Waxman-Markey: What About Innovation?

When the American Clean Energy and Security Act of 2009—aka the cap-and-trade bill crafted by Henry Waxman and Edward Markey—passed out of committee last week, climate-change activists like Al Gore lauded the “historic action.” Most of the criticism, meanwhile, came from environmental groups who complained that the bill’s target for a 17-percent reduction from 2005 levels by 2020 was far too weak, and decried the bill’s giveaways of emissions permits to polluting industries.

But there’s another perspective from which to assess the bill—whether it does enough to promote clean-energy innovation. As a recent report by my colleagues at the Brookings Institution argued, radical scientific and technological breakthroughs—as well as the commercialization of those technologies—will be essential to securing the needed 80 percent cut in greenhouse-gas emissions by mid-century. So it matters a lot whether the Waxman-Markey bill (or Congress by other appropriations channels) invests deeply enough in clean-energy R&D and technology development and deployment to catalyze needed inventions over the next 40 years.

So how do things look on this front? On the upside, Waxman and Markey deserve credit given the circumstances for reserving some 16 percent of the cap-and-trade revenue for clean-energy development and deployment. Also welcome is the bill’s allocation of 1 percent of cap-and-trade permit revenue for the establishment of eight “Clean Energy Innovation Centers”—regional R&D hubs reminiscent of Brookings’ proposals for the creation of a network of energy discovery-innovation institutes (e-DIIs) that can leverage the expertise of universities, national laboratories, industry, venture capital, and others in the transfer of innovative technologies to the marketplace. (The Department of Energy’s FY2010 budget makes a similar proposal, as well.)

Yet on balance the innovation investments in the bill remain far too small. According to an analysis by the Breakthrough Institute, the bill would direct just $9 billion annually to technology innovation, assuming an average carbon price of $15 per ton. And it would reserve just $735 million per year for the energy R&D centers. That may sound like a lot compared to the nation’s current, anemic efforts, but it pales beside the $20 to $30 billion per year on R&D called for by Brookings (or the $15 billion annually called for by Barack Obama). And it’s doubly disappointing given that the cap-and-trade system represents the best potential source for funding game-changing innovation in the face of tight budgets for the foreseeable future.

So what now? The innovation portion of any carbon program must be significantly expanded as this bill or others wend their way through Congress. But, in the meantime. the nation simply can’t afford to wait the several years it could take to fix ACES. So Congress should engage immediately by embracing the Energy Department’s FY2010 budget request, which would begin to build a powerful energy-innovation system in the United States by broadly engaging the scientific community through the funding of Energy Frontier Research Centers, conducting transformative research through ARPA-E, and starting eight of its own “energy innovation hubs” for translational research to get new energy technologies into the market. By funding those items, this year, the country could initiate an energy innovation agenda free of the vicissitudes of cap-trade politics and emissions-permit trading.