Identifying and overcoming barriers to clean energy innovation are critical components to successfully reducing greenhouse gas emissions. History suggests, however, that more research and development spending alone does not necessarily result in successful outcomes. It is equally important to ensure that these resources are spent wisely – directed to the most promising opportunities and nurtured by a supportive policy environment – if they are to achieve the desired innovation outcomes. Yet, with billions in private and public funds at stake, it is remarkable how little we know about how to do so.
On October 10, EPIC, in partnership with the ClearPath Foundation, the American Council for Capital Formation and the Oxford Martin Programme on Integrating Renewable Energy, hosted a discussion on the lessons gleaned from research and practical experiences. Across four panels in this full-day event, leaders in government, academia, and industry provided their insights into how to translate research findings into actionable policy and industry approaches that can drive clean energy innovation.
The first panel, moderated by Axios energy reporter Amy Harder, focused on the evidence of what works in R&D and technology development. Steve Koonin, a professor at New York University and former undersecretary of science at the Department of Energy, pointed out that the long-term nature of energy innovation makes it unsuitable for venture capital investing. Big business has more to gain, but R&D is risky and companies are driven solely by profits. That means government needs to step in.
“We need some government action for supply innovation, and we’re not very good at that,” Koonin said.
Dan Nocera, the Patterson Rockwood Professor of Energy at Harvard University, pointed out that the IT sector is an attractive investment because it demands little capital, and the health industry attracts funding because it sells hope. “With energy,” however, “you don’t have low capital and you don’t have hope…we need new investment models for these high capital, no hope technologies.”
Universities can play a role, though the model isn’t perfect, Nocera noted.
When asked what role government can play in R&D, Melanie Kenderdine, a principal at Energy Futures Initiative and former director of the Office of Energy Policy and Systems Analysis at the Department of Energy, gave the example of the shale gas revolution. Many believe industry drove that revolution. But the government laid the foundation by investing in drilling technology and gas research.
“Policy, investments, and industry working together made it work,” Kenderdine said.
EPIC Director Michael Greenstone, the Milton Friedman Professor in Economics, noted that a key move the government could make to unlock innovation is a price on carbon.
“Industry needs a profit motive and that’s a price on carbon,” he said, emphasizing that the spillover of new R&D over our borders benefits everyone by reducing climate change. That makes energy R&D unique from many other industries.
Greenstone’s comments provided a segue into the day’s second panel, which focused on ways countries can collaborate to improve technological innovation. The panel was moderated by Pete Ogden, vice president of energy, climate & environment at the UN Foundation.
Mike Boots, senior director of advocacy and government relations at Gates Ventures and former head of the White House Council on Environmental Quality, highlighted Mission Innovation as an example of successful international cooperation. Mission Innovation launched alongside the 2015 UN climate talks in Paris to challenge governments to invest more in energy R&D. The goal was to double public spending on R&D by 2021, and more broadly to increase collaboration across countries. Boots noted that countries have made progress on both fronts, with individual countries taking the lead on specific areas like smart grids, carbon capture and advanced materials.
While Boots seemed encouraged by the progress internationally, the United States’ withdrawal from the Paris climate agreement has been a stumbling block, as has the increasingly tense relationship between the United States and China. Johanna Lewis, an associate professor at Georgetown and leader of the Georgetown US-China Climate Research Dialogue, noted that the United States and China’s cooperation on climate change has in recent years been a high point in the US-China relationship. That is now changing.
Bob Rosner, the William E. Wrather Distinguished Service Professor at the University of Chicago and former director of Argonne National Lab, said that the Trump administration’s lack of interest in confronting climate change was not the only challenge. The U.S. appropriations process also hinders progress. Because the process is annual, universities and research labs that are sustained by Department of Energy grants must worry every year whether their funding will be renewed. In contrast, large budgets for the Department of Defense are not on this annual timeline, making it easier for them to plan and invest. Other countries also do not have this annual process, Rosner said.
Just as international collaboration allows for shared learning, best practices can be formed by looking to what works for other industries. The third panel brought in lessons learned from the health, hydraulic fracturing and financial industries.
Bill Brown, the CEO of 8 Rivers Capital and NET Power, explained how he applied what he had learned from working in the financial industry as he was building his energy company, NET Power. One step he took was to go straight to CEOs for financing because they are willing to take big risks. From there, he worked with big energy companies to gain the industry knowledge the company needed.
While Brown believes only showing off innovation wins, not loses, can improve success, Thom Covert, an assistant professor at the Booth School of Business, disagreed with this idea. His research has shown how the energy industry has learned from its experiences with hydraulic fracturing.
“Failures help us learn,” Covert said. “Not sharing failures mean failures happen more often.”
Danielle Li, an assistant professor at the MIT Sloan School of Management where she focuses on healthcare, noted that there needs to be a better way to communicate failure because the vast majority of R&D is failure.
“The whole point of a large base of basic science is that you don’t know where to look,” Li said. “There needs to be a willingness to experiment.”
Yet, in the clean energy sector – largely unlike the health sector – there is a significant public scrutiny when a new company fails.
Brown said this is because of a fundamental difference between the two industries. In healthcare, “you want to know when a drug doesn’t work.” It’s a matter of your personal safety. In clean energy, that personal connection is lost.
Ultimately, R&D must materialize into a product on the market if it is to have an effect. The final panel of the day explored this process.
Johanna Wolfson , a principal at PRIME Coalition, said the Department of Energy should reflect how the energy system works. Instead, it is broken into silos. A major component of the energy system of the future is energy storage, and yet, there is no effort dedicated to it in Department, she said, which lays bare the lack of a coherent national energy innovation policy.
“Storage, the all-important topic, doesn’t have a center of excellence within the Department of Energy,” Wolfson said. “It’s spread across many different places. I wouldn’t know how to quantify how that’s holding us back, but I feel very sure that it is.”
That doesn’t mean just throwing money at the issue, though, Wolfson added.
“Anyone who says we need more budget for R&D is doing it a disservice if they do not couple with ‘and we need to be smarter about how we spend our R&D dollars,’ because if all that gets asked for is more funds, more funds…it’s like crying wolf,” she said, citing ARPA-E as a model R&D division of DOE that
Another key ingredient, said Wolfson, is “human spirit.”
“It’s hard to forcefully extract something if you don’t have that human spirit behind it. That’s the pattern we’ve seen that works,” said Wolfson, whose company specializes in providing funding to start-up ventures that are high in capital and have a long lifeline to the market.
Ellen Williams, a professor at the University of Maryland and former director of ARPA-E, echoed that sentiment.
“At a certain point, if someone isn’t willing to jump out of a university environment or lab environment it probably means their technology isn’t ready yet. In the vast majority of projects that ARPA-E funds this type of jump was made,” Williams said.
When asked how U.S. energy innovation policy could be improved, Williams explained that an important aspect of innovation is “a certain degree of serendipity. If you try to plan it out too much you can kill it.” But you also have to have some broader strategy of where you want to go, she said.
Toward that end, where and how new technologies are deployed matter, said Varun Rai, associate professor at the LBJ School of Public Affairs at University of Texas, Austin.
“Once we think about deploying technologies at scale, it hits the ground, right? Where do we deploy these technologies— In communities, in states, in regions … that’s where you start interacting with variations with local conditions,” Rai said. “Variations in weather, customer preferences, local regulation and policies, and local technology opportunities. One of the key things is as you think about scaling up, it’s very important to find accepting markets, markets that are willing to take these technologies on, work through the innovation cycle, be able to invest and see that as a strategic part of their own community and regional development.”
The day wrapped up with a talk from Jim Connaughton, president and CEO of Nautilus Data Technologies and a former chair of the White House Council on Environmental Quality. Connaughton said “so much of innovation is inspiration and competition.” But in the energy sector “our financial instruments are based upon a time frame that does not match the energy infrastructure.”
For context, Connaughton cited the growing—and carbonizing— economies of India, China, Indonesia and South Africa as major obstacles to solving climate change. Unless financial instruments can be modified to scale technology as those countries seek wealth through energy access, emissions will rise rapidly.
“If we are not putting tons of early-stage work into every form of figuring out how to transform carbon, we are making a huge mistake because we have 70 years of invested capital-stock coming our way that will be impossible to reverse.”