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Accelerating Innovation


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Overview

Whatever one’s view of climate change, it makes economic sense for the United States to become a leader in clean energy. With a market expected to reach $2.2 trillion annually by 2020,1 clean energy technologies are rapidly becoming the preference of energy customers worldwide. The technologies that are on the market today are a good first step towards reducing greenhouse gas emissions and conventional pollutants. But on their own, they won’t be able to solve the global environmental problem while meeting the world’s growing energy needs.2 To do this, we need breakthrough technologies. True innovation in clean energy isn’t easy, requiring massive upfront investment and consistent political support.3 Maintaining our historic competitive advantage in innovation, however, will lead to new American industries and jobs, a stronger economy, and a more sustainable world.4

Analysis

From cars to computers to the Internet, America has produced many of the world-changing innovations of the past century,5 creating billion-dollar industries6 from nothing and helping double the standard of living in the U.S. every 35 years.7 But we’ve been slipping. The U.S. is now ranked 10th on the Global Innovation Index behind countries like Singapore and the U.K.8 When it comes to clean energy innovation, we’re even further behind, ranking 12th on cleantech9 -specific innovation factors.10

Innovation, and particularly the big, fundamental innovation needed in clean energy, requires resources in three categories: investment, knowledge, and economic infrastructure.11 Each is complicated and difficult to address alone, but even more challenging simultaneously. Without smart policies in all three categories, the U.S. has no hope of catching up with other world leaders in clean energy, much less creating the breakthroughs we need.

First, investment, both from the public sector and the private sector, is the lifeblood of innovation. From funding basic research12 to serving as an anchor customer, the federal government has a long history of providing the capital needed to jumpstart industries.13 Unlike recent innovation booms spurred by the Internet, clean energy usually requires large amounts of capital and long timeframes that make traditional private investment insufficient.14 As a result, many promising cleantech companies find themselves in a “valley of death”15 between technology development (financed by venture capital) and commercialization (financed by income or public markets), with no access to the capital needed to keep innovating.16 In these cases, there is a role for strategic government investment to help get these potentially revolutionary technologies to scale.

Second, even with enough capital to fully develop and commercialize new technologies, the U.S. needs the right people with the right knowledge to create these innovations. Americans lack the strong science, technology, engineering, and mathematics (STEM) backgrounds to advance clean energy and opportunities to pursue these interests in top-notch research labs.17 Unfortunately, as the demand for clean energy has risen, the United States has fallen behind in producing engineers and encouraging foreign-born researchers to stay, leading to a lag in research in several relevant fields.18

Finally, creating the right economic infrastructure for innovation to thrive is complicated, covering a range of factors from law and market maturity to governance. While the U.S. generally ranks highly against other countries in many of these areas, such as providing strong protection for intellectual property, there are deficits in others.19 Of particular damage to clean energy innovation are the current unstable policy environment, domestic manufacturing decline,20 and marketplace uncertainty.21

Implementation

To jumpstart American development of the clean energy technologies, the U.S. should implement some pragmatic policies in the near-term.

Reform High-skilled Immigration

To help businesses and labs increase their ability to innovate in the short-term, the U.S. needs to rapidly increase the size of the high-skilled labor pool. The bipartisan Border Security, Economic Opportunity, and Immigration Modernization Act of 201322 contains provisions that help alleviate the current shortage of STEM professionals through immigration reform.23 This would help the U.S. attract and retain the workers who will drive clean energy innovation, not to mention keep the talent here rather than working for competing firms abroad.

Restructure the R&D Tax Credit

Inconsistent policy leads to uncertainty and boom-bust cycles of investment in clean energy technology.24 A long-term, stable R&D tax credit, focused on incentivizing additional investment, would help encourage private sector investment in research activities. Creating a tiered structure based on historic investment would allow for additional tax credits for additional investment, minimizing cost while encouraging increasing investment.25

Adjust Federal Procurement Guidelines

Federal agencies should be required to adjust purchasing guidelines to prioritize clean energy acquisitions. Leveraging the federal government’s purchasing power would provide a strong market pull and help technologies reach scale economies of scale faster.26 Whether in the Department of Defense’s (DoD) energy initiatives27 or Housing and Urban Development’s multi-family housing program,28 these procurement adjustments have the potential to save the government money while developing the clean energy sector. This should be the first step towards overhauling acquisition policy to create a demanding customer for clean energy.29

Expand Manufacturing Initiatives

Congress should expand the advanced manufacturing programs to ensure U.S. capabilities in the future. Without the ability to manufacture, basic research will result in less invention here, and those breakthroughs that do happen will have to be commercialized elsewhere.30 Supporting and expanding the Clean Energy Manufacturing Initiative31 as well as DoD and DOE manufacturing institutes32 will ensure that we continue the tradition of American invention and that new technologies are made in America.

Game Changers

Unfortunately, shorter-term solutions—while viable in today’s political environment—won’t be broad or bold enough to move U.S. innovation to where it needs to be.33 To truly become the global leader in the coming clean energy economy, several larger initiatives are necessary, too.

Increase Government Investment in R&D

The government should take the lead in aggressively funding all stages of research and development if the U.S. is to regain its leadership position in the clean energy economy. While private companies will invest more with a targeted, consistent R&D tax credit, it won’t be sufficient to overcome the cleantech “valley of death”. The Energy Security Trust Fund34 is a good start, but more stable, substantial investment is needed to bridge the capital gap. Over time the returns to the economy will outweigh the costs.35

Overhaul K-12 STEM Education

The need for the U.S. to reform education at all levels in STEM is high.36 From strengthening the skills of current teachers to creating a world-class mathematics and science curriculum,37 Congress needs to make STEM education leadership a priority. In order to do so, Congress should allocate additional funds to the Department of Education’s Race to the Top program38 specifically targeting science and math initiatives. Further, funding should be appropriated for spreading best practices in STEM education to additional states, ensuring that all children have the opportunity to create the innovation of tomorrow.

Fund Retention Programs for Post-Secondary STEM Education

Only 40% of students who start college in a STEM field will finish with a STEM-related degree.39 While more rigorous preparation through K-12 education reform will solve part of the problem, additional reform is needed in post-secondary STEM education. Congress should create a grant program through the National Science Foundation similar to the Department of Education’s Race to the Top program, providing funding for colleges and universities to improve retention in STEM programs.40 Over time, this program will reduce our dependence on high-skilled foreign workers and increase our competitiveness across all fields, not just clean energy.

EndNotes
  1. “Sizing the Climate Economy,” Report, HSBC Global Research, September 2010, p.1. Accessed April 22, 2013. Available at: http://www.ens.dk/da-DK/Politik/groenvaekst/Documents/sizing_the_climate_economy.pdf.
  2. “Corporate Renewable Energy Index (CREX) 2012,” Report, Bloomberg New Energy Finance and Vestas, September 14, 2012, p. 34. Accessed April 26, 2013. Available at: http://www.research.hsbc.com/midas/Res/RDV?ao=20&key=wU4BbdyRmz&n=276049.PDF.
  3. Richard K. Lester and David M. Hart, “Unlocking Energy Innovation,” MIT Press, Cambridge, MA, 2011, Print.
  4. United States, National Science Foundation, “Innovation for a Competitive Advantage,” Fact Sheet, February 14, 2011. Accessed April 26, 2013. Available at: http://www.nsf.gov/news/news_summ.jsp?cntn_id=118678.
  5. National Academy of Engineering, “Greatest Engineering Achievements of the 20th Century,” Webpage. Accessed April 26, 2013. Available at: http://www.greatachievements.org.
  6. Dan Rosso, “Semiconductor Industry Posts Near-Record Sales Total in 2012,” Semiconductor Industry of America, February 4, 2013. Accessed April 26, 2013. Available at: http://www.semiconductors.org/news/2013/02/04/global_sales_report_2012/semiconductor_industry_posts_near_record_sales_total_in_2012/.
  7. Robert J. Gordon, “Why Innovation Won’t Save Us,” The Wall Street Journal, December 21, 2012. Accessed April 26, 2013. Available at: http://online.wsj.com/article/SB10001424127887324461604578191781756437940.html.
  8. Soumitra Dutta, “The Global Innovation Index 2012,” Report, INSEAD, July 3, 2012, p. 8. Accessed April 26, 2013. Available at: http://www.globalinnovationindex.org/gii/main/fullreport/index.html.
  9. “Cleantech” is commonly thought to be all technologies related to reducing energy-related pollution and emissions, either through efficiency or providing a cleaner energy supply.
  10. Stefan Henningsson, Richard Youngman, and Amanda Faulkner, “Coming Clean: The Global Cleantech Innovation Index 2012,” Report, Cleantech Group and WWF, February 27, 2012, p. 21. Accessed April 26, 2013. Available at: http://info.cleantech.com/2012InnovationIndex.html.
  11. Norman R. Augustine, Craig R. Barrett, et al., “Rising Above the Gathering Storm: Energizing and Employing America for a Brighter Economic Future,” Report, National Academy of Sciences, 2007, pp. 43-62. Print.
  12. Basic research is research done to extend knowledge, rather than with commercial interests or applications in mind.
  13. Steven Chu, “U.S. Government Has a History Supporting Emerging Industries,” U.S. News and World Report, January 18, 2012. Accessed April 26, 2013. Available at: http://www.usnews.com/debate-club/should-the-government-invest-in-green-energy/us-government-has-a-history-supporting-emerging-industries.
  14. Joseph B. Lassiter, “Venture Capital’s Disconnect with Clean Tech,” HBS Working Knowledge, October 18, 2010. Accessed April 26, 2013. Available at: http://hbswk.hbs.edu/item/6499.html.
  15. “Valley of death” refers to the time between raising money and generating revenues, when a company is susceptible to running out of capital.
  16. Brian Dumaine, “Green Energy in the ‘Valley of Death’,” Fortune, September 24, 2012. Accessed April 26, 2013. Available at: http://tech.fortune.cnn.com/2012/09/24/green-energy-in-the-valley-of-death/.
  17. Augustine and Barrett, pp. 41-67.
  18. Henningsson, Youngman, and Faulkner, p. 15.
  19. Dutta, p. 311.
  20. Manufacturing employment in the U.S. has been declining generally since its peak in 1979. See Rana Foroohar and Bill Saporito, “Made in the USA,” Time, April 22, 2013. Print.
  21. Henningsson, Youngman, and Faulkner, p. 19.
  22. United States, Congress, Senate, “S. 744 — Border Security, Economic Opportunity, and Immigration Modernization Act,” 113th Congress, 1st Session, April 16, 2013. Accessed April 26, 2013. Available at: http://hdl.loc.gov/loc.uscongress/legislation.113s744.
  23. Richard M. Jones, “Immigration Bill Would Enhance STEM Workforce,” FYI: The AIP Bulletin of Science Policy News, American Institute of Physics, January 31, 2013. Accessed April 26, 2013. Available at: http://www.aip.org/fyi/2013/020.html.
  24. Jeffrey Rissman and Maxine Savitz, “Unleashing Private Sector Energy R&D,” Report, American Energy Innovation Council, p. 31, 2013. Accessed April 26, 2013. Available at: http://americanenergyinnovation.org/staff-research/unleashing-private-sector-energy-rd-2013/.
  25. For example, a company that routinely invests 10% of revenue in R&D would receive an increased tax credit on all R&D spent above 10%. In this way, only an increase in R&D expenditure made by the company will bring about an increase in the tax credit extended to it, thereby motivating the company to strengthen its R&D and hence, improving the effectiveness of the tax credit.
  26. Joshua Freed and Sam Hodas, “Creating a Clean Energy Century,” Report, Third Way, p. 30, November 2010. Accessed April 26, 2013. Available at: http://www.thirdway.org/publications/351.
  27. United States, Department of Defense, “DOD Sustainability.” Accessed April 26, 2013. Available at: http://www.defense.gov/home/features/2010/1010_energy/.
  28. United States, Department of Housing and Urban Development, “Multifamily Housing.” Accessed April 26, 2013. Available at: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/mfh.
  29. Michael Shellenberger and Ted Nordhaus, “Against Technology Tribalism,” Speech, Energy Innovation Conference, Washington, DC, January 29, 2013. Available at: http://thebreakthrough.org/index.php/voices/michael-shellenberger-and-ted-nordhaus/against-technology-tribalism/.
  30. Gary P. Pisano and Willy C. Shih, “Producing Prosperity: Why America Needs a Manufacturing Renaissance,” Harvard Business Review Press, Boston, MA, 2012. Print.
  31. United States, Department of Energy, Energy Efficiency and Renewable Energy, “Clean Energy Manufacturing Initiative.” Accessed April 26, 2013. Available at: http://www1.eere.energy.gov/energymanufacturing/index.html.
  32. United States, Department of Commerce, NIST, “Advanced Manufacturing Portal.” Accessed April 26, 2013. Available at: http://www.manufacturing.gov/welcome.html.
  33. Freed and Hodas, p. 36.
  34. Colleen Curtis, “What You Need To Know About the Energy Security Trust,” Blog, The White House Blog, March 15, 2013. Accessed April 26, 2013. Available at: http://www.whitehouse.gov/blog/2013/03/15/what-you-need-know-about-energy-security-trust.
  35. “Sizing the Climate Economy.”
  36. Augustine and Barrett, pp. 68-106.
  37. Ibid, p. 20.
  38. United States, Department of Education, “Race to the Top Fund.” Accessed April 26, 2013. Available at: http://www2.ed.gov/programs/racetothetop/index.html.
  39. United States, Executive Office of the President, President’s Council of Advisors on Science and Technology, “Engage to Excel: Producing One Million Additional College Graduates with Degrees in Science Technology, Engineering and Mathematics,” Report to the President, February 2012, p. 5. Accessed April 26, 2013. Available at: http://www.whitehouse.gov/sites/default/files/microsites/ostp/pcast-executive-report-final_2-13-12.pdf.
  40. President’s Council of Advisors on Science and Technology, p.4.