How a Limited and Direct Approach to Energy Innovation Can Deliver Clean, Cheap Energy, Economic Productivity and National Prosperity

By
Steven F. Hayward, American Enterprise Institute
Mark Muro, Brookings Institution
Ted Nordhaus and Michael Shellenberger, Breakthrough Institute

Fossil fuels have undeniably been critical to American prosperity and development, but we can gradually move toward cleaner, healthier, and safer energy sources. Our goal today should be to make new clean energy sources much cheaper so they can steadily displace fossil fuels. If we structure this transition correctly, new energy industries could be an important driver of long-term economic growth. Arriving at a new post-partisan consensus on these issues will require liberals and conservatives alike to take a renewed look at key facts which challenge some long-standing assumptions about energy.

Time and again, when confronted with compelling national innovation priorities, the United States has summoned the resources necessary to secure American technological leadership by investing in breakthrough science and world-class education. Drawing on America’s bipartisan history of successful federal investment to catalyze technology innovation by the U.S. military, universities, private corporations, and entrepreneurs, the heart of this proposal is a $25 billion/year investment channeled through a reformed energy innovation system.

Recommendation #1: Invest in Energy Science and Education

Double the Department of Energy’s Office of Science budgets. Direct significant portion of new funds to programs related to energy sciences, including roughly $300 million/year to Energy Frontier Research Centers.

Invest roughly $500 million/year in K-12 curriculum and teacher training, energy education scholarships, post-doctoral fellowships, and graduate research grants.

Recommendation #2: Overhaul the Energy Innovation System

Invest up to $5 billion/year to establish a national network of regional innovation institutes to bring together private sector, university, and government researchers, and private sector customers and investors. Fund each institute at $50-300 million/year.

Fund Advanced Research Projects Agency for Energy (ARPA-E) at $1.5 billion/year, with a significant portion of the funding dedicated to dual-use energy technology innovations that enhance energy security and strengthen the U.S. military. Coordinate dual-use innovation investment with Department of Defense.

Recommendation #3: Reform Energy Subsidies and Use Military Procurement and Competitive Deployment to Drive Innovation and Price Declines

Reform the nation’s energy subsidies, employing a new strategy of competitive deployment incentives structured to encourage cost reductions and price and performance improvements. Create incentives for various classes of energy technologies so that each might mature, and decrease incentive levels as they become mature.

Provide up to $5 billion/year to expand Department of Defense efforts to procure, demonstrate, and test emergent energy technologies.

Recognize value of nuclear power – particularly innovative small reactor designs – while pursuing and supporting innovation in all clean energy technologies.

Recommendation #4: Internalize the Cost of Energy Modernization and Ensure Investments Do Not Add to the National Debt

Secure revenue to ensure innovation investments do not add to the national debt through one or more of the following means: phase out unproductive subsidies; direct revenues from oil and gas leasing to energy innovation; implement a small fee on imported oil to drive energy innovation and enhance energy security; establish a small surcharge on electricity sales to fund energy modernization; establish a very small carbon price to finance investments in clean energy technology.