Practical Pieces of the Energy Puzzle
A Full-Court Press for Renewable Energy
Transformation of the energy system will require steady and generous government support across technological, economic, and social domains.
Any effort to move the United States away from its current fossil-fuel energy system will require the promotion of renewable energy. Of course, renewable energy alone will not solve all problems of climate change, energy security, and local pollution; policies must also stress greater energy efficiency, adaptation to existing and future changes in climate, and possibly other options. But greatly increased reliance on renewable energy will certainly be part of the mix. The nation’s vast resources of solar and wind imply that renewable energy could, over time, replace a large part of the fossil-fuel energy system. Policies that encourage and guide such changes need to think about energy as a technological system and include a portfolio of policies to address all of the components of that system.
For more than 20 years, economists, historians, and sociologists have been analyzing technologies as systems. Although each discipline has its own emphasis, framework, and nomenclature, they all converge on a central insight: The materials, devices, and software that usually are thought of as “technology” are created by and function within in a larger system with economic, political, and social components. Policies that seek to change technological systems need also to address these nontechnological components, and moving toward the extensive use of renewable energy would constitute a major system change.
The existing energy system includes economic institutions such as banks and capital markets that know how to evaluate an energy firm’s financial status and are knowledgeable about prices. Politically, the system requires such measures as technical standards for a range of items, such as voltage and octane, as well as regulatory rules and structures for environmental protection and worker health and safety. At the social level, the system needs people with diverse skills to operate it, as well as university departments to train these workers and associations to promote their professional growth. Also needed are institutions that can interact successfully with the many populations affected by energy developments.
Along every dimension, the size of the existing energy system almost defies imagination, creating what historian Thomas P. Hughes characterizes as the system’s momentum, the extent to which it resists change. Most obviously, the system moves and processes huge quantities of various fuels and in so doing generates trillions of dollars of revenues worldwide. The many institutions in the system have created well-established norms, rules, and practices, which also resist change. The individuals in the many professions that make the system work have, in addition to their incomes, their identities linked to the existing system, which system change would put at risk. Changing this large, deeply entrenched system will take time, major shifts in incentives, and considerable political and business effort.
One could describe this system as emergent: Instead of being planned from the top down, it evolved out of the fragmented efforts of innovators, firms, governments, and nonprofit organizations responding to a complex set of technological, economic, political, and social challenges and incentives. But that process of emergence was anything but smooth or easy. For all of its benefits, it also entailed wrenching economic disruptions, rampant pollution, and sometimes violent labor relations. The nation can do better.
Public policies can influence and guide these changes but cannot determine them. The energy system spans and links together all sectors of society, of which government policy is only a part. The response of businesses, social groups, and even the culture to government policies will drive their effects, as will planned or unexpected technological developments. It is quite impossible to predict accurately and with precision all of the effects of policies, thus leaving open the certainty of unplanned and probably unwelcome results from even the most carefully developed policies. All policies are born flawed. Therefore, governments need to design flexible policies and create institutions that can learn and change. Good policies are ones that get better over time, because no one gets it right the first time.
However, and in tension with the previous point, public policies that seek to change large systems must be long-term and consistent. Flexibility and learning do not mean lurching from one fad to the next. Whether government policy aims to create new technologies through funding for R&D, foster new cohorts of technical experts through education funding, or change the incentives that firms and consumers face through providing targeted financial incentives, it will need to push in the same general direction for decades. Such consistency has paid off in fields such as information technology and biotechnology. Science policy scholars also can point to the heavy costs of volatile funding, as research groups that take years to assemble will disband after one year of bad funding. No one possesses a simple formula for reconciling the need for flexibility and the need for consistency. However, studying policies that successfully do both can inform the creation of new policies and institutions.
Finally, policies that seek to change the energy system need to stay focused on policy goals beyond simple market efficiency. Not surprisingly, debates over energy often involve discussions of the prices of competing energy sources. However, the energy system entails many other important social consequences, such as environmental and social equity problems. Policy analysts Barry Bozeman and Daniel Sarewitz have proposed a framework called Public Values Mapping in an effort to articulate the nonmarket values that policies should seek. This is not to say that market efficiency is inherently a poor standard, but that market goals may not always align with other goals, and policymakers will need to negotiate those conflicts.
An integrated strategy
To address all of the parts of the energy system requires a four-part policy strategy: improving technology, improving markets, improving the workforce, and improving energy decisionmaking. Each part will entail many specific policies and programs. Many of these policies will come out of or be implemented by firms, trade and professional associations, or advocacy groups, but governments will be centrally involved in all of them.
Improving technology. The level of funding, public and private, for renewable energy R&D is abysmally low, when seen in the context of the size of the energy market. The nation cannot transform a $1 trillion industry with a $1 billion investment. To make matters worse, public and private energy R&D has been declining for decades around the world, including in the United States. Innovative industries spend upward of 10% of their revenues on R&D. Industries such as computers and pharmaceuticals also enjoy the benefits of large government R&D programs.
The volatility of federal spending on renewable energy R&D has also contributed to problems. Such volatile budgets damage any research program. When funding fluctuates, laboratories lose good research teams and, to make matters worse, it is hard to recruit the best researchers and graduate students. Moreover, it is possible for the government to spend lots of money on R&D without producing much social benefit. To succeed, R&D programs need to pay close attention to public/private linkages and to the public social values they promote.
Improving markets. Improving markets for renewable energy technologies means removing impediments to their diffusion, making them more cost-effective, and making economic institutions more sophisticated in dealing with them. A number of market conditions impede the development and diffusion of innovation, usually by increasing transaction costs or placing renewable energy at a financial disadvantage beyond the costs of the devices themselves. For example, a home with solar photovoltaic panels may generate more electricity during the day than the household needs. If so, does a utility have to buy back the excess power, and at what price? If every home or business that puts in solar panels has to individually negotiate those questions with the utility, that greatly increases the transaction costs of renewable energy. A variety of well-tested policies can overcome these and related impediments. These policies include “net metering” that provides home or business owners with retail credit for any excess power they provide to the grid, interconnection standards, building codes, technology standards, and installation certification.
Like all other new technologies, renewable energy technologies in their early stages of development can benefit from subsidies (which all other energy sources get anyway) or regulatory mandates. Thus, policies such as production tax credits, “feed-in tariffs” that obligate utilities to buy energy from any renewable energy–generating facilities at above-market prices, and renewable portfolio standards come into play. Many of these policies are problematic, but more than a decade of experience in individual U.S. states and in Europe are enabling analysts to sort out the merits of various policies. In some cases, the economically optimal policies may not be the most politically feasible.
In addition to providing subsidies, governments can use their power of procurement to simply buy renewable energy, creating a large revenue stream for the industry. Government procurement has been a huge driver for many high-tech industries, and it could be for renewable energy as well. The federal government is an immense energy consumer, perhaps the largest in the world. What it buys influences and even creates markets.
Recently, some high-profile venture capitalists have become involved in renewable energy projects. Can other economic institutions, such as banks and insurance companies, assess and finance renewable energy deployment? Part of improving markets means ensuring that, for example, mortgage lenders have the ability and incentive to properly evaluate the effect on operating costs of adding renewable energy to a home or business.
In addition, government policy will need to be deeply involved in developing the appropriate infrastructure, the most obvious part of which is the electrical grid. This is not to say that the government will in any simple sense pay for that infrastructure, but policies will influence who does and how its components are built. Public goods, from lighthouses to highways, have always posed these collective action problems, and public policies are involved in solving them.
Discussions of subsidies or other forms of government aid raise the issue of whether renewable energy can compete in markets, and to some extent that is a serious issue, but not in the pure sense. First, government has been involved in energy markets for more than a century through procurements, subsidies, regulations, tax benefits, and other means. All forms of energy have enjoyed many tens of billions of dollars of government largess. It makes no sense to say that renewable energy has to do it on its own. Second, every major technological revolution—and that is what changing the nation’s energy system will be—of the 20th century had government deeply involved. Energy will be no exception to that rule.
Improving the workforce. The development and deployment of renewable energy technologies will require an ever-growing and diverse workforce: wind-turbine installers, solar design engineers, systems analysts, Ph.D.-level researchers, and so on down a long list. Does the nation have the programs, in quantity and quality, to train, certify, and provide professional development for such a workforce? For scientists and engineers, the federal government has typically funded graduate and undergraduate education indirectly through research assistantships tied to government research grants. Will that policy work for renewable energy, and is the flow of funds large enough? This gets back to the point about volatile funding for R&D. That volatility hurts education as well as the research itself. To attract the best researchers and the best graduate students into this field, it needs relatively steady funding. The nation would neglect this part of the system at its peril. The current policy of volatility seems to be based on the Homer Simpson philosophy of education: “Our children are our future. Unless we stop them now.” Surely, our society can do better.
Improving energy decisionmaking. Improving purchasing decisions is usually thought of as a matter of consumer education. Instead, the focus should be on the many people in the economy whose decisions drive substantial energy use: vehicle fleet managers, architects, heating and cooling engineers, building and facility managers, and many others who purchase energy for institutions. Private groups are doing some of this education; one example is the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) certification program for environmental standards in buildings. Government policy could work with the many professional associations to help energy decisionmakers be up to date on the opportunities and problems they might encounter in adopting renewable energy. Some of this is already happening, but it needs to expand greatly in guiding energy-related decisions.
Each piece of this four-part strategy will have numerous policies within it, and developing those policies for the array of technologies involved in renewable energy will be a large and multidisciplinary task. Configuring government institutions to implement and, as need be, adapt those policies will generate another set of challenges. Some policies in this strategy will be controversial, and no doubt some people will argue that the government should stay out of the way entirely and let the process unfold as it will. After all, the energy system has changed before and will change again.
But the true bottom line is that it would be irresponsible for government to take such a hands-off position. The change in the energy system will be a huge and wrenching event, and government has an obligation to push the change in a socially desirable direction as well as to try to alleviate some of the negative fallout of the changes. In an important sense, government policy will be unavoidably involved in this change. Government regulations and mandates structure the world that businesses and social groups encounter, and therefore they play important roles in resolving the conflicts that such changes inevitably entail. Because government policy cannot help but be involved, it should push for a system that protects the public interest and reflects values that markets by themselves will neglect. The nation simply cannot afford the waste of resources and environmental damage of past system changes and should not tolerate the human costs.
Barry Bozeman and Daniel Sarewitz, “Public Values and Public Failure in U.S. Science Policy,” Science and Public Policy 32, no. 2 (April 2005): 119–136.
Thomas P. Hughes, “Technological Momentum,” in Albert H. Teich, Technology and the Future, ed. 8 (Boston/New York: Beford/St. Martin’ Press): 26–35.
Richard Nelson, National Innovation Systems (New York: Oxford University Press, 1993).
Gregory F. Nemet and Daniel M. Kammen, “U.S. Energy Research and Development: Declining Investment, Increasing Need, and the Feasibility of Expansion,” Energy Policy 35 (2007): 746–755.
Frank N. Laird ([email protected]) is an associate professor in the University of Denver’s Josef Korbel School of International Studies.