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The Power of Innovation

Wednesday, April 5, 2017

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Innovation has been the predominant driver of U.S. economic growth over the last century.1 Scientific and technological innovation has given birth to new industries and the jobs that accompany them, helped maintain the competitiveness of a growing number of companies that rely on technology to succeed, and ultimately made American lives better. Throughout this history, the federal government has played a vital role in catalyzing innovation across a number of key strategic sectors such as defense, health, agriculture, energy, and information technology. In every instance, these sectors provide invaluable contributions to our nation while facing their own distinct set of challenges. This is especially true in the energy sector.

Access to reliable, affordable energy has such a profoundly positive impact on people’s lives as to nearly defy calculation. Yet unlike many other technology sectors, the energy sector in particular has suffered from underinvestment in research and development (R&D) for a number of reasons. As a generally low-cost commodity, it is often difficult for an energy supplier to differentiate itself and charge a premium, the way products in other markets like communications hardware or biomedical technologies might. Energy infrastructure and technologies are also generally high cost and long lived, leading to large amounts of inertia and, in some cases, risk avoidance. Further complicating these challenges is the fact that energy markets are highly fragmented and often face a significant amount of regulatory fracturing and uncertainty.

Access to reliable, affordable energy has such a profoundly positive impact on people’s lives. 

These difficulties mean energy innovators are forced to cross not one, but two valleys of death before bringing a promising new technology to market. The first valley is technical—leaving the lab and creating a viable product where high technical and management risks compound the need for large amounts of patient capital. The second valley is commercial—even once a technology has been demonstrated to be viable, developing manufacturing processes and supply chains can have prodigious costs and projects are generally too far removed from commercialization to attract private investors. In both instances, targeted federal support can serve a critical role by reducing risks for promising technologies. In fact, such investments have a long and distinguished track record in providing important returns to the public in the form of economic growth, enhanced security, and environmental progress.

Targeted federal support can serve a critical role in energy innovation by reducing risks for promising technologies. 

It is also important to note that the technology development process is not always linear. The consensus that innovation follows a linear process from basic to applied research then deployment has persisted in the post-WWII era. While research can obviously be purely basic or purely applied in nature, what may be less obvious is that a significant amount of research is a blend of the two. What’s more, the flow of information across the innovation process is often not one-directional. The development of new technologies can open up entirely new fields of research that seek to answer fundamental questions of science sparked by observations in applied settings. That is not to argue against the value of differentiating among various types of research, but rather to encourage policymakers to understand the importance of interactions across various stages of a technology’s development, as well as the role that cross- and interdisciplinary teams have to play in advancing the nation’s scientific and technological interests.

A few decades ago, the United States found itself in the midst of an energy crisis. The response was a step change in our investment in energy research that helped lay the foundation for the energy renaissance we enjoy today. Further, as global demand for energy continues to rise, these investments have helped to put the United States in a position to expand its global leadership in the energy sector, while reaping the economic benefits that come with doing so. The global energy market attracted $1.8 trillion worth of investments in 2015 alone,2 in what should be a clear signal to our leaders that advanced energy technologies represent a multi-trillion-dollar opportunity for American businesses and workers. We should embrace America’s unique abilities to innovate as a way to revitalize our economy and enhance our security while helping American industry play a stronger role in providing clean, affordable, and reliable energy to the billions around the globe who currently lack it.

Investments in energy research have helped to put the United States in a position to expand its global leadership in the energy sector.

Recommendations:

1. Build on efforts to develop comprehensive assessments and strategic direction for the nation’s energy sector.

2. Invest $16 billion a year in advanced energy innovation.

3. Fund ARPA-E at $1 billion per year. At a minimum, ARPA-E should receive $300 million per year.

4. Support and expand new and innovative institutional arrangements such as the Energy Innovation Hubs, Energy Frontier Research Centers, and the Manufacturing USA program.

5. Make the Department of Energy work smarter—along the ARPA-E model where appropriate.

6. Establish a New Energy Challenge Program for high-impact pilot projects.

 

The American Energy Innovation Council (AEIC), originally formed in 2010, is a group of ten corporate leaders who share a common concern over America’s insufficient commitment to energy innovation. We speak as executives with broad-based success in innovation, who, in the course of our careers, have been called upon to overcome obstacles, seize opportunities, and make difficult decisions, all in the pursuit of building great American companies. 

AEIC is a project of the Bipartisan Policy Center.


1. Robert M. Solow. “Technical Change and the Aggregate Production Function.” The Review of Economics and Statistics 39, no. 3 (1957): 312-320. Available at: https://faculty.georgetown.edu/mh5/class/econ489/Solow-Growth-Accounting.pdf.

2. International Energy Agency. “World Energy Investment 2016: Executive Summary.” September 2016. Available at: http://www.iea.org/Textbase/npsum/WEI2016SUM.pdf.

 

KEYWORDS: BILL GATES, AMERICAN ENERGY INNOVATION COUNCIL (AEIC), CHAD HOLLIDAY, JOHN DOERR, NORMAN AUGUSTINE, INNOVATION

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