Senate Energy and Natural Resources Committee Hears About the Role of Government in Energy Innovation

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Publication date: 
18 June 2012

The May 22 hearing in the Senate Energy and Natural  Resources Committee focused on issues of government involvement in the clean  energy sector, highlighting the complexities of establishing the energy market.  Senators heard from Norman Augustine, Retired  Chairman and CEO of Lockheed Martin Corporation, as well as Ethan Zindler, head  of policy analysis at Bloomberg New Energy Finance, and Jesse Jenkins, Director  of Energy and Climate Policy at the Breakthrough Institute.

Chairman Jeff Bingaman (D-NM) opened the hearing by  discussing the development of new technologies which he stated have  historically been a strength of the US and is an area where the government has  been an effective partner with industry.   He raised the point that “although  there has been a broad consensus in Congress in the past in favor of investing  in these emerging technologies, we’ve been sending much more uncertain signals  recently” as he described programs that have been allowed to expire.  He recognized that there are very real  problems associated with the “valley of death” before new technology is  deployed into the marketplace and argued in support of expanding these new  crucial programs.  “As these technologies continue to develop and become more cost  competitive, we should view this as an opportunity to take global leadership,” suggested Bingaman.

Ranking Member Lisa Murkowski (R-AK) opened by showing her interest  in discussing government involvement in innovation:

“It is time for us to  renew a coherent long-term approach to energy development, truly an all of the  above approach.  Innovation, of course,  is absolutely at the core of that strategy.   I think it is one of the few areas where the government can and should  be providing greater funding and at the same time, I am aware if we do decide  to spend more on energy innovation, we are going to have to make some very  difficult choices about the amount of spending and the duration as well as what  our priorities are for it.” 

Murkowski was particularly interested in discussing the  funding for energy production.  While she  recognized that investment in this area is going to require taxpayer dollars  and that it is going to be challenging to find space in the budget, she suggested  that “it is an opportunity to be  financially creative” as the US assesses its priorities to focus in this  area.  She indicated that she would like  to see a portion of the revenues from energy production devoted to energy  innovation and showed support for methane hydrates while also suggesting that  there are alternatives to focusing on electric vehicle technologies.  She also questioned how long the US should be  involved in this arena stating that “it  makes good sense to invest in energy [research] and [development].” 

Murkowski emphasized that it is not in the national interest “to keep subsidizing the same resources  and technologies without a clear path towards allowing those technologies to  stand on their own in the market.”   She highlighted her support for federal efforts directed at basic  research and away from applied programs.  In these tight fiscal times Murkowski believes  the government should focus its spending on priorities that no other  institutions can fund.

In his testimony, Augustine supported limited government  involvement but cautioned that it should be in areas where there are programs  of importance to citizens but in which the private sector cannot or will not  invest.  He pointed to two areas in  particular where the private sector is reluctant to invest which are the two  “valleys of death” in energy research.  The  first “valley of death” occurs, he suggested, at the point when basic research  leads to a promising idea that is very risky and not yet proven feasible in  practice which results in hesitation from those funding the research,  particularly since they may not directly be the beneficiary.  The second challenge, or “valley of death”  occurs because energy is capital-intensive and this discourages entrance into  the marketplace.  Many energy projects  thus stall at the point just before they are able to enter the  marketplace. 

Augustine assured the senators that failures are a part of  research and development and we should be prepared to accept them though he  stated he “wouldn’t excuse failures due  to incompetence.”  He also emphasized  that innovation is key to success and that it is a non-diminishing demand in  this global marketplace.

Bingaman began his questions by asking about governmental  support around the world.  Augustine  replied that other governments are deeply involved in energy development and suggested  that our government should encourage other governments to be less involved.  The US needs to help support a level playing  field so US companies can compete, he said.   Augustine also stressed that in the real world, the government picks who  wins contracts and grants and that its role should be to support competition  while maintaining a high level of transparency. 

Murkowski was very focused on prioritizing resources and  asked what should the government focus on the most.  To this question, Augustine replied, “if you don’t focus on research there will  be nothing to deploy but if you focus entirely on research there will be no  money to deploy the benefits of that research.”  He continued by stating that research costs a  lot less than development and deployment and that the “role of government is more easily justified focusing on research.” 

The conversation then turned to how the government should  pay for energy production to which Augustine stated that “there is great opportunity to find the kind of money we need to triple  the [research] and [development]” funding as was recommended by his  group.  He suggested that the industry  that most benefits should pay part of the costs.

Senator Mark Udall (D-CO) was interested to learn if the  Advanced Research Projects Agency (ARPA) model could be applied to other  agencies and activities to which Augustine laid out the essential facets of the  ARPA model.  Augustine suggested that the  success of this model is in part due to the problem-solving focus of the ARPA  model and that it is not organized by discipline as are universities and Department  of Energy labs.  Augustine added that the  willingness for the agency to take risks in addition to the financial contributions  of the government have all helped this model be successful.

Senator Al Franken (D-MN) described his support for  government involvement as he very eagerly pointed out that nuclear reactors,  GPS technology, civilian aircraft and the internet, he said, would not have  happened without government involvement.   He questioned whether there is anything about renewable energy that is  different, by its nature, than other markets.   Augustine responded that the private sector should do whatever it can to  contribute to the development of the energy sector.  Regarding government involvement in the  energy market, Augustine stated that it would be appropriate “where the market has failed and the energy  market has failed.  Without government  support, of the types that have been described, we will not solve the energy  problem in this country.”

Zindler’s testimony was focused on the scale-up process for  clean energy technologies.  He questioned  whether the capital markets are providing sufficient support to address the  valleys of death in energy development.   He suggested that development and deployment of new technology are two  issues and that they should be addressed separately while pointing out that “the clean energy marketplace cannot be  sustained by subsidies forever.”

Jenkins also emphasized the need for subsidy reform  and agreed with Zindler that energy deployment subsidies and policies should be  reformed to better drive innovation and more advanced energy sectors towards  subsidy independence as soon as possible.   In addition, Jenkins recommended that the US strengthen federal research  and development as well as commercialization of the energy sector.  He suggested that the government must play a  proactive role in driving energy innovation since new energy sources face  economic competition from mature and developed energy sources like fossil  fuels.