Solyndra's Failure No Reason to Abandon Federal Energy Innovation Plicy

This post was originally published at the Breakthrough Institute Blog, and was also picked up by the Forbes online business section.


By Jesse Jenkins, Devon Swezey, and Alex Trembath 

Wednesday's news that the California solar cell manufacturer and DOE loan guarantee recipient Solyndra will be declaring Chapter 11 bankruptcy has government critics grumbling about clean tech boondoggles and failed government programs. But Solyndra's failure, while unfortunate, is hardly an indictment of federal energy technology policy. Failure is to be expected with emerging, innovative companies, whether they are financed by the government or the private sector. The success of the Department of Energy's Loan Guarantee Program (LGP) should thus be judged not by any one investment but by the performance of the entire portfolio.

Critics have seized on the news of Solyndra's bankruptcy to condemn the Department of Energy's Loan Guarantee Program, which provided a $535 million loan guarantee in 2009. The National Review's Greg Pollowitz writes that Solyndra's failure shows "why the government should not play venture capitalist." Yet the fact is that, when judged by its entire diverse portfolio of investments, the LGP has performed remarkably well. Indeed, with a capitalization of just $4 billion, DOE has committed or closed $37.8 billion in loan guarantees for 36 innovative clean energy projects. The Solyndra case represents less than 2% of total loan commitments made by DOE, and will be easily covered by a capitalization of eight to ten times larger than any ultimate losses expected following the bankruptcy proceedings.

The broad success story of the LGP shows why federal investment in clean energy is necessary to help early-stage clean energy technologies achieve scale and reach commercialization. The inherent uncertainty in investing in novel technologies, coupled with the high capital costs and long time horizons, prohibits most venture capital funds from investing in large-scale clean energy projects. Financing tools and direct investment from the federal government can help bridge this well-known "Commercialization Valley of Death," and the LGP is an effective way of doing that.

Instead of "picking winners and losers," as the program's critics allege, the program actually reduces risk for a suite of innovative clean energy technologies and allows venture capitalists and other private sector investors to invest in the best technology. Rather than picking winners, the LGP enables innovative companies to compete in the marketplace, allowing winners to emerge from competition. And while Solyndra is shutting its doors, companies like SunPower, First Solar, and Brightsource Energy, which also received loan guarantees and other support from the federal government, are industry leading success stories.

With perfect hindsight, it's all too easy to see why Solyndra proved to be a bad bet: the firm's central innovation, a thin film technology that avoided the use of silicon, proved to be far less important when refined silicon prices collapsed after Solyndra's founding; the remaining installation cost advantages provided by the company's cylindrical solar panels proved too small, and Solyndra was unable to capture the manufacturing cost reductions that have helped other U.S. thin film companies, like First Solar, thrive despite low silicon prices. Perhaps most importantly, intense pressure from heavily subsidized Chinese manufacturers is driving a surprisingly competitive solar market, forcing Solyndra to get costs down faster than the start-up firm could achieve.

It is possible that these fatal factors could have been avoided by better vetting from DOE, or that removed from the pressures of a fast-paced stimulus environment, DOE may not have made this bad bet. But to assert, as numerous conservative commentators have been quick to do, that Solyndra's failure is proof positive of the government's supposed inability to "pick winners" is patently absurd. After all, Solyndra received repeated rounds of investment to the tune of $1.1 billion from some of the private sector's biggest stars, including Richard Branson, the WalMart family, and leading venture capital firms like U.S. Venture Partners and RockPort Capital. Venture capitalists and the U.S. government both placed a bet, Solyndra's entrepreneurs took a shot, and unfortunately for all, they missed. Such is to be expected in the high-risk but high-reward world of early-stage technology ventures. In addition, the loan commitment places the government in a senior position in the result of a bankruptcy, ensuring that DOE will get paid out before the VCs and other investors.

Critics who think the government has no place in supporting technology innovation have a tenuous grasp of U.S. economic history. In fact, the government has a long and successful history in helping America's intrepid entrepreneurs succeed in new high-risk, high-reward technology sectors. As we wrote in "Where Good Technologies Come From," the government has played a key role, either as an early investor or a demanding customer, in the development of virtually every advanced technology we take for granted today, from aviation to biotechnology, to computers and the Internet, microchips, and now clean energy. Indeed, without a visionary government investing in key strategic industries, world-leading companies like Google, Genentech and Boeing would not exist.

The United States was able to be the world's technology leader in these fields because of its forward-looking investments, as well as a relative dearth of competition from economic rivals. In today's clean energy market, however, competition is fierce. U.S. companies compete with low-cost Chinese manufacturers who benefit from generous state subsidies and a robust and comprehensive set of policies to encourage solar manufacturing. Indeed, in 2010 the China Development Bank provided more than $30 billion in loans to Chinese solar manufacturers. China's large clean energy investments have helped reduce the price of solar cells by 42% in just the last nine months, which was one factor in Solyndra's inability to compete.

While the United States may not be able to afford the scale of support for clean energy that China can, it can compete by focusing on what it has always done best: innovation. In the solar industry, the long-term goal must be to drive innovation so that solar can be cost-competitive without subsidy. Fortunately, the Department of Energy recognizes this imperative and has embarked on a new effort--the SunShot initiative--geared toward dramatically lowering the cost of solar PV. The SunShot initiative focuses on bringing down costs by pursuing innovations in four particular areas, including solar cell technology, power electronics that optimize the performance of installations, improvements in manufacturing processes, and installation and system design.

The Sunshot initiative and other key technology innovation programs like the Advanced Research Projects Agency for Energy (ARPA-E), embody the kind of smart innovation policy that holds the promise of fundamentally transforming the economy and ushering in a new era of U.S. technology leadership.

In the face of intense competition in the clean energy sector, America faces two choices. We can abandon our entrepreneurs and innovators in this new strategic growth sector, or we can redouble our efforts to invest in energy innovation, support clean energy entrepreneurs and help American firms compete and ultimately prevail in the global clean energy race. If we walk away now, America will lose out on one of the greatest economic opportunities of the 21st century.

Solyndra Round-up

News that California solar company Solyndra will be declaring Chapter 11 bankruptcy has sent waves through the energy blogosphere, not least because the company was an early recipient of a DOE loan guarantee and because President Obama and Energy Secretary Steven Chu both touted Solyndra as a success story in US innovation policy.

• TIME Magazine's Dan Grunwald: Solyndra’s version did have certain advantages, particularly ease of installation. And according to the Energy Department, the company sold more than 1,000 installations in 20 countries, increasing its sales revenue 2,000% in three years. But they couldn’t keep up with the competition on cost.

• Joe Stephens and Carol D. Leonnig at WaPo: GAO auditors fear that similar defaults could happen with other projects, possibly including the other four that it found weren’t properly vetted. The GAO last year uncovered the department’s rush to provide Solyndra its loan — less than 60 days after Chu was sworn in to the fledgling administration — without completing required reviews.

• Arno Harris at the Energy Collective: Bottom line, I'm sad to see Solyndra fail and feel immense sympathy for the 1,100 employees who are now out of work. But in the bigger picture, Solyndra's failure underscores just how successful the PV industry has been at cost reduction--and highlights the risks when governments try to pick winners and losers in highly competitive markets.

• Slate's Andrew Leonard: So what's really happened here is that half-hearted industrial policy lost out to the real deal. Because if Solyndra's failure is taken as proof that the U.S. government can't pick winners, doesn't that mean that China's success proves the exact opposite?

• Mike Traugher at Mercury News: Solyndra also reportedly received more than $1 billion in venture capital over the past five years from firms including Redpoint Ventures and U.S. Venture Partners. Other reported investors included Virgin Group entrepreneur Richard Branson and the Walton family, heirs to the Walmart fortune.

UPDATE (9/6/2011 at 10:05am): 

• Michael Grunwald at TIME: The operation was successful, but the patient died. Politically, it’s probably an impossible case to make. But that doesn’t mean it’s wrong. 

• Bloomberg Analysis: Solyndra said it failed because it couldn’t compete with foreign manufacturers funded by their governments. Those factories produced an oversupply of panels at low prices and offered buyers lengthy payment terms. Demand for Solyndra’s panels also fell as European governments reduced incentives for buying solar energy, said W.G. Stover, chief financial officer, in a filing today. 

National Journal: Surviving the Coming Clean Tech Crash

This post was co-authored by Jesse Jenkins and originally published at The National Journal in their discussion "How Can Washington Green America's Economy?" Cross-posted at the Breakthrough Institute Blog.

Before discussing the best way to green the economy, it’s important to note that the U.S. economy has been greening steadily over the past three years. Buoyed by the policies established and extended by the American Recovery and Reinvestment Act (ARRA), the largest federal investment in clean tech in American history, the clean energy industry has experienced precipitous growth, as documented by Mark Muro and colleagues at the Brookings Metro program in their recent "Sizing the Clean Economy" report.

Unfortunately, the path of progress may be coming to an end. Our research shows that over 70% of the federal policies and funding support for clean energy that has catalyzed the recent growth of the industry is expected to lapse in the next three years, or has already expired. And make no mistake—clean energy is an industry dependent on government subsidy: tax credits, depreciation and other subsidies compose one third or more of the total after-tax value of most solar, wind or other renewable energy projects, for example. So while ARRA provided a “down payment” on a green economy, as these public investments fade away, we are now more likely to witness a clean tech crash than a clean tech revolution.

As the current programs supporting clean energy, like the Production Tax Credit (PTC) and Section 1603 Treasury Grants, approach their expiration, there are a number of steps the federal government can and must take to avert an impending industry crash.

The first would be to get serious about the long-term energy innovation challenge. Until clean energy becomes cheap and cost competitive without subsidy, the pace of clean energy growth will remain constrained and the markets will face continual risk of industry busts if subsidy and policy support changes. We must treat energy innovation with the same priority we afford other national innovation quests, such as the Apollo or Manhattan Projects or the quest to cure cancer. We must invest far more -- eventually on the order of $15 billion annually -- and far more wisely -- restructuring America's energy innovation system and supporting effective new policy models such as the Advanced Research Projects Agency-Energy (ARPA-E), Energy Frontier Research Centers (EFRCs), and new public-private regional innovation consortia.

Second, Congress can establish a Clean Energy Deployment Administration (CEDA). CEDA would act as a public investment bank whose mission is to help leverage private-sector investment to bring emerging, innovative clean technologies to commercial maturity. CEDA would bridge the commercialization “Valley of Death” and provide a viable and predictable development path for technologies from the laboratory to grid-scale deployment. The Congressional Budget Office calculates that the agency would cost just $1.1 billion over the next four years. While leveraging billions more in private sector investment, the public bank would return profits from investments and financial products to the fund, making CEDA self-sustaining over time.

Another needed policy change is to reform the current clean energy deployment subsidy regime for maturing energy technologies, which today is comprised of a hodgepodge of tax credits like the PTC and the Investment Tax Credit, depreciation benefits and grants that primarily incentivize firms to deploy more of the same, current-generation technology. Instead, we need a smarter new deployment mechanism that is disciplined and designed to drive technology innovation to decrease the unsubsidized cost of clean energy so that it can be competitive without perpetual subsidy. Such a policy could augment a national renewable or clean energy standard (RES/CES) with a set of technology tiers based on technology maturity, which would provide the incentive for utilities to adopt and deploy clean energy technologies across a range of maturities, and demand continual cost reductions from technology firms over time. One way to augment this smart deployment policy would be with a small price on carbon, wires fee on electricity, or oil import fee, which instead of returning a dividend to consumers would generate dedicated revenues for a federal energy R&D fund to help support the continual innovation needed to get clean tech costs down to parity with fossil competitors.

The fate of many ARRA policies remains uncertain, and the unpredictable political machinations of the “supercongress” and ongoing deficit debate in Washington bring yet more volatility to the clean tech policy debate. Nobody expects a second down payment on the green economy on the scale of the last several years. But as current subsidy support runs out, Washington must support the industry by investing more and differently in clean energy innovation to maintain America’s position in the global clean tech race and avoid an ongoing cycle of clean tech boom-and-bust in the future.

Growing Wind Power: Energy Collective Webinar

I just got off the line from the Growing Wind Power webinar, hosted by The Energy Collective and sponsored by Siemens. It was moderated by Jesse Jenkins, the Director of Energy and Climate Policy and the Breakthrough Institute. The participants were:

• Peter Kelly of the American Wind Energy Association
• Ellen Crivella of GL Garrad Hassan
• Earl Walker of Siemens Energy

More info on the participants is available here. I just wanted to note a few quick things that the panelists brought up about the wind industry.

One, we can get to 20% wind by 2030, as per DOE's goals. Wind electricity supplied about 3% of electricity capacity in the United States last year, but at the pace the industry is currently growing we're on track to exceed 20% within the next twenty years.

Two, our wind needs will be met by a combination of onshore and offshore generation. Offshore has the advantage of accessing often much more bountiful wind resources, and can often be located near dense coastal urban areas. On the downside, it's more expensive -- consensus from the panel was the offshore projects can be twice as expensive as onshore installations. There are also spatial and distribution elements to consider. A considerable amount of the United States lives far from the coasts, and even where good transmission infrastructure is employed, it might make more sense to capitalize on less remote onshore production or other energy technologies**. As such, panelists agreed that the relative contribution of offshore wind production is likely to be less in the United States than in smaller European nations like Spain and Denmark.

Three, there seems to be a love-hate relationship with the Production Tax Credit for wind (PTC) and other tax incentives. On the one hand, the industry (proxy: the panelists) agree that current wind technology and installations cannot survive without the support of federal subsidies. Witness the drop off in wind projects in 2010 before the PTC was extended to 2012. On the other hand, there is ample desire for more diverse pools of cheap capital, and it is understood that if wind energy is going to be a viable element in America's energy portfolio, it needs to beat the grid unsubsidized.

The webinar was a great discussion of the interlocking arenas in the wind industry, from engineering to policy to finance. Check out #TEClive on Twitter for coverage.

-------------------------

*This discussion reminded me of the ecological concept of edge effects, which is the idea that the larger area an ecosystem occupies, the less vulnerable its area is to invasion on its edges. I suppose the lesson here is that the United States, when viewed as an ecosystem (which it is), is large, diverse, and resilient. That's comforting to me.

Book Review: The God Species

Originally published at The Breakthrough Institute Blog.

"We are as gods and have to get good at it." Mark Lynas quotes Stewart Brand here, using the mantra as a guiding metaphor for his new book The God Species: How the Planet Can Survive the Age of Humans. Echoing many of the chief criticisms the Breakthrough Institute has levied against traditional environmentalism, the book offers a new perspective on the ecological challenges that civilizations face, one couched in human dignity and prosperity.

Lynas, like Brand before him, identifies the defining characteristic of humankind in the Anthropocene: we exercise god-like influence on biogeochemical cycles, more so than any other species in the 4.3 billion-year history of the planet.

This is not a new concept by any stretch; the idea that the Holocene is over and we now inhabit the Anthropocene has been around for at least a decade, and environmentalists since long before that have been lamenting the dire and destructive invasion humans have executed on natural ecosystems. But what traditional eco-apocalyptic narratives see as hubris, Lynas emotes a certain pride over: we have conquered and colonized the planet in hitherto impossible ways, extracting tremendous prosperity, happiness, and recreation from the bounded resources Earth makes available. Our god-like influence over our surrounding ecosystems does not make us wicked invaders, but masters of our own, and our planet's, destiny.

This is not to say that Lynas is naïve, nor that he fails to recognize the thermodynamic and chemical limits to human activity. Indeed, the bulk of The God Species is dedicated to summary research, noting the many and often frightening ways humans have pushed towards or past the thresholds that, when respected, make Earth the only known livable planet in the Universe. His book is more or less a laundry list of planetary boundaries (the biodiversity boundary; the land use boundary; the nitrogen boundary; etc.).

But Lynas breaks from the template of the typical climate-focused tome: where others stick to recounting the many forms of human hubris and abuse, Lynas regularly notes the accomplishment and potential of human activity. He spends as much time speculating on solutions as he does dissecting the problems. In this way, he really is an optimist and proud member of the human race; he embraces the God Species concept, and asserts that we can use our designing influence intelligently. Lynas:

Central to the standard Green creed is the idea that playing God is dangerous. Hence the reflexive opposition to new technologies from splitting the atom to cloning cattle. My thesis is the reverse: playing God (in the sense of being intelligent designers) at a planetary level is essential if creation is not to be irreparably damaged or even destroyed by humans unwittingly deploying out newfound powers in disastrous ways.

Another dynamic feature of the book is Lynas's stream of tirades against anti-nuclear, anti-GMO, anti-geoengineering environmentalists. According to Lynas, the claim of many of these activists is that these measures to mitigate emissions are their own brand of hubris, and that we should not transition from one global enviro-catastrophe to another. Lynas regularly throws down the gauntlet at the feet of these groups, issuing that "[he] cannot readily accept that accidental planetary management is necessarily better than deliberate planetary management." We are already geoengineering the planet, according to Lynas, by mass interference with land-use patterns, diversion of the hydrological and nitrogen cycles, and the combustion of fossilized carbon. By demonizing our current occupation as geoengineers, we ignore the tools at our disposal for our future benefit. (Pictured: Author Mark Lynas.)

In general, Lynas's rational and optimistic approach to environmental challenges is refreshing and encouraging. His worldview accepts the constraints imposed by modern social-political-economic institutions and cultural beliefs (citing, for example, Roger Pielke Jr.'s "Iron Law" of climate politics). He regrets the high-profile environmental attempts to limit emissions and spread the green gospel, like lights-off "Earth Hour" and government-mandated birth control, which are ineffective, limit human ingenuity and happiness, and act as poor political organizing strategies. In this way, Lynas brings welcome discord to the environmental chorus.

I differed with Lynas in two of his main points. One was his regular insistence that 350 ppm is the necessary goal atmospheric goal for climate stabilization, which seems increasingly impossible. Second was his claim that, contrary to the traditional Green demands for cultural and behavioral changes, decarbonization will be "easier" since it is primarily a technical challenge with technical solutions.

In one sense I agree with Lynas. Green invocation of grassroots campaigns to affect social change, like civil rights or the Carson-era environmental movement, is hardly applicable to a challenge on the scale of global decarbonization. Energy's properties of ubiquity and non-substitutability make any value-centric agenda marginal at best. However, approaching decarbonization as a mostly technical challenge does not make it "easier." While there are parallels in past technological advances (see Breakthrough Report: "Case Studies in American Innovation"), no technical imperative has ever demanded such a full-scale and rapid advance that global climate change demands. The financial and institutional barriers to innovation and deployment are at least as important as the engineering hurtles, and that's after we get past the politics. Lynas's brief suggestions for these are a carbon price and binding international agreements, each of which has mostly lost its fervor in recent years.

As such, Lynas's discussion of a response to climate change is a tremendously valuable thought experiment in the ability of technology to displace and/or capture carbon emissions and promote more efficient and effective resource use. However, his omission of the political, financial, and institutional challenges to decarbonization undercuts his claims that the challenge will be "easier" than is traditionally represented. If anything, it will be more difficult. Indeed, green anti-corporate, anti-growth, anti-innovation rhetoric relies on a well-tested ideology. Alternatively, having never faced a challenge on the scale of climate change, there is no econo-socio-political template into which we can fix an agenda, which would combine capitalism, development, ecological pragmatism, social justice, and all brands of engineering. It will be very difficult to even create such an agenda, let alone implement its goals.

The God Species espouses many of the same ideals and motivations that can be found in the most astute recent literature on energy and environment, including Whole Earth Discipline by Steward Brand, The Climate Fix by Roger Pielke Jr., and the various works of the Breakthrough Institute. Many of the themes passed around the recent Breakthrough Dialogue (by none other than Brand and Pielke, among many), such as embracing modernism and hitting the reset button on climate politics, can be found vigorously occupying the subtext of Lynas's words. Adding his diagnosis to those who have already drawn lessons from environmentalism's failures, Lynas says the lesson is twofold:

First, guilt-tripping doesn't work as a campaign strategy. If you make people feel bad about what they do, you must give them a realistic and feasible alternative. Second, pragmatism beats purism. Every time.

Lynas may have been slightly overzealous in a few areas (carbon offsets, for instance; what if the local value of deforestation is greater than the "payments for ecosystem services" he recommends?). However, The God Species is well worth reading as a scientific summary of planetary boundaries, and as a refreshing point of view into how humankind will deal with the impending limitations. From the Haber-Bosch process to stratospheric injection of sulphates to the engineering tricks that have effectively closed the ozone hole, Lynas celebrates the increasingly firm grasp humanity has on natural cycles. What's needed is a higher respect for some of these, like climate change and biodiversity. If we are gods, then care for Creation comes with the territory. The God Species is an excellent roadmap for how that care might occur.

Energetics Cliff Notes - Tuesday Edition

Despite my recent obsession with Google+ coverage and Bay Area BART protests, I found time this week for energy news as well.

• My colleagues and I are researching the coming clean tech crash, as subsidies and tax incentives for renewable energy technology expire. As Devon Swezey recently wrote in Forbes, "The global clean energy industry is set for a major crash. The reason is simple. Clean energy is still much more expensive and less reliable than coal or gas, and in an era of heightened budget austerity the subsidies required to make clean energy artificially cheaper are becoming unsustainable."

• Australia, against all odds, has passed a carbon pricing scheme. Leigh Ewbank of Beyond Zero Emissions digs into the new policy, noting that a the CO2 price will require auxiliary policies to drive real innovation and deployment of clean energy technology.

• A new report (PDF) from the Information Technology and Innovation Foundation explains why ARPA-E is such a vital resource and should be fully-funded. "Cutting ARPA-E's budget would thwart future successes. A smaller budget would mean fewer projects, a more narrow range of risky projects, more hesitation to explore uncharted ares, and fewer opportunities to attract private sector investment."

• Tomorrow (July 13) the Metropolitan Policy Program at the Brookings Institution is hosting (and webcasting) an event called "Sizing the Clean Economy: A National and Regional Green Jobs Assessment." The event signals the release of a new report on green jobs and a new database. Follow along on Twitter (#cleanecon) tomorrow morning.

• I enjoyed this piece on energy storage technology at The Energy Collective. "The enthusiasm for grid-connected energy storage is well-founded. The inability to store electric energy on the grid is, in many respects, the technological limitation that defined the design of our national power grid in the early 20th Century and that continues to account for its basic architecture today. The ability to generate electricity, to store it economically in large quantities, and to use it at a later time, would be the most disruptive technology to emerge on the power grid in the past 100 years."
  

March of the Elites: Why Grassroots Organizing Can't Save the Climate

Originally published at Breakthrough Generation.

The campaign to avert cataclysmic climate change soldiers on. Despite an aggressive global economic crisis that unequivocally stole some wind from the sails of climate action, the movement lingers, organizing marches and rallies for the coming climate revolution. But action on the climate-energy front will not occur at the grassroots level. Instead, advocates should focus on identifying the appropriate elites, whose influence and inclinations offer a potential pathway to progress on energy and climate change.

The notion of eschewing grassroots organizing is unfamiliar to "causie" political movements, especially progressive ones. Progressive politics looks back with pride and conviction on its accomplishments in union organizing, suffrage and civil rights, and contemporary environmental victories like the creation of the EPA and the passing of the Clean Water and Air Acts. These achievements relied on building a critical mass of devoted and vocal support whose growing magnitude would reliably overwhelm public opinion and entrenched political opposition.

The movement to save the climate is unlikely to win with these tactics. In attempting to change the fact that the public doesn't care about climate change, the movement routinely forgets one important thing: the public doesn't care about climate change. Opinion polls indicate subsiding public concern over the future effects of climate change. A recent (and highly controversial) report by Matt Nisbett suggests that collective action and lobbying for the 2010 climate bill outgunned opponents from Big Coal and Big Oil, and the Kerry-Lieberman American Power Act didn't even get a vote in the Senate. Gallup shows that the public concern about the environment ranks last in a field of fifteen different national issues, a metric that the economy unsurprisingly dominates. Even if more and more people were coming around to the opinion that climate change is a real and dangerous phenomenon (which they aren't), that increasing swath of the population still wouldn't care too much about it.

And the truth is, the public doesn't need to care that much about it. Energy and climate policy is primarily institutional, technical, and scientific. It is much less socio-cultural. This makes sense, too: energy is a largely invisible and homogeneous commodity that competes on price alone. The public will use energy in the most cost-effective way possible, so the most logistically simple way to mitigate climate change is to make clean energy cheaper than carbon fuels. This goal will be achieved by policymakers, engineers, and entrepreneurs.

The solution to the climate-energy crisis is akin to the Manhattan and Apollo Projects and the creation of the Internet. None of these made use of mass public support or mobilization--indeed, the Manhattan Project was done in secret. Yet all were technical challenges with a national mission, accomplished by elites and contracted largely by the federal government, and with gargantuan social effects. No grand infrastructure projects are sexy products of some outpouring of public demand, yet the creation of the Interstate Highway System was perhaps one of the most significant achievements in the story of American commerce. These projects were accomplished by elite American patriots. Somewhere out in the masses of my generation, a team of elites is waiting to meet each other and make clean energy cheap and ubiquitous.

The people standing around that team of elites, far greater in number, are not powerless. Effective climate policy will not be an all-out favoring of technocracy over democracy, but grassroots advocates need to understand the difference. Timetables and targets are even weaker technical plans than they are political strategies. A growing and vocal contingent in the developed world, dedicated to fixing the climate problem, means very little when 90% of new energy demand will come developing economies over the next century. Lifestyle choices--like consuming less, cycling to work, and switching out that 100-watt bulb--are infinitesimal compared to the challenge of decarbonizing fourteen terawatts of power. There are policies that can accomplish these ends: boosting research and development, driving technological innovation, subsidizing early-stage deployment, and empowering the next generation of scientists and engineers through education. But the grassroots section in this relay-campaign pretty much ends at advocacy, left to watch as elites carry the baton across the finish line.

The campaign to mitigate carbon emissions and revolutionize our global energy infrastructure will not be accomplished by the masses. It will not be accomplished by marches and emotive global demonstrations, even less so by eco-terrorism and violent disobedience. We will see this challenge defeated instead by a select group of elites: technicians and practitioners, experts and politicians. That's not a bad thing. As Aaron Sorkin says, elite is not a bad word; it's an aspirational one. How fortunate we would be if we could identify that team of patriots and elites who could lead us to a clean energy future.

Bill Joy lecture

I recently had the pleasure of attending* a special reception and Regents Lecture by Bill Joy, co-founder of Sun Microsystems, founding partner at venture firm KPCB, and Berkeley alum. At Kleiner Perkins, Joy is in charge of greentech investment, and his talk focused mostly on the technological challenges and opportunities of decarbonization.

He had a few overarching points.

One, there is tremendous need and potential for economic innovation in clean technologies, even as we approach physical limitations in how efficiently they can produce energy. These will be essential, as we need to buy down the cost of clean tech to the point where it "beats the grid unsubsidized."

Two, we need to be building things in America. Manufacturing will be a vital and economically invigorating component of the transition to clean energy, and missing out on that opportunity would be devastating to American competitiveness and economic health. Without manufacturing, says Joy, we will become overly dependent on a service economy, which will "run idle."

Three, government support is required for private ventures to "cross the chasm" that prevents the free market from achieving the energy technology goals we aspire to. Prompted by a question from the audience, Joy said his preferred government policy is loan guarantees, which have mostly been used in the past for projects with high upfront capital expenditures.

All in all, it was a cool lecture from a technological giant -- an encouraging addition in the campaign for decarbonization.

________________________________________________
*Thanks to Dee Dee Mendoza of the UC Berkeley Relations Group for the invite!

Irrational cuts proposed to DOE

The Heritage Foundation just released a report providing opportunity and rationalization for $6 billion in cuts to the Department of Energy (H/T Teryn Norris). Here's the abstract of the report, titled "Department of Energy Spending Cuts: A Guide to Trimming President Obama’s 2012 Budget Request."

Government spending has been spiraling upward in nearly all areas—and spending by most government agencies can, and should, be cut. President Obama recently submitted his 2012 budget request to Congress, providing fertile ground for spending cuts. One of the fastest-growing federal agencies, the Department of Energy (DOE), with its numerous research, development, and grant programs, offers many opportunities for savings. While there is an important role for DOE in energy security and environmental management, many DOE projects fall outside its mission, supporting everything from commercialization of technologies to non-critical research—which can be conducted, usually much more efficiently, by the private sector.

Three things.

One, and I'm sure there are plenty at the Heritage Foundation who would agree with me on this, but cutting $6 billion from the federal budget will have approximately zero effect on "Alleviating the huge debt burden that the government is placing on future generations," as the report calls for. When someone calls for deficit reduction without addressing Social Security, Medicare, Medicaid, and/or revenue increases, I instinctively ignore them. I realize these are program-specific cut recommendations, but the idea that cutting back on investing in our future will relieve the burden of our irresponsibility from future generations is more than a tad suspect to me.

Two, the report claims that "Energy production is a viable commercial enterprise, so the U.S. does not need a government agency dedicated to advancing this activity." This is simply incorrect. Few to no commercial scale energy production technologies would benefit from economies of scale and distribution without implicit and explicit government support. Coal and oil receive tens of billions of federal dollars in subsidies annually, and the continued deployment of energy production technology depends also on government insurance and liability policies, since material extraction, energy production and transmission are such high-risk enterprises. As Mark Hertsgaard reports in his account* of the 1950s budding nuclear power industry, "the industry ... preferred an arrangement whereby the government would help cover the costs of commercialization but still allow the corporations to control and profit from it."

Three, the report is founded upon the unsupported assertion that the private sector is the more effective laboratory for energy technologies. "Many government programs included in Presidents’ annual DOE budgets evolved from basic research and development to attempts at commercialization better left to the private sector." The report continues by questioning need for government funding or operations in R&D. On the contrary, publicly-funded research and development are essential factors in the advancement of energy technology. There are two key reasons for this. One is the so-called "Valley of Death" in technological development that exists between the basic research stage and the commercialization stage, in which risk, uncertainty and deployment challenges combine to dissuade private capital from advancing project. The second reason is the spillover effect; private enterprise will be less likely to finance energy technology R&D since they will be ultimately unable to capture the full benefits of production.

We obviously, but maybe not imminently, need to have a serious national discussion about the debt/deficit problems. But targeting relatively small federal programs, particularly ones like DOE technology innovation programs with a clear national mission and a big bang for their buck, is not the right way to go about it.
_____________________________________________________

*Nuclear Inc.:The Men and Money Behind Nuclear Power by Mark Hertsgaard. 1983. pp. 33.

Energetics Cliff Notes - Wednesday Edition

All your riveting climate/energy news in one convenient place.

• Greentech Media recaps this weekend's Berkeley-Stanford Cleantech Conference, featuring keynote speaker Steven Chu (see my Twitter timeline for overly detailed liveblogging).
  

• Chu stuck around after the weekend to attend a bill signing by Jerry Brown at a SunPower manufacturing plant in Milpitas. The legislation will require California utilities to get 33% of their power (an increase from 20%) from alternative energy technologies by 2020.

• Bill Weihl, Google's green energy czar and a founder of google.org's fan-favorite Renewable Energy Cheaper Than Coal, on a prototype mirror design that could cut the cost of large solar thermal plants in half.

• Grist's Dave Roberts explains why environmentalists blocking CARB's implementation of AB 32 (featuring California's cap-and-trade program) are a little misguided.

• This (long-ish) post by Barry Brook is one of the best reactions pieces I've seen to the Fukushima nuclear accident.
  

• Big cuts are expected as the latest CR to fund the government unfolds -- high-speed rail is just one of the many unfortunate choices taking hits.
  

Berkeley-Stanford Cleantech Conference

Tomorrow, I'll be attending the 7th Berkeley-Stanford Cleantech Conference at PG&E Auditorium in San Francisco. The conference is billed as "BSCC: Sputnik 2.0? The Pursuit of Green Jobs in China and the U.S." The subtitle is referring to a warning from the Obama Administration that China has thrown down the gauntlet in the cleantech arena in a manner reminiscent of the Soviets upon launching the satellite Sputnik. President Obama made the comparison himself in this year's State of the Union, following Secretary Chu, who is keynoting the conference tomorrow. Panel discussions include "Clean Technologies: Job Creation or Destruction" and "What is the Role of Policy in Green Job Creation in the U.S. and China?" The latter is moderated by Teryn Norris, my colleague and founder of Americans for Energy Leadership.

I feel very fortunate (again) to be a student at UC Berkeley, which allows me to attend the conference at a considerable discount. For those interested, I'll be live-tweeting the event @atrembath. Should make for a very interesting day.

Polarizing environmentalism

Observation via Robert Cruickshank at the California High-Speed Rail Blog:

There are two kinds of environmentalism out there. The older kind is a 20th century environmentalism that believes the automobile society is perfectly fine – the problem is when it encroaches on open space. This kind of environmentalist looks at you quizzically when you talk about carbon emissions or sustainable transportation, but gets very worked up about a proposal to convert open space to some kind of use. This kind of environmentalist is willing to oppose solar and wind power because of its effect on open space. They don’t ever really stop to consider the big picture, because they believe everything is just fine if we never build on open space ever again.

The newer kind of environmentalism is a 21st century environmentalism that understands the huge crisis we have placed our planet in because of our burning of fossil fuels. This kind of environmentalist knows that the status quo is killing species left and right – that even if we never built another thing on any existing open space, we’d still be fucked because we’re burning carbon like it’s going out of style (which it actually is). This kind of environmentalist knows that it’s worth trading some open space for sustainability, because it won’t do us or other species much good if we preserve open space and yet keep on burning carbon.

I tend to agree with Mr. Cruickshank, and am personally very excited for the opportunity to ride in style in HSR (as opposed to the 16 hours I spent on I-5 this past week). However, I always get a little skeptical when sentences begin "there are two kinds of [blank] out there." I for one enjoy open space and would not like to see the Grand Canyon or the forests near my house developed, but I also don't react "quizzically" when others talk about carbon emissions or sustainability. Indeed, readers of this blog will have to look hard to find a post about "open space," but I do still consider myself a conservationist.

And yet, I fall squarely into Mr. Cruickshank's second category of environmentalism as well, in that I grew concerned when NIMBYs stalled progress on Cape Wind in Nantucket, when a coalition of environmentalists sued to halt AB 32 in California, and when the German and Chinese governments pulled back on plans for advancing nuclear power generation. The non-trivial environmental challenges represented by alternative energy technologies must be weighed against the consequences of a sustained carbon economy, and anyone suspecting a negligible environmental impact by 21st century industrialism is fooling themselves.

So there is overlap in Mr. Cruickshank's simplistic analysis (i.e., me), and indeed, there are missing categories. I doubt very much, for instance, that many "open space" environmentalists would strongly identify with the Monkey Wrench Gang, Edward Abbey's fictional eco-terrorists, or their real-life counterparts. The point Mr. Cruickshank intends to transmit comes across perfectly well -- we should not block progress on environmental goals for the sake of small potatoes, NIMBYism or BANANA logic ("build absolutely nothing anywhere near anything"). But environmentalists of all stripes should stop short of polarizing each other. Disagreements may become far more bridgeable if opponents are friends, not enemies, and taking a complex system of overlapping and sometimes competing ideas and turning it into a two-sided coin weakens the debate, and it will weaken the outcomes.

Incidentally, Mr. Cruickshank argues that the welfare of desert ecosystems probably needs to take a backseat to the HSR train currently in the planning stage, because climate change is ultimately the larger threat to species and biomes. "Environmentalists need to keep perspective," he says, and I agree. But he needs to keep perspective as well (we all do). High-speed rail runs on electricity, and roughly 60% of California electricity comes from burning fossil fuels (46.5% natural gas, 15.5% coal in 2009). Almost all of the state's transportation sector is fueled by petroleum, so switching some vehicle miles from cars to the train would certainly be a step in the right direction. But HSR will be a stall at best in mitigating carbon emissions until alternative energy technology is competitive with the fossil fuels we need it to displace.

In the end, there are only two kinds of people in the world: people who believe the world can be divided cleanly into two groups, and people who don't.

Energetics Cliff Notes - Tuesday Edition

• Amid a still-ongoing nuclear accident and buoyant oil prices, The Hill reports that President Obama will "outline a plan for America's energy future" tomorrow (Wednesday). The focus is expected to be on transportation and clean vehicles.

• Gov. Tim Pawlenty thinks his rationalization for flip-flopping on cap-and-trade is better than his rivals' in the race for the 2012 Republican nomination. Sure. Okay.

• An interesting piece at TechCrunch on how high finance is stealing human capital from research, engineering, and entrepreneurialism. "Let’s save the world by keeping our engineers out of finance. We need them to, instead, develop new types of medical devices, renewable energy sources, and ways for sustaining the environment and purifying water, and to start companies that help America keep its innovative edge."

• Andrew Revkin laments the hyperbole and fear-mongering that go hand-in-hand with the media's reporting on Fukushima.

• Florida's rejection of $1.2 billion in high-speed rail funds may be good news for the Merced leg of California's planned HSR route (via California High Speed Rail Blog -- follow it!).

• The German Green Party is taking over the state of Baden-Württemberg, ending a 58-year control by the Christian Democratic Union party. Roger Pielke Jr. wonders what will replace nuclear power in the state, which currently supplies "about half of its electricity" and which the Greens are expected to get rid of. (Answer? Coal. Woohoo.)

• Americans for Energy Leadership provides an update on the state of the US solar industry. "Though the data can be analyzed and interpreted from numerous angles, overall the industry appeared to grow and expand substantially in 2009."

• Jesse Jenkins of the Breakthrough Institute was on NPR's Weekend Edition on Sunday, explaining that the incident at Fukushima will not likely alter the future for nukes in the US. Basically, we weren't exactly planning on building a lot of new reactors before, and the events in Japan aren't going to change that one way or the other.

• Christine Hertzog on the asymmetric information problem between utilities and consumers RE smart meters. "People need to know the true financial and economic costs of power outages, and how different Smart Grid technologies reduce overall outage time and increase reliability metrics. In other words, what are the risks of not implementing these solutions."

Budget Roundup

While I will always think the President could bring more political gravitas to energy policy, at least there's some interesting energy dynamics in the budget proposal released yesterday.

• President Obama's 2012 budget proposal includes the elimination of $4 billion of subsidies and tax incentives for oil companies (via @NoahFisher at Americans for Energy Leadership).
• The Administration will also push for small modular nuclear reactors.
• Many scientists were relatively pleased with the budget proposal.
• Budget increases in DOE R&D and a rollback of subsidies for carbon energy amounts to $8 billion directed towards clean energy.
• Loan guarantees for nuclear power would triple under Obama's budget, something I recently advocated.
• Energy Secretary Steven Chu has a nifty presentation on science, research and innovation in the budget.

Nuclear Power in a Post-Partisan Approach to Energy

Originally published at Americans for Energy Leadership.

In the wake of cap-and-trade’s defeat, and as we begin a new session of Congress, common ground must be found on policy to renovate America’s energy infrastructure. Now may be the time to explore the possible benefits of renewing America’s once vigorous nuclear power production. Notably absent in recent advances in America’s energy portfolio has been nuclear power. Public safety fears stemming from Chernobyl and Three Mile Island have left nuclear policy in stasis for decades, but as our President aims to launch a new industrial policy and our nation trends towards a new national energy policy, it may be time to revive our commitment to this method of zero-emissions baseload power generation.

Nuclear power is unique among clean energy technologies in that Democrats tend to be more hesitant towards its production than Republicans. Indeed, it has a reputation for its appeal to conservatives -Senators Kerry, Graham and Lieberman included provisions for nuclear technology in their ultimately unsuccessful American Power Act (APA) with the ostensible goal of courting Republican support. The urgency with which Democrats feel we must spark an energy revolution may find a perfect partner with Republicans who support nuclear power. But is there anything more than speculative political evidence towards its bipartisan viability?

If there is one field of the energy sector for which certainty of political will and government policy is essential, it is nuclear power. High up front costs for the private industry, extreme regulatory oversight and public wariness necessitate a committed government partner for private firms investing in nuclear technology. In a new report on the potential for a “nuclear renaissance,” Third Way references the failed cap-and-trade bill, delaying tactics in the House vis-a-vis EPA regulations on CO₂, and the recent election results to emphasize the difficult current political environment for advancing new nuclear policy. The report, “The Future of Nuclear Energy,” makes the case for political certainty:

“It is difficult for energy producers and users to estimate the relative price for nuclear-generated energy compared to fossil fuel alternatives (e.g. natural gas)–an essential consideration in making the major capital investment decision necessary for new energy production that will be in place for decades.”

Are our politicians willing to match the level of certainty that the nuclear industry demands? Lacking a suitable price on carbon that may have been achieved by a cap-and-trade bill removes one primary policy instrument for making nuclear power more cost-competitive with fossil fuels. The impetus on Congress, therefore, will be to shift from demand-side “pull” energy policies (that increase demand for clean tech by raising the price of dirty energy) to supply-side “push” policies, or industrial and innovation policies. Fortunately, there are signals from political and thought leaders that a package of policies may emerge to incentivize alternative energy sources that include nuclear power.

One place to start is the recently deceased American Power Act, addressed above, authored originally by Senators Kerry, Graham and Lieberman. Before its final and disappointing incarnation, the bill included provisions to increase loan guarantees for nuclear power plant construction in addition to other tax incentives. Loan guarantees are probably the most important method of government involvement in new plant construction, given the high capital costs of development. One wonders what the fate of the bill, or a less ambitious set of its provisions, would have been had Republican Senator Graham not abdicated and removed any hope of Republican co-sponsorship.

But that was last year. The changing of the guard in Congress makes this a whole different game, and the once feasible support for nuclear technology on either side of the aisle must be reevaluated. A New York Times piece in the aftermath of the elections forecast a difficult road ahead for nuclear energy policy, but did note Republican support for programs like a waste disposal site and loan guarantees.

Republican support for nuclear energy has roots in the most significant recent energy legislation, the Energy Policy Act of 2005, which passed provisions for nuclear power with wide bipartisan support. Reaching out to Republicans on policies they have supported in the past should be a goal of Democrats who wish to form a foundational debate on moving the policy forward. There are also signals that key Republicans, notably Lindsey Graham and Richard Lugar, would throw their support behind a clean energy standard that includes nuclear and CCS.

Republicans in Congress will find intellectual support from a group that AEL’s Teryn Norris coined “innovation hawks,” among them Steven Hayward, David Brooks and George Will. Will has been particularly outspoken in support of nuclear energy, writing in 2010 that “it is a travesty that the nation that first harnessed nuclear energy has neglected it so long because fads about supposed ‘green energy’ and superstitions about nuclear power’s dangers.”

The extreme reluctance of Republicans to cooperate with Democrats over the last two years is only the first obstacle, as any legislation will also have to overcome Democrats’ traditional opposition to nuclear energy. However, here again there is reason for optimism. Barbara Boxer and John Kerry bucked their party’s long-time aversion to nuclear in a precursor bill to APA, and Kerry continued working on the issue during 2010. Jeff Bingaman, in a speech earlier this week, reversed his position on the issue by calling for the inclusion of nuclear energy provisions in a clean energy standard. The Huffington Post reports that “the White House reached out to his committee [Senate Energy] to help develop the clean energy plan through legislation.” This development in itself potentially mitigates two of the largest obstacle standing in the way of progress on comprehensive energy legislation: lack of a bill, and lack of high profile sponsors. Democrats can also direct Section 48C of the American Recovery and Reinvestment Act of 2009 towards nuclear technology, which provides a tax credit for companies that engage in clean tech manufacturing.

Democrats should not give up on their policy goals simply because they no longer enjoy broad majorities in both Houses, and Republicans should not spend all their time holding symbolic repeal votes on the Obama Administration’s accomplishments. The lame-duck votes in December on “Don’t Ask, Don’t Tell,” the tax cut deal and START indicate that at least a few Republicans are willing to work together with Democrats in a divided Congress, and that is precisely what nuclear energy needs moving forward. It will require an agressive push from the White House, and a concerted effort from both parties’ leadership, but the road for forging bipartisan legislation is not an impassable one.

The politician with perhaps the single greatest leverage over the future of nuclear energy is President Obama, and his rhetoric matches the challenge posed by our aging and poisonous energy infrastructure. “This is our generation’s Sputnik moment,” announced Obama recently. Echoing the calls of presidents past, the President used his State of the Union podium to signal a newly invigorated industrialism in the United States. He advocated broadly for renewed investment in infrastructure, education, and technological innovation. And he did so in a room with many more members of the opposition party than at any point during the first half of his term. The eagerness of the President to combine left and right agendas can hopefully match the hyper-partisan bitterness that dominates our political culture, and nuclear power maybe one sector of our economy to benefit from his political leadership.

Energetics Cliff Notes - Wednesday Edition

This week is the first on our path to 80% clean energy by 2035. Good luck to us.

• NYT has a new piece on the Nissan Leaf, termed "the people's electric car."
• House Republicans are following through on efforts to block EPA regulations on carbon dioxide, ruled constitutional by the Supreme Court in 2007.
• Third Way has a new report out called "The Future of Nuclear Energy."
• Roger Pielke Jr. details why Obama's call for 80% renewable energy by 2035 is...difficult.
• This made me laugh: "for every 3.5 degree rise in temperature above a local average, Americans became 1 percent more likely to agree that 'solid evidence' exists that the earth is getting warmer."

Clean Energy Financing: First Steps Towards Post-Partisan Effort

Originally published at Americans for Energy Leadership.

Energy reform is headed quickly towards a hyper-partisan stalemate. As the Republican party takes control of the U.S. House, some advocates of a progressive energy agenda are calling for Congressional Democrats to regroup and “conduct guerrilla warfare” against the status quo. A consortium of climate scientists has recently rallied together to “to challenge disinformation and misinformation deployed in the policy wars over global warming.” All signs point to an intensifying battle between “climate hawks” and “climate zombies,” but little progress will be made if advocates continue to reinforce this hyper-partisan environment. Despite rampant cynicism, opportunities for bipartisanship exist, and the greatest potential for aisle-crossing probably lies in financing mechanisms for clean technology innovation.

Public funding and financing for technology-focused clean energy projects present unique political opportunities that other government efforts lack. Unlike pollution regulations and top-down industrial mandates, financing for business has long enjoyed broad support from both ends of the political spectrum. Various policy tools aimed at ramping up federal dollar flow towards clean energy projects include feed-in tariffs, loan guarantees, credit enhancement, direct grants and tax credits. Many of these policies carry the potential for bipartisan support in Congress.

The American Recovery and Reinvestment Act (ARRA) installed probably the greatest federal support for clean technology investment in history. However, as stimulus projects expire, clean technology innovation is approaching a funding cliff that will need to be replenished if Congress is serious about decarbonization. Hypothetical broad-based subsidies and renewable electricity standards will be insufficient in targeting the specific projects required for technological innovation. Vestigial targeting elements of the 2009 stimulus bill have received support from both sides of the aisle. Sec. 1603 of ARRA, for instance, has provided grants for specific clean energy projects in lieu of tax credits. Senators Jeff Bingaman (D-NM) and Olympia Snowe (R-ME) recently co-sponsored a bill (S. 3935) that would extend the tax code calibrations established by the stimulus act. The grants established by this legislation are diverse, but not broad; instead of blanketing industry with blank-check subsidies, they target projects in storage, solar, wind, fuel cell, and other clean energy technologies.

New programs based on tax credits and incentives could also attract Republican co-signers. Sander Levins, the Chairman of House Ways and Means, introduced alternative legislation to cap-and-trade that includes roughly $6.5 billion in tax credits for manufacturing of clean technologies, in addition to extending credits for other alternative fuels. Like S. 3935, Levin’s Domestic Manufacturing and Energy Jobs Act of 2010 would include extensions of stimulus programs, in this case Sec. 48C, another tax credit provision of ARRA. As Daniel J. Weiss reported recently, “the 48C programs is also included in S. 2857, co-sponsored by Bingaman, Hatch, Lugar, and Debbie Stabenow”--two Democrats and two Republicans. Unlike past efforts by Democrats like health care, in which they crafted legislation and then courted Republicans, programs like S. 3935 and S. 2857 can trace bipartisan support to their original authorship.

These initiatives are certainly smaller-scale than the original and subsequent drafts of the American Power Act, this summer’s climate/energy effort spearheaded by Senators Kerry, Graham and Lieberman. Despite its “tri-partisan” coalition of authors, APA was a stark demonstration of the political intractability of cap-and-trade. Even with a high-profile Republican working on the bill for six months and concessions by Democrats on nuclear and clean coal technology, conservatives in the Senate dropped the bill before picking it up. Instead of pursuing an agenda built around cap-and-trade with ornaments for conservatives, advocates must encourage their lawmakers to draft innovation-focused legislation from the ground up, with across-the-board political support for various traditionally conservative and progressive financing mechanisms.

Americans for Energy Leadership has already publicized an op-ed in Politico by Senators Stabenow (D-MI), Hagan (D-NH), and Udall (D-CO) calling for a new strategy on energy reform. Citing a report by Third Way, they note that “energy innovation is not a partisan issue--it’s an American imperative.” The path to a decarbonized economy cannot find success if either party adopts energy reform as a partisan agenda, used to re-elect their own members and wedge the ranks of the opposing party. Economic growth, energy security and the protection of our soliders are not partisan issues--they are core American goals.

UC Davis study suggests lots of work ahead to bring renewables to market

Cross-posted at WattHead - Energy News and Commentary.

A recent study from the Department of Civil and Environmental Engineering at U.C. Davis builds a pricing model that relies on resource availability and market capitalization to determine that global supplies of oil are likely to run dry roughly 100 years before renewable technologies are capable of replacing them. The paper, from authors Nataliya Malyshkina and Deb Niemeier and published in Environmental Science and Technology, uses IEA estimates of petroleum estimates and cumulative financial data for major oil and alternative energy companies, including market capitalization, share number, share price, and net income per share. Unlike typical technological projections based on learning curves or Hotelling predictions, the study develops its own method for determining the path forward for resource availability based on three market-expectation-based steps:

1. Identify traded securities, whose future cash flows strongly depend on the appearance of a new technology of interest (e.g., a viable replacement of crude oil, or a technology for reducing CO₂ emissions).
2. Specify a model for pricing these securities.
3. Collect historical and current market data on the securities (e.g., share price, number of shares outstanding, dividends paid, etc.).

The model they created gives the value T ≈ 131, where T is the time horizon "until the appearance or adoption of new technologies related to important sustainability problems." With a base year of 2009, this predicts 2140 as the year we can economically expect renewables to become suitable replacements for traditional fossil energy. Malyshkina and Niemeier also rely on IEA estimates of peak oil, which suggest that the rate of global oil production will begin to decline in some distinct time between 2010 and 2030. Put it all together, and we get a world tapped out of oil a full century before replacement technologies can meet expected demand.

Specific observations on the market for clean technology are similarly stark. For instance, the paper makes the point that even the most successful clean tech companies fall short in their own market to fossil fuel giants with relatively minor budgets for renewables.

In a recent article analyzing when renewable energy companies might occupy significant market share, it was pointed out that Exxon Mobil's current market capitalization was 28 times that of First Solar and 26 times that of Vesta Wind Systems, both among the largest renewable companies. Even for major corporations like General Electric, with a large stake in wind power, stock prices are driven by other parts of the company.

All in all, the Davis paper combines econometric, financial, geophysical and policy-oriented data to create a compelling, if alarming, model for resource replacement. Their work confirms the narrative offered by a new report called "Post-Partisan Power", which makes the claim that "America will make little sustained progress in transforming the U.S. energy economy or fully capturing the economic opportunities in new clean energy export markets until alternatives to conventional fossil fuels become cheaper." These two reports, in addition to a growing consensus following the demise of cap-and-trade this summer, at least implicitly identify the large price gap between renewable technologies and fossil fuel resources as the single largest obstacle to a fully decarbonized economy.

The pricing model and theory proposed by Malyshkina and Niemeier employs the concept of path dependency--where we have been matters for where we are going. After over a century of development on our modern carbon infrastructure, the momentum of the global economy will not shift course towards more sustainable technology easily. However, the difficulty is not a reason not to pursue smart and aggressive policy, according to the authors.

If policy interventions such as new major investments in the alternative-energy sector are made, then we would expect that the alternative-energy companies market capitalization would increase, with the net effect that the estimated value of T would decrease.

The next step, of course, is identifying those policy interventions and employing them effectively.

Chunks: A(nother) New Approach to Energy Policy?

Cross-posted at WattHead - Energy News and Commentary and the Americans for Energy Leadership Blog.

In a recent interview with Rolling Stone, President Obama addressed the failed climate/energy attempt of this summer, promising to move forward with a reinvigorated agenda in 2011. However, any such action will likely bear little resemblance to previous attempts. Mr. Obama conceded that "we may have to end up having to do it in chunks, as opposed to some sort of comprehensive legislation." If this is indeed going to be the form of a new course of action on climate/energy for Mr. Obama, commentators are beginning to wonder exactly what those "chunks" will be.

Never mind the fact that the most recent attempts at energy reform have been piece-meal to begin with--that's more or less inevitable with so many regulations, markets, fuels, interest groups and players at stake. Before its total dismantling, the American Power Act (formerly Kerry-Graham-Lieberman) was a hodge-podge of cap-and-trade, tax incentives and subsidies for renewables and clean coal technology, loan guarantees for next-generation nuclear power production, and a slew of regulatory reforms to preempt state action of GHGs and promote energy efficiency. Of course that bill never came close to a floor vote in the Senate, but my point stands: a "comprehensive" bill would have to be built one brick at a time anyway, so maybe Obama's explicit "chunks" approach will get the job done.

So what's on the table this time around? And, more importantly, what can pass a divided Congress?

Glenn Hurowitz at Grist proposes his favorite chunks in his "Peanut Butter Plan." He advocates a combination of tax credits for carbon capture; regulations to reduce black carbon pollution; intensifying regulations banning HFCs; and international finance to help LDCs adapt to climate change. Hurowitz refers to these four as "low-hanging fruit" solutions, and believes that if combined properly they could achieve greater emissions reductions than more comprehensive legislation.

Andrew Revkin kick-started a similar discussion over at DotEarth, putting forward a couple of his favorite policy chunks to replace a larger bill. He credits Hurowitz's list, and adds making the R&D tax credit permanent and the RE-ENERGYSE program to the list. If anything, Mr. Revkin's recommendations are more comprehensive than "chunky," as he puts it. Rather than approaching certain piece-meal aspects of climate/energy one at a time, Revkin's suggestions create policy infrastructure for energy innovation and energy education at large. Instead of writing different legislation for solar, wind, CCS, nuclear, EE, carbon finance, and emissions regulations (to name a few), funding for innovation and education create the foundations of a workable and flexible industrial policy on energy.

I'm a fan of piece-meal, and I'm a fan of big picture. But the problems will arise, as usual, with the politics. As Senator Jay Rockefeller said, "We [the Senate] tend not to be very good at chunks, but then you could argue that we tend not to be very good at big things either." Bonus points for honesty. However, a recent piece in Politico might forecast some political leeway for the President as he moves forward with a chunks approach. The article cites Senators Brown (R-MA), Alexander (R-TN), and Snowe (R-ME) as potential allies on a chunky approach, in addition to Democrats like Rockefeller, John Kerry and Dick Durbin.

A quick aside on the politics. Much has been said that, if Republicans have been so unwilling to cooperate thusfar with the Obama Administration, what makes us think that the chances for climate/energy legislation will be higher in 2011, when Republicans will certainly have more seats in both Houses? To the naysayers, I offer my cautious optimism that Republicans will accept their increased share in political power as an opportunity to shake off the still trenchant "Party of No" vision that many voters have adopted for them. Beating Democrats in Midterms is one thing; beating a still reasonably popular President in 2012 without a legitimate Republican frontrunner will take more than straight obstruction. Time will tell.

But I digress. What would I add to the chunky climate agenda? Well, I appreciate the efforts of individual members of Congress to promote clean coal, nuclear, renewables, energy efficiency, biofuels and other fuel-focused policies. However, I would add my name Mr. Revkin's endorsement of research and innovation before partitioning climate/energy policy into too many segments. In addition to increasing cleantech R&D funding to at least $15 billion annually and re-investing in science and engineering education, we should expand the scope of DoE's ARPA-E, the Advanced Research Projects Agency - Energy, and create public private partnerships with similar goals of targeting and funding specific energy technology projects for demonstration and deployment.

Like extending the research tax credit and RE-ENERGYSE, these proposals are less chunky and have received proportionately lower attention in Congress. However, policy and business leaders from the Brookings Institution and the Information Technology and Innovation Foundation to the American Energy Innovation Council and the Breakthrough Institute have all advocated similar approaches to our energy challenges. I've consistently added my voice to these calls to actions here and with Americans for Energy Leadership, who have done excellent work on the RE-ENERGYSE proposal in particular.

At the end of the day, we need a strong energy agenda, one way or another. But looking past the chunks, we must keep pushing for a policy infrastructure built on education, research and innovation, without which such piece-meal approaches may not be able to form an effective climate/energy agenda.