The US Innovation System: Energy and Environmental Policy and Green Sectors

The US Innovation System: Energy and Environmental Policy and Green Sectors

Jan Youtie and Travis Horsley

Program in Science, Technology, and Innovation Policy

Georgia Institute of Technology, Atlanta, USA

February 2012

Working Paper 2012/02

Project on Sustaining Growth for Innovative New Enterprises

Manchester Institute for Innovation Research

Manchester Business School

University of Manchester, Manchester, UK

Acknowledgements: Research for this working paper was supported by the Project on Sustaining Growth for Innovative New Enterprises, sponsored by the UK Economic and Social Research Council. The opinions and conclusions presented in the paper are those of the authorsand should not be attributed to the project sponsor.

Corresponding author: Jan Youtie, email: .

The US Innovation System: Energy and Environmental Policy and Green Sectors

Jan Youtie and Travis Horsley

Program in Science, Technology, and Innovation Policy, Georgia Institute of Technology

Abstract: This paper provides a concise overview of the US innovation system and its organization and outlines key features of recent and current US energy and environmental policies. A brief discussion is provided of US green sector definitions and green jobs measurement. The paper was prepared to provide background and context for the project on Sustaining Growth for Innovative New Enterprises.

The US Innovation System: Energy and Environmental Policy and Green Sectors

I. Introduction

The US innovation system is large but decentralized, marked by checks and balances between the executive, legislative, and judicial branches and shared powers between the federal and state and local levels of government. Although federal agencies in the executive branch have particular missions, these missions often overlap. This structure can raise coordination issues which may be particularly constraining in domains with a more market driven innovation disposition such as energy commercialization (Ogden et al, 2008). Within this system, the green sector has been an important policy target for the current administration. This paper will discuss how the energy subsystem is organized, what some of the key legislative policies have been, what public and private investment flows are available, and what the size of the industry is in the US.

2. Organization

The energy and environmental domains include some 15 different federal departments and independent regulatory agencies, public utility commissions and environmental regulatory agencies in all 50 states, mayors in several hundred cities implementing emissions inventories and reduction measures, private sector energy providers, and different House and Senate committees with interests related to energy and environmental concerns (U.S. Senate Committee on Energy and Natural Resources, US House Committee on Energy and Commerce, US House Committee on Natural Resources). There is no single coordinating mechanism across these stakeholders. However, several organizations perform selected coordinating functions, including the US Department of Energy, and (for energy research) the National Science and Technology Council (NSTC) of the Office of Science and Technology Policy (OSTP). OSTP is the leading scientific advisory agency for the executive branch and resides within the Executive Office of the President. An inter-agency coordinating body within OSTP, NSTC coordinates research agendas in the energy domain through its Committee on the Environment, Natural Resources, and Sustainability, which has 23 agencies that are organizational members and several others known as coordinating departments and agencies. These members participate through 10 diverse subcommittees: air quality research, critical and strategic mineral supply chains, earth observations (national task force and US group), disaster reduction, ecological systems, global change research / climate change science, ocean science and technology, toxics and risks, and water availability and quality.

Twenty federal agencies take part in the Interagency Climate Change Adaptation Task Force, which is led by the Council on Environmental Quality (CEQ), the Office of Science and Technology Policy (OSTP), and the National Oceanic and Atmospheric Administration (NOAA). There also are various non-government organizations involved in the energy domain such as the Energy Foundation, Electricity Consumers Resource Council, and trade associations such as the National Hydropower Association.

The Department of Energy (DOE) is the lead agency with an explicit mission involving energy policy. DOE operates a system of 21 national laboratories that engage in energy research under the Office of Science; this office serves as the locus of basic energy research for the agency. Many of the DOE laboratories had their origins in nuclear energy. The National Renewable Energy Laboratory is especially important for renewables research. DOE has several programs to foster R&D. The Advanced Research Projects Agency-Energy (ARPA-E) was modeled on the Defense Advanced Research Projects Agency (DARPA) to advance cross-disciplinary and high risk research in the energy domain. Energy Innovation Hubs promote breakthroughs in specific energy technology areas such as batteries, smart grids, and advanced materials. Energy Frontier Research Centers provide support for the basic science underlying broad-based energy challenges. DOE’s Office of Energy Efficiency and Renewable Energy (EERE) supports application-oriented investment in efficiency and renewables technologies. The use of prize-based incentives is evidenced in the National University Clean Energy Business Challenge, which encourages university students to found clean energy companies through a series of regional and national competitions.

Other agencies are involved in this domain, especially from a climate science perspective. These include the National Science Foundation, National Oceanic and Atmospheric Administration (within the Department of Commerce), National Aeronautics and Space Administration (NASA), Department of Transportation, Department of the Interior, and Environmental Protection Agency (EPA).

3. Key Energy Policies

Energy policy in the US has its roots in the anti-trust actions of the early 1900s that led to the break-up of Standard Oil. Since then, energy policy has emerged in reaction to various energy crises such as the oil embargo in the mid-1970s, which led to the Energy Policy and Conservation Act, establishing price controls and the US Strategic Oil Reserve (Randolph and Masters, 2008). The two Iraqi wars in the 1990s and 2000s were followed by energy legislation, including the Energy Independence and Security Act of 2007, which increased vehicle fuel standards and extended efficiency standards for appliances. Nuclear power has received broad support in the US, beginning with the Atomic Energy Act of 1954. Since that time, nuclear energy policy has focused on waste disposal from nuclear facilities. The Clean Air Act, first passed in 1970, has been used by the EPA to put forth standards for regulating greenhouse gases since 2011. There also have been various tax credits, from time to time, to encourage energy production and efficiency. The American Recovery and Reinvestment Act of 2009 (ARRA) aimed to stimulate the US economy through a mix investments and tax credits following the economic downturn of 2008. Twelve percent of ARRA federal spending was allocated to the energy area in title IV of ARRA to build infrastructure and conduct R&D in energy efficiency and renewables areas.

State energy policy stems from the Public Utility Holding Company Act of 1935, which provided for state utility commission regulation of electricity and eventually natural gas utilities. Many US states have been observed to precede federal policy in their initiatives to promote cleaner air, reduced greenhouse gas emissions, and more renewable energy offerings. California has long had vehicle fuel efficiency standards that are more stringent than federal standards. Renewable Portfolio Standards (RPS), which require that a utility provide a certain percentage of the energy from renewable sources by a specified future date, encourage the growth of in-state markets for wind, solar, biomass, landfill gas, and technologies not yet on the market (such as hydrogen-based technologies). Many observers have pointed out the effect of this policy in Texas, an early implementer of RPS, in stimulating the state market for wind farms and wind turbine technologies. The American Wind Energy Association reports that Texas has created more than 9500 MW of wind-based energy, more than 2.5 times the next largest state.[1] Twenty-nine US states had RPS as of January 2012 and another eight states had renewable portfolio goals; states in the Southeast and upper mountain regions were less likely to have adopted these policies. Other policies at the state and local level that encourage green development are: energy efficiency resource standards, grant and loan programs for renewables, interconnection policies, net metering policies, property tax incentives, public benefits programs, rebate programs, and tax incentives and credits.[2] There are also various regional greenhouse gas initiatives for providing greenhouse gas registries, inventories, and cap and trade programs such as the Western Regional Climate Action Initiative and the Regional Greenhouse Gas Initiative in the Northeastern US.

There have been a number of important policy reports in the energy and environmental area. The President’s Council of Advisors in Science and Technology (PCAST), an advisory organization comprised of corporate executives and university presidents, issued “Report to the President on Accelerating the Pace of Change in Energy Technologies Through an Integrated Federal Energy Policy” which called for a government-wide process similar to the QuadriennialDefense Review to set national goals and engage in cross-agency coordination (President’s Council of Advisors in Science and Technology 2010). The PCAST report “Sustaining Environmental Capital: Protecting Society and the Economy” recommends the use of informatics for accounting for ecosystem resources in the US (President’s Council of Advisors in Science and Technology 2010).

4. Investment Funding for Energy

The President’s budget for fiscal year 2013 for the Department of Energy was $27.2 billion, 3.2% higher than 2012 enacted levels and about 0.7% higher than the 2011 continuing resolution budget. This budget includes $5 billion for R&D for the Department of Energy’s Office of Science and $2.3 billion for R&D in EERE.

In addition to federal expenditures, the US has access to a strong venture capital sector. The cleantech sector attracted $1.2 billion worth of investments in the US in the fourth quarter of 2011, which was more than 50% higher than the previous year’s fourth quarter figures. While overall investment in venture capital has declined between the third and fourth quarters of 2011, cleantech deals continued to move upwards from a low point in the second quarter of 2011. Overall cleantech investment in 2011 was $4.3 billion (PWC 2012).

5. Measurement of the Green Industry

The definition of what is a green industry has been subject to much attention in the US because of its importance in gauging the size of the green jobs segment. The US Bureau of Labor Statistics (BLS) employs two approaches to measuring green industries. The narrower output approach identifies establishments that produce green goods and services. The broader process approach identifies establishments that utilize environmentally friendly production processes based on worker responsibilities. These definitions result in five broad groupings: (1) energy from renewable sources, including wind, biomass, geothermal, solar, ocean, hydropower, and landfill gas and municipal solid waste, (2) energy efficiency, including energy-efficient equipment, appliances, buildings, and vehicles, as well as products and services that improve the energy efficiency of buildings and the efficiency of energy storage and distribution, such as Smart Grid technologies, (3) pollution reduction and removal, greenhouse gas reduction, and recycling and reuse, (4) natural resources conservation, including organic agriculture and sustainable forestry; land management; soil, water, or wildlife conservation; and stormwater management, and (5) environmental compliance, education and training, and public awareness. The former four comprise businesses with a more technological orientation. The roughly 400 industry classes falling into these five groupings were issued for public comment in fiscal year 2010 but there has been no follow-up and no official release of green jobs estimates across the classes, although estimates are promised by the end of 2012.

Even though BLS estimates are not yet available, the Brookings Institute has published a green jobs estimate. Brookings Institute estimates that there are 2.7 million green jobs as of 2011, although most are in mature industries in manufacturing and public services rather than in renewable energy (Muro et al., 2011).

On the patent side, patent offices and databases have developed green patent classes that address many of the areas already specified. The US Patent and Trade Office’s (USPTO) definition of green patent classes in its Green Technology Pilot Program (to provide accelerated review of patents related to green technologies) encompasses alternative and renewable energy production, energy storage (batteries and fuel cells), energy distribution (including “smart grid”), energy conservation and efficiency improvements, greenhouse gas reduction, carbon sequestration, environmental purification, protection or remediation, and environmentally friendly farming.[3] It is estimated that 6.7% of US patents (more than 283,000) granted since 1975 are green patents (Strumsky and Lobo 2011).

6. Future Perspectives

The US regulatory framework has been thought of as innovation-friendly. The framework for innovation in the US allows for flexibility to start, fail, and (hopefully) succeed at small business creation.The availability of private capital funds for innovation,labor market flexibility, and accommodating tax provisions are among the supportive attributes of the US innovation framework. Then again, the US government's efforts to enhance the conditions for innovation tend to emphasize cost and regulatory matters. Observers thus have considered it less encouraging for green commercialization which may benefit to a greater extent from market driven approaches that respond to carefully designed taxing or regulatory standards across federal, state, and local levels (Ogden et al, 2008). Moreover, interest in the green sector has been mentioned for its ability to generate jobs and economic growth. Observers point out, however, that many of the energy initiatives have a long time horizon.

Fallout from the Solyndra bankruptcy filing in September 2011 will likely affect the availability of financing for green goods companies. A manufacturer of solar modules, Solyndra received $528 million in loan guarantees from the US Department of Energy. Indeed Solyndra was the initial recipient of loan guarantees from the Obama administration as part of the economic stimulus initiatives in 2009. The Solyndra situation has prompted partisan debate as to whether the government should be intervening in the economy on behalf of these types of businesses.

7. References

Muro, M., Rothwell, J., Deva, S. (2011). Sizing the Clean Economy: A National and Regional Green Jobs Assessment. Washington DC: Brookings Institute.

Ogden, P, Podesta, J, Deutch, J (2008). Ending the Inertia of Energy Policy, Issues in Science and Technology Policy, Winter, 2008.

PWC (2012).MoneyTreeTM Q4 2011 US Cleantech venture funding. PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters. February 6, 2012.

President’s Council of Advisors in Science and Technology (2010). Report to the President on Accelerating the Pace of Change in Energy Technologies Through an Integrated Federal Energy Policy. Washington DC: Government Printing Office.

President’s Council of Advisors in Science and Technology (2011). Sustaining Environmental Capital: Protecting Society and the Economy. Washington DC: Government Printing Office.

Randolph, J, Masters, G.M. (2008). Energy for Sustainability. Washington: Island Press.

Strumsky, D., Lobo, J. (2011). “How Green is My Nano? Evidence from USPTO Patents”.Conference presentation at S.Net Conference, Tempe, Arizona, November 2011.

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[1]Source:

[2]DSIRETMDatabase of State Incentives for Renewables & Efficiency, (accessed February 13, 2012).

[3]www.uspto.gov/patents/law/notices/74fr64666.pdf