November 3rd, 2011


E.T. Grether Professor, Haas School of Business, University of California

Director, MIT Industrial Performance Center

Executive Director, Steyer-Taylor Center for Energy Policy and Finance, Stanford


America’s innovation engine is the envy of the world, yet it struggles to deploy new technology at the scale commensurate with its economic might. A panel of experts from three of the nation’s leading universities told a Climate One audience on November 3 that the U.S. risks falling behind if it refuses to address the technical, financial, and political barriers slowing energy innovation.

Richard Lester, Director, MIT Industrial Performance Center, laid out what he called the three waves of energy innovation. The first wave is the already economical and feasible energy efficiency improvements in buildings, industry, and transportation coming over the next decade. Next, beginning in 2020 and running through about 2050, we will see the scaling of low- or de-carbonized energy supply technologies. “We know what these are already,” he said, “but in most cases they too expensive relative to the high-carbon incumbents.” Last, are the breakthroughs, technologies we don’t even know about today, or may know about but are in the lab stage, but that can take decades to mature.

“Sadly,” he said, “I don’t think it’s realistic to expect breakthroughs, new discoveries that are still at the lab stage, to be playing much of a role in terms of carbon reduction much before the middle part of the century.”

“We need to be pursuing all three waves of innovation simultaneously, and accelerating all of them simultaneously, today,” he added.

Dan Reicher, Executive Director, Steyer-Taylor Center for Energy Policy and Finance, Stanford University, was especially bullish on the promise of Lester’s first wave, energy efficiency. “It is the low-hanging fruit, and it’s also the low-hanging fruit that grows back. We don’t use it up,” he said. “The incandescent light bulb is being replaced by the compact fluorescent light bulb, which is being replaced by the LED light bulb, and who knows what comes next.”

Reicher said that energy efficiency and other low-carbon technologies are needlessly held back because we ignore one or more critical criteria: technology, policy, and finance. “Too often we focus on how to make technological advances and somehow assume that out of that will come progress. It’s not enough to make these breakthroughs in the laboratory if the right policy isn’t in place, if the right capital isn’t flowing.”

And even when easy efficiency gains are there to be had, such as in new cars, said Severin Borenstein, Co-Director, Energy Institute, Haas School of Business, UC Berkeley, we are slow to act. “There’s no question fuel economy in the automotive sector is one of the easiest places to improve efficiency and reduce carbon. And we pay very little attention to it,” he said.

“The technologies are getting better, but gasoline, for the most part, remains cheap. When you ask people how much they need to save to drive a smaller car, it’s a lot more than most people are willing to give up.”

The above difficulties and more – think our broken political system – have convinced Richard Lester that a new approach, one not dependent upon raising the price of energy, is necessary. “It may be time for a shift in the policy debate to focus less on what is certainly the key requirement of increasing the price of energy to reflect these costs and focusing more on the other half of the equation, which is figuring out how to reduce the cost of the things that we actually want, which are low-carbon energy technologies and efficiency,” he said.

Dan Reicher shares Lester’s concern about our broken politics, particularly as it is manifested in the GOP focus on the bankruptcy of Solyndra. “Unfortunately, we’ve reached a moment where we may actually be heading in the opposite direction,” he said. “We may be demanding that anything that we put money into has got to show very reliable, very quick success. And not allow for what innovation requires, which is placing bets.”

“The federal government has been placing those bets in a whole host of technology areas well beyond energy for decades. I really worry that we could see our federal government pulling back from that,” said Reicher.

Reicher, citing his time at Google, also emphasized that investors must be realistic about the larger time horizon needed for energy bets. “A piece of software gets developed over a period of months. And then it gets deployed over a period of months. And you could actually end up with millions of users around the world,” he said.

“When it comes to energy hardware,” he added, “we really measure in decades. It’s two orders of magnitude difference in terms of how long it takes to get something deployed at scale. Solar photovoltaics, we’ve been at it roughly 40, 50 years, and we’re not even at a quarter of a percent of U.S. electricity.”

Severin Borenstein urged policymakers to ramp up funding for basic science research, in part because he is pessimistic that existing renewable energy technologies will be sufficient. “The technologies that are going to solve this problem don’t exist yet,” he said, adding that “most of the technologies that exist don’t have the potential to be cost-effective with fossil fuels. That’s not just because they are expensive now. They will get cheaper.”

“What most people don’t appreciate,” he went on, “is that fossil fuels are very likely also to get cheaper. We’re seeing that with natural gas. We’re very likely to see that with oil over the next 10 years.”

“That bar that renewables have to chase is getting harder and harder to clear all the time. We need to recognize that what we need are these major leaps forward,” he said. “What I worry about is that we are pushing technologies – some of which are already pretty mature, like rooftop solar PV, and some of which are getting more mature, like cellulosic ethanol – into a market where their hands are tied behind their back. Where, basically, it’s all tilted against them because the real value of them is their environmental benefits – and we’re not willing to price those.”

“We can’t take our eye off the price on carbon,” he said.

– Justin Gerdes
November 3, 2011
Photos by Rikki Ward
The Commonwealth Club of California