Wednesday, May 23, 2012

Government Investment In Long-Term Energy Breakthroughs

May 22: The Senate Energy & Natural Resources Committee, Chaired by Senator Jeff Bingaman (D-NM), with Ranking Member, Lisa Murkowski (R-AK) held a hearing to receive testimony on the report, produced by the American Energy Innovation Council (AEIC) entitled, Catalyzing American Ingenuity: The Role of Government in Energy Innovation. The report, released late last year by AEIC, a group of America's top business executives including Bill Gates, details the case for government investment in research to produce long-term energy breakthroughs, arguing that even in times of budget austerity such investments are crucial to US economic competitiveness and to the development of clean, affordable, and secure supplies of energy [See WIMS 5/15/12].

    AEIC is an independent and informal group of seven members who came together because of their common concern that America is providing an "insufficient response to one of the greater challenges facing our nation today; namely, the provision of energy." Members included: Norman Augustine, Retired Chairman & CEO for Lockheed Martin Corp.; Ursula Burns, chairman and CEO of Xerox; John Doer, partner at Kleiner Perkins Caufield & Byers; Bill Gates, chairman and former CEO of Microsoft; Charles Holliday, chairman of Bank of America and former chairman and CEO of DuPont; Jeff Immelt, chairman and CEO of GE; and Tim Solso, chairman and CEO of Cummins, Inc. The groups work was provided administrative and technical support by the Bipartisan Policy Council.

    Witnesses testifying at the hearing included: Norman Augustine, Retired Chairman & CEO for Lockheed Martin Corp., Bethesda, MD; Ethan Zindler, Head of Policy Analysis, Bloomberg New Energy Finance, Washington, DC; and Jesse Jenkins, Director of Energy and Climate Policy, at the Breakthrough Institute, Oakland, CA.

    In an opening statement, Chairman Bingaman said, "As all the witnesses today point out in their written testimony, there is a global race going on to produce the next generation of energy technologies. Though prices on our electricity bills or at the pump do not always fully reflect it, our current energy system is very expensive. The costs all of us pay in national energy and climate and economic insecurity are unacceptably high, and it's likely that the fast-growing economies throughout the developing world will be looking to a new generation of technologies that avoid these costs. It's not only a concern about costs, it's also a significant commercial opportunity for U.S. entrepreneurs. Fortunately, developing new technologies has historically been a great strength of the United States and, as the witnesses have pointed out, an area where the government has been an effective partner. 

    "Although I think there has been a broad consensus in Congress in the past in favor of investing in these emerging technologies, we have been sending much more uncertain signals recently. Important support programs have either already expired or appear to be in danger of expiring and, despite repeated calls to address the real problems of the so-called 'Valley of Death' [that period where an idea appears promising but has not yet been demonstrably shown to be workable in practice—and therefore is deemed too risky by most investors] in initial technology deployment, instead of expanding on crucial current programs, some in Congress are looking to end the programs that we have in place. Meanwhile, our competitors and potential competitors in the developing world continue to press ahead aggressively to court new energy companies and the talent that will develop the next innovations.

    "As these technologies continue to improve and become more cost competitive, we should view this as an opportunity to take a global leadership position.  We have some of the best minds in the world working on this problem. It's very much in our national interest to show them a clear pathway toward developing and deploying these technologies here and exporting them abroad rather than forcing them to go overseas to find opportunities. I've said many times, I believe the only losers in the clean energy technology race will be those that fail to participate, and I hope that the recent paralysis we've seen in this place doesn't lead to miss this opportunity."

    Ranking Member, Senator Murkowski issued an opening statement saying, "I'm aware that even if we do decide to spend more on energy innovation, we will have to make some truly difficult decisions about the amount and duration of spending as well as what our priorities are for it. I have just a few comments in each of those areas. First, the obvious: 'Investment' has become a code word for spending – and that requires taxpayer dollars. With our nation more than $15 trillion in debt right now, greater spending in this area will need to be fully offset. It will be challenging to find space in the budget, but that also presents an opportunity to be financially creative.  

    "For years now, I've suggested that a portion of the revenues from increased domestic energy production should be devoted to energy innovation. That's a key part of my ANWR legislation, which would raise an estimated $150 billion for the federal treasury at today's oil prices. Even a fraction of those revenues could go a long way towards developing the resources and technologies that we will rely on in the future. And so I was glad to see the revenues from energy production listed as a possibility in the 'Catalyzing American Ingenuity' report.

    "Beyond how much we spend, we'll also need to think carefully about our priorities. When we look back at where taxpayer dollars have been spent in recent years, it's clear that we're not even close to an 'all of the above' policy. We can see that in how much the federal government has spent on solar and wind, as opposed to unlocking the potential of methane hydrates. And we can see that in how much this administration has spent on electric vehicles compared to other promising alternatives. 

    "Finally, a point about how long we should be involved here. It makes good sense to invest in energy R&D. That's in our interest. But it's against our interest to keep subsidizing the same resources and technologies year after year without a clear path toward allowing those technologies to stand on their own in the market. To strike the right balance will require reform of existing programs, and the phase-out of many of the subsidies currently in place. Some experts believe that federal efforts should be oriented more towards basic research, and away from deployment, because in a tight fiscal climate the government should spend on priorities that no other institution will fund. I tend to agree with them."

     Norman Augustine testified, ". . .I must confess that I, and I believe my colleagues, are strong devotees of free enterprise as opposed to government involvement in markets to the extent practicable, the energy dilemma seems to be exactly the sort of issue which governments are designed to help solve, at least in democracies with free enterprise markets. That is, this is a case wherein there is an important benefit to be had by the citizenry as a whole but private resources cannot, or will not, provide that benefit because of financial risk, extensive delays in receiving returns, small or even negative returns and the possibility that the returns will not even accrue to the investor or performer. The latter is particularly true in the pursuit of basic research. . .

    "The members of the American Energy Innovation Council are aware of the intense fiscal problems facing the nation—and you as its leaders. But we are also aware that in our own business responsibilities that during difficult times it may be necessary and appropriate to increase spending in some areas while at the same time making overall reductions. There is an important distinction to be made between investment and spending for consumption. . ."

    Ethan Zindler testified, ". . .The clean energy sector has seen significant growth in recent years. New investment into the industry, which totaled $54bn in 2004 and $189bn in 2009, rose to $263bn last year. In fact, in the fourth quarter of 2011, our firm counted the one trillionth new dollar invested in this sector. Meanwhile, we have seen clean energy technologies make important progress down their respective learning curves. The price of a solar module at the factory gate has dropped by more than half in the last 16 months. The efficiency of wind turbines continues to improve. Prices for lithium ion batteries used in electric vehicles are starting to tick down. . ." He posed the questions, ". . .will the US be home to the most critical new energy technologies and the associated manufacturing capacity? Will the US be a market maker for these technologies or a price taker, buying the equipment from companies overseas?"
    Jesse Jenkins submitted 26-pages of testimony with extensive links to referenced information.
Access the hearing website for a webcast and links to all testimony (click here). Access the statement from Sen. Bingaman (click here). Access the statement from Sen. Murkowski (click here). Access a release on the report with more details (click here). Access the complete report and individual sections and the 2010 report (click here). [#Energy]