By Taylor Kuykendall

The American Energy Innovation Council is a group of six corporate leaders who joined forces in 2010 over concerns that the U.S. is not making a sufficient commitment to energy innovation. The council packs a roster of big business names including Bill Gates, co-chair of the Bill and Melinda Gates Foundation; Norman Augustine, retired chairman and CEO of Lockheed Martin Corp.; and Jeff Immelt, chairman and CEO of General Electric Capital Corp.

In February, the council released a report card assessing the challenges and opportunities for the government to encourage the development of new energy technologies in the U.S. In the report, the council says it hopes to spark a dialogue creating a "clean, low-cost energy future" in order to contribute to the "economic strength, security, and well-being of the American people."

Among other recommendations, the council urges increased authorizations for U.S. Department of Energy innovation programs and support for large-scale energy demonstration projects. Jason Burwen, senior policy analyst for the Bipartisan Policy Center, is also the staff director for AEIC, and recently answered a few of SNL Energy's questions about the council's efforts. The conversation particularly focused on the future of coal. The council's report was released in the same month as the government's recent decision to pull funding for the FutureGen 2.0 project, which was backed by coal producers such as Peabody Energy Corp.

Jason Burwen Senior Policy Analyst, Bipartisan Policy Center Source: Bipartisan Policy Center

SNL Energy: What is the purpose and goal of the AEIC?

Jason Burwen: The mission of the American Energy Innovation Council is to foster strong economic growth, create jobs in new industries, and reestablish America's energy technology leadership through robust, public and private investments in the development of clean energy technologies. Broadly, the AEIC seeks to increase public investment in energy research, development and demonstration, as well as policies that leverage greater private investment in all stages of the energy technology innovation chain.

What role does the council envision for the short and long term use of coal and other fossil fuels?

The AEIC favors a broad and diverse portfolio of clean energy technologies. It's not a wind and solar organization, it's not a nuclear organization, it's not a coal [carbon capture and storage] organization. It's a clean energy RD&D organization. Clean fossil energy belongs in that broad and diverse portfolio.

Part of this is because you just can't say what the future will hold; ask someone 30 years ago what the energy mix today would be, and they'd probably not have gotten it right. They'd almost certainly not have told you shale gas and tight oil would be surging — and that's because it took a long-term public-private RD&D partnerships to unlock that resource and make it economical. When you're tackling the competitiveness, security and environmental challenges we face, you can't place all your innovation bets in one or two baskets — you have to diversify.

Beyond that, it appears that the world will burn coal for quite some time to come — regardless of what we in the U.S. decide to do. All the coal plants built in the last few years worldwide mean we've got a lot of "committed carbon," and so making CCS economical can be a huge game changer — that's why, for example, U.S. and Chinese engineers are collaborating on coal CCS RD&D. It's also something that, if we get it right, U.S. companies would be at the forefront, and they could sell the technology to the rest of the world.

What do you believe are some of the greatest barriers to development of carbon capture or other advanced coal combustion technologies?

Federal energy RD&D investments are too low, across the board. The AEIC thinks that we need to triple the amount the country invests. So it's not a surprise that power sector carbon capture utilization and sequestration [or CCUS] has developed slowly and struggled to reach commercial demonstration. It's particularly challenging, given the capital-intensive nature of the technology and the slow turnover of assets in the energy sector — the large magnitude of investment at such an early stage and the patience it requires is unlike most other industries. Demonstration of first-of-a-kind, capital-intensive energy technologies just doesn't have the risk-reward profile that is going to attract necessary investment from private companies, even large ones. I'd add that the lack of an adequate price signal or market demand for CCUS electricity and captured carbon will keep a lot of private investment on the sidelines, no matter how good the technology gets.

Why do you believe it has been so difficult to sell lawmakers and the public on scaling up federal investments in energy research?

The AEIC principals appreciate that Congress has focused on controlling the federal debt in recent years, and that's certainly a reason. Also, since RD&D investment takes years to generate returns, it's tough to get support when shorter-run things demand Congress' attention. And for members of the public, it's rare that we are even aware of just how many technologies have federal investment at their root — not just energy, but things like the Internet and GPS. Yet, by letting public energy innovation investments stagnate, the U.S. is effectively eating the seeds of future economic growth and competitiveness. And so part of the AEIC's job is to tell those stories of past investments. For example, shale gas and tight oil, gas turbines, advanced diesel engines, and low-emissivity windows are all today huge parts of our energy economy; they also all have major federal RD&D investments from decades ago.

That said, there's a long-running history of bipartisan agreement on the role of public investment in innovation, particularly in basic research. And there's a latent desire by many lawmakers to increase federal energy research — as recent as 2009, members from both parties were voting to do just that. [Sen. Lisa] Murkowski [R-Alaska], as recently as 2013, was trying to figure out novel ways to increase federal energy research. We think that it's a matter of renewing the conversation and elevating it to a level that garners more attention again.

Why is it so important for the public sector to become involved versus allowing private investors to lead energy research and development?

First off, private companies do lead energy R&D. They have to figure out how to turn technologies and ideas into competitive market offerings, and they invest in R&D, mostly in the later stages of technology development. So it's not about allowing them to lead or not lead. In fact, more often than not it's about partnership — public-private partnerships are critical in energy R&D. For example, public-private partnerships generally use cost-sharing, generating R&D efforts that neither party on its own would undertake.

The thing is, when you produce new knowledge through science and early-stage R&D, no one company can capture the value of that knowledge. Other companies learn something and can innovate on that new knowledge — it becomes an economywide benefit. So the inability of a single company to capture all that value means companies will tend to under-invest in R&D relative to the economy-wide benefits it offers. Moreover, the longer-term the R&D investment, the less likely private companies will choose it when compared with the opportunities presented by shorter-term, incremental investments. That's one major role for public investment — to correct this systematic under-investment in R&D by the private sector.

Beyond that, the energy industry is dominated by long-lived, capital-intensive projects, and so turnover is slow — making the reward for new technologies a long-term proposition. There's a "valley of death" in going from a technology prototype to a viable market product, where it take a long time, there's no cash coming in, and risks remain high—and it's particularly large for energy. At the same time, we don't have a market price signal for some society-wide benefits of new energy technologies, like enhanced national security or mitigated climate change. So the risk-reward profile of new energy technology demonstration will rarely attract the necessary private investment on its own, keeping many disruptive new technologies from getting to demonstration scale. Public-private partnership is critical to ensure that these kinds of new energy technologies move through the valley of death and become viable.

How do you think failed efforts such as Solyndra, or more recently FutureGen 2.0, affect the public's perception of government investment in these projects and how can that perception be changed?

When a government technology investment fails to come to fruition, there's a tendency to condemn the entire concept of innovation investment. But you can't judge success or failure looking at just one investment at a time. Like any responsible investor, the government takes on a diverse portfolio of investments — precisely so not all bets are in one place, and so that failure in one place may be offset by success in another. And so if you look at, for example, the loan programs of the Department of Energy, even though you had several project failures, they only represent a 4% default rate — just one-eighth of what Congress set aside for defaults — and they count amongst them some major wins, like getting the first all-electric vehicle manufacturing plants in the U.S. started and demonstrating solar power with molten salt storage in the U.S. for the first time. Past government R&D investments in shale gas geophysics and technology and in jet engines have generated quite substantial returns for the U.S. economy — technologies few folks are aware had foundations in critical government investments. So part of changing public perceptions about government investment is telling those stories.

Of course, the government has to balance accountability to taxpayers with making innovation investments. That's an inevitable tension. So in one sense, the question becomes, how can we maximize chances of success while minimizing downside risk to the taxpayer? It's not about making "safer" investments — you have to take risks if you're going to invest in technologies that don't yet exist. You can use better tools; for example, the AEIC recommends a financing authority, such as the previously proposed Clean Energy Deployment Authority, that would limit downside risk to taxpayers and leverage greater private investment for new technology demonstration.

Beyond that, though, there's a question of how does the U.S. address the competitiveness, security and environmental challenges it faces. You can't regulate your way out of these problems. But you can generate new economic possibilities through discovery and invention. The U.S. has addressed so many of its past energy challenges with ingenuity, and that ingenuity is why we pioneered nuclear power, jet engines, the Internet, shale gas, solar photovoltaics and more. Connecting government investments with the long-run economic benefits — creating companies, creating jobs — is critical to building public support.

What do you believe should be the next steps for the council? Are you optimistic the group will be able to make a difference on the energy landscape?

The AEIC principals are committed to their mission. We are undertaking a new round of engagement with members of Congress and the administration on the topics in our recent report — advocating for greater public investments in energy RD&D, re-authorization of the America COMPETES Act, and a renewed focus on financing for large-scale technology demonstration.

I am optimistic that the AEIC can make a difference by elevating the conversation on public investment in innovation. There's a history of bipartisan support for using ingenuity to tackle our energy challenges. There are members of Congress in both parties who want to work on this issue. We hope that the vocal support of successful business leaders like AEIC will help focus policymakers on the economic importance of federal energy innovation investment.