s lambasting.

MR. HOLLANDER: I’m wearing a strange hat for me, because I’m supporting a lot of energy research in the world, and I have to ask questions against it, but I think the questions are all right based also on my experience.

I’ll use a sentence from David’s presentation, and that is, we have a danger of the government picking winners. Everybody says we don’t want to do that, but that’s what actually happens in real life, so maybe everybody can refer a little bit to that question about how to avoid the problem of the government picking winners, because I think David also agrees, some basic research can only be financed by the government. We know that. There’s been tons of research that says the private sector is not going to finance basic research. Solution research? That’s where the opinion diverged.

So maybe since you both have a report that says we need solution research based on some basic research, maybe you can talk a little bit about the problem of picking up the winners.

MR. MURO: I’ll say one thing first, and I see an idea welling up in Nate.

I think the innovation pathway is not linear. It’s not anticipation driven. It is not predictable. I think that you need to insert inputs into it, but you need to stand back and look for unanticipated breakthroughs as well as failures, as well as surprising bonanzas. And I think ARPA-E, I think, epitomizes this most because it’s making multiple small bets that will be failures. The director of it celebrates those. He has a political room here, and there’s already been surprising breakthroughs. There are 39 first grants. Relatively small technical problems were solved that allowed seven major VC fundings to fall in behind that.

So the sense of a portfolio is important. I don’t think that these are – these should be understood as bets. One of the problems with the hub situations, we only have a few of them, so maybe too much expectation is placed on single ones. The notion is to have a network of these things. Some will fail and should be shut down, and others will grow and will spin off solutions going forward.

DR. LEWIS: So let me actually amplify on this because I never think I said what I was quote as saying.

MR. KREUTZER: No, no. I said if you had.

DR. LEWIS: Well, I hadn’t, but –

[Laughter.]

DR. LEWIS: What’s the underlying technology that makes GPS work? Do you know what that is? Why does it work at all?

ATTENDEE: [Unintelligible]

DR. LEWIS: No, no. What’s the underlying fundamental step that allowed the military to fly a satellite based on a technology that we now use called “global positioning system”? How does it work?

MR. KREUTZER: I mean, you have to get the satellite up there.

DR. LEWIS: And what’s in the satellite?

MR. KREUTZER: Fuel.

DR. LEWIS: What makes the satellite know where you are?

MR. KREUTZER: Why don’t you just tell us?

[Laughter.]

DR. LEWIS: You need the ability to accurately tell time. You need to know the time to a part in a billion. The reason your cell phone, it does not have GPS and has towers is because it is not even close to the ability to tell where you are that you get from knowing how to tell time.

How do we tell time to a part in a billion? Because fundamental researchers were looking at the quantum effects of caesium, which has very sharp lines, and they can measure the transition between going up and down those stars to a part in a billion, and it was the ability of people studying lasers in the microwave region to develop caesium atoms to tell time that then they consulted for the military and said, “We can make a precise clock out of this.”

Shelley Glashow at Harvard won the Nobel Prize for this process. In our good system, he was a consultant for the Department of Defense. There were scientists that said you can take this technology, and if you build a constellation of these satellites when you have three or more, with three or more precise places knowing the exact time, you can tell how far away you are, and therefore, you know where you are to within 10 meters. Without people studying the technical aspects of caesium atoms, we would not have GPS, period.

Your cell pone doesn’t do that because it can’t tell time so accurately, so it only gets you a hundred-meter off the cell phone towers. New iPhones do have GPS in them, by the way, and the only reason they work at all is because the GPS antennas now, because of people studying fundamental materials problems figured out how to make antennas small with high gain, so we could have cell phones in the first place.

So there is clearly a role for people doing new things that then are developed into new products that enable new technologies that our kids can’t believe we didn’t have when we were kids. Right? So let’s not argue against innovation here because that’s just so incredible. We shouldn’t go there.

MR. KREUTZER: I don’t think I’m arguing against innovation, and I’m not arguing against fundamental research of people figuring out how fast caesium atoms bounce around.

What I’m arguing against is this notion that if we hadn’t had that, I wouldn’t have any technology to help guide me anywhere. All right? I wouldn’t be able to get a missile within 10 feet, but if you can get me within a hundred feet of the restaurant, I can get it from there, and the fact that we had the global satellites means that we didn’t put much effort into developing the other things. Why bother? That would be redundant and wasteful. If we hadn’t had them, who knows how quickly we would have gotten to something else?

But the question isn’t that we shouldn’t have the caesium atoms research. The question is what was the intent of that. That was just basic research. What we’re talking about here is research with an intent to come up with new energy. We have energy. Coming up with different energy? Why?

We already have cheap energy, and if you can come up with expensive energy, then that’s not very helpful.

DR. LEWIS: So, yeah, right, but let me just say I think we’re kind of – this is not very productive in the sense of philosophically arguing against doing faster, better, cheaper things. I’m going to admit every time: I want to do faster, better cheaper things.

The question is how you set up an innovation ecosystem to do it, and Mark has some ideas on that through the regional consortia. I’ve got some ideas on that. I think what is very clear is that you are only as good as the weak links in the whole technology R & D supply chain, and we have a whole bunch of weak links now that if you really do want – which you may not, but I do, I do want to see faster, better, cheaper energy products. I do want to see faster, better, cheaper energy services. I do want to get 2 billion people out of dire poverty that have one candle to burn at night. I do want cheaper energy for the United States to support economic growth. I want this stuff to happen, so-

MR. KREUTZER: Okay, I got to stop you. Of course, I want that. That is a strawman of the worst sort, to say that I’m opposed to innovation, that I don’t want [things to be] cheaper.

What I’m saying is I don’t think your plan is in and of itself sufficient. All right? I have another innovation ecosystem, and it’s called the market.

DR. LEWIS: Right.

MR. KREUTZER: How did we get the lithium batteries in the first place? All right?

I was working at the communication satellites labs in the 1970s when they had guys working on nickel metal hydride batteries. Why? Not because they were getting government funding. They had to keep the satellites going, and if the things lasted two years, it was probably as expensive to have them up there if they lasted four years.

DR. LEWIS: Right, okay. But the point is that you need to do this along the whole supply chain. You need basic research.

MR. KREUTZER: Right.

DR. LEWIS: You need applied research. You need demonstration. You need commercialization. You need markets. You need regional consortia. We need new models. I think we need to see, that we need a lot of things, and then you can argue over the mix. There’s lots of –

MR. KREUTZER: Well, that is what we’re arguing over.

MR. HOLLANDER: I’ll go with a question in here, but let me. We’ll start things. Then we’ll move on.

I’ll still push you on [picking] winners. I’m sorry. I don’t think I’m satisfied yet.

MR. MURO: We’ve achieved the goal of provoking questions [from the audience].

DR. LEWIS: We’ve got so many questions.

MR. HOLLANDER: Let’s put two numbers on the table. Okay? A few numbers. We spent in the United States, this last 2010, $30 billion on coal. That’s all we paid for coal. That produced 50 percent of our electricity. Okay? We paid $500 billion for oil, which produced 94 or 97 percent, as I count, of our transportation needs. Okay? Largely, that’s where most of the oil went.

Now, if you look at the government’s, let’s say, stimulus plan, historically, because that’s what we have to learn, to learn from this, they spent $60 billion for all kinds of energy research. $2 billion went to solve the oil problem, and $58 billion went to solve the $30 billion that it cost us annually, the coal.

So the government picked winners. They decided $58 billion will go to projects that can only solve the electricity problem of coal, if you think there is a problem. Let’s assume there’s a problem. Then they spent $2 billion on solving the larger economic problem of oil2. That’s all. So the government picked a winner by just deciding which question to ask and where the research is going, simply ignoring the economics of the market just by deciding. Who decided? Why? Who says that what you will decide right now, whoever it is who is going to decide, in the next – let’s say we all agree we want to spend more on innovation because we have a market failure, which we can discuss by way of a market failure, why it is not 10 percent.

There is a market failure. It should be 5 to 10 percent. There is a market failure because there is no competition in this sector. Different discussion. We want to start fixing that. There’s various ways to fix it. We can’t just say, “Okay. Let’s fix it by fixing the competition.” That is going to take time, too.

So we want to put money, but how are you going to prevent the government from investing in their own place? At least economically, I would invest 30, 50, 500, so I would invest 2 percent in electricity and 98 percent in fuel, but it came the other way around.

DR. LEWIS: Okay. So I think this is because we don’t have an actual strategy. If we had a strategy that said a goal is – I don’t care, the number, I don’t care what – the goal is to move our dependence on foreign oil in 20 years, the goal is to – President said cut electricity, to clean by 80 percent in 20 years, if we had a strategy, you could then map out the portfolio of things that you need to do to not pick the winners or losers but to turn up a few cards, so that then the market can decide which ones are commercial, which ones they will adopt.

Maybe the winning card is fracturing natural gas more. If that is what your goal is compatible with, completely fine. Maybe if you use all the natural gas, you can’t meet climate goals, and so that’s not completely fine, but actually, you probably do need to know the shape of the playing field to know whether or not you are getting close to the goal, and that seems reasonable. You don’t want to pick winners. I think that’s right, but you definitely need to know something about where you’re headed to know if you are ever going to get there.

MR. MURO: And this is the lowest cost. This is a very low-cost activity to have substantial science-informed road mapping, which is not a micromanagement of the economy. It’s simply a mapping of plausible avenue forward.

ATTENDEE: Can I ask a question?

MR. HOLLANDER: Yeah.

ATTENDEE: It’s been a good dialogue. What is your proposal to deal with the problem of, if you will, favored political producers of yesterday’s [energy] solution which didn’t work but continued to get subsidies? That to me is a good example of that. How do we deal with that? How is any strategy going to solve that problem?

DR. LEWIS: Well, actually, if you had a strategy, I don’t know what the – there could be different strategies. A strategy might be oil independence, and from an oil independence viewpoint, you might say that ethanol subsidies have merit in the sense that diversity in the fuel mix, whether or not it’s electricity or ethanol or biodiesel, is a strategy that helps you get to that goal.

Now, I’m not saying that this is the most cost-effective way to get there. I’m saying –

ATTENDEE: That’s not what I’m talking about. What I’m asking is how do we deal with the political problem?

DR. LEWIS: Oh, that’s above my pay grade. That’s what you guys do.

ATTENDEE: [Speaking off mic.]

MR. PRINDLE: I’d like to offer for the panel’s consideration –

ATTENDEE: If you wouldn’t mind [announcing yourself]. We are recording.

MR. PRINDLE: Yes. I’m Bill Prindle with ICF International. I’d like to offer for the panel’s consideration an innovation model that actually has worked over the last 30 years, and in microcosm, it’s epitomized by what happened in the U.S. windows, residential windows market.

About 30 years ago, Berkeley Lab did a few million dollars of basic research on spectrally selective glazings, so low-E windows came into the market during the 1980s.

During the 1990s, the Federal Government established the ENERGY STAR program to rate and label windows, not to favor any particular manufacturer or their specific sputtered versus pyrolytic technology, but simply to tell consumers this is how good this window is. And so the predominant window you have today in the U.S. residential windows market is between 50 and 75 percent more energy efficient than a window would have been 30 years ago, and windows account for about 5 percent of total U.S. energy use. If we’re getting, say, 60 percent savings on that, that’s worth about $45 billion a year in annual benefits to the economy, delivered through the market, not through government programs, based on a total Federal expenditure that was countable in the tens of millions of dollars.

And so that story is working in windows. It’s working in appliances. It’s working in lighting. Today, the ENERGY STAR programs deliver more than $75 in economic benefits through markets, through thousands of ENERGY STAR partner companies, at a Federal expenditure that’s in the $50-million-a-year range, and so that’s an innovation model that does not pick winners in the middle of the pipeline but simply says, “Here’s some technologies that look promising. Here’s how you rate them and label them. Have at it,” and there is more private sector support for those programs than anything I’ve ever seen in my 31 years in Washington.

ATTENDEE: Well, it helps address one of the other problems which we have which is the difficulty of establishing demand pull in our domestic marketplaces, which we are going to have to think about. This is spot on for the near term.

I think we’re all thinking out about 10 to 15 years from now. Hopefully, we capture these [energy efficiency] savings, but we’ll come up short. So I think innovation needs to think about from now till 20 years out.

MR. PRINDLE: I also point out that when I was in graduate school in the ’70s, all of the lab forecasts in the year 2000 showed us using about 200 or more quads of energy total. We’re currently using about 100.

ATTENDEE: Right.

MR. PRINDLE: About 70 percent of that savings is the energy efficiency for the rest of the structural changes in the economy. So energy efficiency has actually contributed more to the U.S. economy in the last 30 years than any energy supply.

ATTENDEE: And likely will for a while.

MR. PRINDLE: It doesn’t show up in the policy.

MR. KREUTZER: I think, you know, certainly, I don’t think anybody at Heritage is against people being able to say how much their windows save, and if we had a million-dollar program – we already have ENERGY STAR. I haven’t talked to anybody where I work that wants to get rid of that. But that’s people responding to these incentives, and if they do, then we don’t need things where you force demand pull, where you tell people what miles per gallon their cars have to get. If you put the miles per gallon on there, they will respond to that.

Virtually, every ad I see for cars in magazines says “and it gets blank-blank-blank miles per gallon.” The problem is they don’t want the cars to get miles per gallon that some people want them to get, and that’s where, you know, I think we should let people make their own choices.

ATTENDEE: There’s lots of questions. I think she had the mic.

ATTENDEE: So I just wanted to comment on the Evergreen story that you brought up, and one thing I’m not sure exactly, where you’re getting your numbers in terms of how much the State put into it, but I do know that there –

MR. KREUTZER: From the newspaper.

ATTENDEE: So I’ve seen numbers closer to 30 for the plant that they’re closing, $30 million, and that they’re getting 1$3 million back from Evergreen to repay them.

And also, in some ways, it’s a case in point of where actually they picked a winner. We just couldn’t keep the winner because now Evergreen is moving to China to manufacture its cutting-edge technology.

MR. KREUTZER: Okay. If she’s right, I stand corrected. We only wasted $13 million.

ATTENDEE: Right. But wasted –

[Laughter.]

ATTENDEE: So they’re moving to China where they’re going to start producing because China is providing companies and manufacturers with super cheap financing. It has nothing to do with cheap labor. It has everything to do with cheap finance that the government is providing through their banks.

MR. KREUTZER: Well, we should appreciate China –

ATTENDEE: So we lost a winner.

MR. KREUTZER: – providing this benefit to us.

ATTENDEE: We lost a winner that we picked, and we lost to China.

DR. LEWIS: And I think you need to get into the mood that I apologize, I want to waste your money, I want to waste your money.

MR. KREUTZER: I don’t doubt that.

[Laughter.]

DR. LEWIS: And the reason I want to waste your money is the same reason you probably invest in stocks and don’t put your money just in the bank. If you’re not taking risk, you’re not going to get a return. You have to look at this as a portfolio. We are not smart enough to pick winners. We are smart enough to know that if you’re an electric utility industry and your risk profile to build something new and deliver 99.99 percent reliability is to compete on financing with home mortgages, which is their risk profile, we are not going to get innovation in the electric utility industries. You have to set up the ability, if you want to change the system. I don’t care if it’s through markets or through regulations. You have to have people understand that you’re going to foster risk-taking at different levels in the system. Utilities just have to be motivated to actually try an experiment, whether it’s smart meters or whether it’s something else, or they won’t do it.

Companies have to have markets and price signals to let them develop new products, or they won’t go there. You can’t do carbon capture in storage without some price signal, because I guarantee you, it always will cost more to take CO2 which is free and pull it out of the air than to leave it go into the air. I’m not saying necessarily that we want to do that or not, but I guarantee you if you want to do that, you have to set up a structure that lets people make money while doing it.

MR. HOLLANDER: But that’s where the government decides to pick winners because they asked the question, what is more important to us is CO2 versus getting rid of oil. Okay, that’s a government decision, but we right now don’t have any government that is willing to make decision or that different governments make different decisions on that factor, and research cannot be handled by every four-year election cycle.

DR. LEWIS: Right. Because we don’t have a strategy. Right? So, if you had a strategy, you would have a basis for at least understanding how to prioritize and get a portfolio, just like we do in investments.

MR. HOLLANDER: I’ll let questions come in, but I want to throw it because I have to reply to what you just said, and that is the question of competition, because you mentioned in the beginning that if we had the same ratio of fair research, like the dog food industry, okay, then we would have more. Why don’t we have it right now in industry? The money can’t give all the money. The money has to come from the market. Okay? Why don’t we have really research in this industry? Because it’s not a competitive industry in the oil market, in the transportation market, and in the utilities.

So, if we figure out a way really to open it to competition, 10 percent is 150 billion, way more than what you’re asking, so maybe we should be concentrating not only trying to win situation, but really get the larger pie; that is, open it for competition.

Speaking of ethanol, which I don’t agree with the numbers that you quoted, the mere fact today is that we have a surplus of ethanol production in the U.S., and the U.S. is exporting ethanol to Brazil. Okay? Nonsubsidized at a profit. Okay? So somehow the market works, and that’s numbers. Okay? It was last year the U.S. exported two and a half days of our oil consumption, full oil consumption of the United States to Brazil in ethanol, and they made a profit no subsidies.

So the question is the subsidies, who gets them, why do they exist, or do they move the prices also up, et cetera? That’s what we have to look at, but my question is there are competitive solutions in the market, and we probably have more, indeed, going out to those solutions if we let those people sell this ethanol in the U.S. freely or sell natural gas freely in the United States or electricity. I mean electric cars more freely in the United States. Or, if we had other solutions that were open, maybe the utilities, if they had more motivation to do it, they would create a structure to finance it. Why do we have to look to the government for that and not just look for the government to open the market? Because they’ll provide much more money.

MS. HUNT: Sure. Hi. Suzanne Hunt.

I think the one thing that you have all agreed on is that we shouldn’t pick winners. The government shouldn’t pick winners, and so, Mark, you went through an array of different policy solutions; Nate, a number of technology solutions. Yes, you’ve raised a bunch of questions. David, as far as I can tell, the only solution you put on the table was natural gas and –

MR. KREUTZER: No. Okay, go ahead with your question.

MS. HUNT: And according to my GPS-enabled SmartPhone, the Heritage Foundation doesn’t look like it takes any money from clean energy companies, but it looks like Exxon and Chevron are donors.

And so I guess I’m just wondering – and especially since gas, unless we have a massive investment, including government investment in infrastructure and other investments, we won’t – that won’t be helping us with the $500 billion in a significant way with the oil problem. We are talking about electricity right now.

So I guess I’m just wondering with this mature industry, is natural gas – your solution is natural gas, so we’re going to industrialize the landscape, tens of thousands of wells, billions of gallons of wastewater, et cetera, and that’s the solution you have put on the table.

MR. KREUTZER: No, the solution –

REPRESENTATIVE HOLT: Hold that thought for just a moment.

MR. KREUTZER: The solution – no.

[Laughter.]

REPRESENTATIVE HOLT: Let me ask you to hold it. I’m Rush Holt. I am the co-chair of this caucus.

ATTENDEE: [Handing him a microphone] There you go, Rush.

MR. KREUTZER: Oh, okay.

[Applause.]

REPRESENTATIVE HOLT: I want to thank OurEnergyPolicy.org and those of you – and we’ll get to your question in just a moment, but –

MS. HUNT: [Speaking off mic.]

REPRESENTATIVE HOLT: Yes. And they have just called, of course.

But the point of this caucus, which some of you know, is to look at the question of research and development, writ large. Here in the Congress, there are various people who look at research in some specific areas. There’s nobody until this caucus was created by Judy Biggert and I to look at the climate for research, the investment in research, public sector and private sector. Nobody was paying attention to the general question of energy research. We’re spending less than a percent of our energy national product, and you’ve discussed this. Should it be 10 percent? That’s probably a little high, but it certainly should be more than 1 percent, considering that for a variety of reasons, we cannot continue to do what we’re doing for reasons of security or supply and distribution or climate change or whatever. For any one of those reasons, we can’t continue to do what we’re doing.

So this is just the sort of thing that we hope, just the sort of debate we hope to stimulate, and just the sort of policy-relevant discussion that we want to see.

It is not – I would urge you not to bemoan the political difficulties, and I would ask you not to disparage the fact that some political interests gain the upper hand in sometime or another. The political process is to balance these competing interests.

We have a system that after all is said and done, over the years, tends to do that, but we’ve got to have the facts out there. It has to be structured in a way that the balance, balancing mechanism can work.

I think this R & D caucus helps. I hope you will carry this, those of you who are on congressional staff here, will carry this back to your Members and you will encourage them to come to future sessions. We have actually some of the best attended but also some of the best, most interesting of the caucus programs.

So I thank the sponsor. I appreciate the discussion, and I should say this is not all about direct government sponsorship of research. There is a role, a very important role in that, whether it’s developing the caesium in atomic clocks or the nuclear magnetic resonance that gave you MRIs. I mean, it’s a long list of things that were directly sponsored by the government with your tax dollars, and they paid off big, and in some cases, choosing applications, but we won’t go into that now. I just want to make the point that we are also talking about improving the environment for research in the private sector. We’re also talking about the role of regulation.

You talked about fracking. Well, in fact, I would invite you to look at the role of FERC, the creation of the Gas Research Institute. That didn’t happen just out of altruism of the gas industry.

So it’s a broad picture. We are trying to draw that out and fill in the paint. We are trying to paint that picture.

So, with that, again, thanks for the presentation. I will look forward to – if you transcribe it, I would love to have a transcript because I’m sorry I missed part of it, and I look forward to talking with all of you later. And now back to your questions.

MR. KREUTZER: Okay, thank you.

[Applause.]

MR. KREUTZER: Your question exposes the whole problem, and that is, you say I don’t have a solution because I said natural gas and other than natural gas.

MS. HUNT: No. I said –

MR. KREUTZER: No, let me answer. I let you ask; let me answer.

My solution isn’t that we have – pick a particular solution. The fact that I don’t have a basket of promising technologies to explain to you isn’t why I came here. There are zillions of people – well, zillions, I don’t know how big that is. Okay. Lots of people out there who are trying to make money coming up with ways to save energy, ways to come up with alternative sources, and that’s what I was saying.

Here was a market-directed way that found $1.5 trillion worth of natural gas that otherwise we wouldn’t have had, and so it’s the markets that I’m putting my trust in. That was the answer. It’s not a particular technology.

MR. HOLLANDER: Since we are limited in time, everybody in the panel, you have one and a half minutes – 45 seconds, sorry, for a final word.

DR. LEWIS: There are clearly cases when markets are the be-all solution and all. I completely agree, and I completely would hope you would agree that it’s not always the case that it’s only about markets because, if it was only about markets, then there is no now a market for fuel cell-powered vehicles because the fundamental issue is this platinum in the fuel cells. That’s the only catalyst we have. Unless somebody invests something that’s a hundred times cheaper, when the amount of platinum in a school bus costs a half-a-million dollars, we’re going to have a vigorous hydrogen economy consisting of stolen school buses. Right? You’ve got to have people discovering, innovating, when there is no market, at the early stage, going things, or we’d still be stuck with floppy drives now instead of having thumb drives. We’d still be stuck without cell phones because nobody did the fundamental stuff to allow you to build the one that got to the towers to do the coding in the first place.

So there are some situations, like how do you store massive quantities of energy, which nobody knows how to do. There is no market for it. We have to do a lot of things, and then let them percolate up and take risk, and then let the market that evolves pick the winners and the losers, but you have to at least plant seeds to get a hundred flowers, so that then the markets can then develop them into the crops that then figure out which ones are the higher yielding winners. That’s what the private sector is supposed to do.

You need to fix this problem at all stages of where there are weak links, and the weak links are different for different parts of the energy system. And we just need to understand with a strategy which ones have weak links in markets, which ones have weak links in research, and actually try to map some way to most effectively utilize our marginal dollars to bridge the different weak links in the different sectors.

MR. MURO: And I would say one of your next sessions should be about getting the market right. I mean, we have a market that has been degraded over 30 years by changes in Wall Street demands, all sorts of things. It’s not the same market that we had in the earlier heyday of corporate-driven innovation, so I think we need to think about what is it that will create a structure in the market to pull these solutions. So I think that’s another topic for a session like this, a bit to the right of this one.

MR. KREUTZER: Yeah. Yes, it will take a long time to answer that.

But I would disagree, Nate. There’s a huge market if somebody could come up with a battery that would have the energy density that’s even a tenth of gasoline. We don’t have that battery. That’s the problem. How we get there, I think as we would agree, is the question, and so, yes, we need some fundamental research, but the notion, that this thought that there’s just no market for it, that we need to create the market – we know it’s out there. If you could come up with the Volt and the battery would work, you know, I’m buying it.

DR. LEWIS: That’s why the weak link is at the innovation stage early, not in the market in that case.

MR. KREUTZER: Right. And –

DR. LEWIS: And there are other cases when the weak link is a market failure and other later. Everyone has its different weak links. You want to look at them and optimize where you marginally spend and get the best investment on your dollar, so that you have a strategy that actually uses most effectively the policy –

MR. KREUTZER: Who does that planning? is the big question.

DR. LEWIS: That’s a different story. We need a plan.

MR. KREUTZER: I’m not sure.

MR. SQUADRON: I would just say I think a bunch of you had questions and comments, didn’t have a chance. These last comments were very interesting because, even as we forecast today’s discussion, there was already a discussion at OurEnergyPolicy.org, and a bunch of the comments, including one that’s memorable in my head right now, was about the economics of innovation, which is clearly one of the critical pieces of it.

I would really urge all of you to weigh in on the subjects that were started here. This was really the springboard for what we’re trying to do, which is to create a robust online discussion, which can then be summarized, distributed to staff, to DOE, in State offices, to the media, to really give people the ability to sharpen these points of differentiation, find some consensus, find common ground, figure out a way through the trees to get to some policy, to some strategy that can then move us forward.

So, anyway, thank all of you again for your time today. We will be following up, and please go to the site and weigh in with your own thoughts because that’s what this is all about. Thank you again.

[Applause.]

0 0 votes
Article Rating