We filed comments with the FCC yesterday on the proposed purchase of 122 AWS spectrum licenses by Verizon Wireless that are currently held by a group of cable companies including Comcast, Time Warner Cable, Cox, and Brighthouse. In aggregate, the licenses cover a 20MHz national footprint, about 10% as much spectrum as Sprint/Clearwire has today.

The cable companies purchased the licenses in order to build a mobile broadband network that would compete with AT&T, Verizon, and Sprint, but soon discovered that the skills required to do that were outside their wheelhouse; they probably also discovered that running a multi-company consortium is no fun either, but we don’t know that for a fact. As a result, the spectrum is currently lying fallow.

Verizon offered to buy it as part of a complex transaction that would also allow them to bundle mobile phone service with cable broadband for sale to their customers, and which would also allow the cable companies to offer similar “quad play” bundles to their customers. A great deal of the discussion of the transaction focuses on the bundling aspect, but that’s really quite distinct from the spectrum transaction. The FCC has business examining cross-marketing deals, but the rules that apply are very different from those that apply to spectrum.

Spectrum is a vital input to the mobile economy. The more spectrum a carrier has in use, the faster the download and upload speeds it can provide to data customers, other factors being equal. Faster data means more innovation, and that means more jobs and a more robust economy.

Verizon has done a very good job rolling out LTE, as have the other large carriers (AT&T and Sprint) and some of the small ones: MetroPCS was actually the early leader in this area. Because of the efforts and the investments made by these carriers, the United States leads the world in LTE adoption, something you don’t hear as much about as the studies that show us in a middling position with wired broadband.

We can’t rest on our laurels, however. We’re already spectrum-limited in cities such as New York and San Francisco that are challenging to cover, and LTE apps will ultimately catch up with the supply of bandwidth. The U. S. lags our competitors in total spectrum available for commercial use because our government users have larger appetites. Congress had the opportunity to transfer as much as 200 MHz to auction in its recent spectrum auction authorization bill, but backed down to a figure that will most likely come out in the 50-60 MHz range.

With these technical and political facts at work, it’s unacceptable to allow these 122 licenses to go to waste. The FCC has tools to examine spectrum concentration known as “spectrum screens” that should be applied to the transaction. We believe that conscientious examination will show that the transaction is in the public interest and should go forward.

Read our FCC comments here

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The following was originally posted at the National Journal's Energy Experts Blog in response to the topic: Where can Government Energy R&D have the most Impact?

What are the “white spaces” – the underpinnings of breakthrough clean energy technologies – where government investments in R&D can have the most impact? The short answer: in the breakthrough technologies that hold the potential for cost and performance competitive clean energy without long-term subsidies.

Key government investments and public-private partnerships, many going back decades, have laid a strong foundation for an American clean energy industry. And many of the energy policy choices made in the last few years have greatly accelerated its expansion. Today, clean energy technologies like wind turbines and solar PV have moved from fringe energy choices to part of the household lexicon. For a small, but growing number of communities, the nascent clean economy represents development and growth.

One thing is for certain - the country has taken a great first leap towards energy, climate, and economic security, but now it’s time to take the clean economy to the next level.

The key factor in doing so is spurring clean energy innovation. The higher cost of clean energy technologies compared to fossil fuel alternatives will continue to weigh down the industry and stifle it from meeting its global potential. Sure, in some instances and geographies clean energy is already cost competitive. But for the lion’s share of the country (and the world), this is not the case. To get clean-less-than-fossil everywhere we need both incremental innovations as well as breakthrough advances that create entirely new technologies and cost curves that don’t rely on subsidies. This is where those “white spaces” reside.

There is a pressing need for next-generation battery chemistries that can make electric vehicles a reality for hundreds of millions of car owners and cost competitive energy storage options that make grid-scale intermittency a problem of the past. We also need fundamentally new solar architectures that double or triple the current efficiency of photovoltaics, new processes and materials to make small modular nuclear reactors deployable, and new ways to make sustainable, low-carbon biofuels. Finally, we need the development and deployment of innovative information and communication technologies (ICT) into our electric grid, businesses, and homes to make our energy infrastructure “smart” and capable of handling new clean technologies.

The scope and character of these advances is significant (and humbling). We’re talking about innovations and enabling technologies at the intersection of clean energy and nanotechnology, material science, advanced manufacturing processes, genomics, ICT, and biotechnology. Each by themselves is a national priority and in combination represents the future of the clean economy. Our energy policy choices and investment emphasis should clearly reflect this.

While the U.S. does not have an overarching clean energy strategy, many of the institutional pieces are in place to address these white spaces. Programs like ARPA-E, the Innovation Hubs, Energy Frontier Research Centers, and key investment in University projects and the National Labs are actively engaged on many of these issues. And in many cases, the best work is being done in partnership with industry, where new ideas have the highest potential of moving from discovery to market. For instance, the Hubs act like modern day Bell Labs by bringing in experts from many disciplines and industries to tackle key clean technology problems.

And it’s these efforts we need more of. We need more support for programs like ARPA-E and the Hubs to rapidly translate new technology solutions to market. We need more support for programs like the retooled Advanced Manufacturing Office that partners with industry to transition new process R&D work into plants across the country. All of these programs show the positive and complementary efforts of government working with industry. Simply put, we need more support for the institutional frameworks government energy innovation policy is doing best.

To take the clean economy to the next level, we need our policy focus to be on innovation and more specifically the white spaces like those listed above. We have many of the tools – now let’s finish the job.

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Last week the Wall Street Journal published an article accusing four online advertisers—Google, Vibrant Media, Media Innovation Group and PointRoll—of using special code on web pages to circumvent the privacy settings in the Apple Safari web browser for the purpose of “tracking the Web-browsing habits of people who intended for that kind of monitoring to be blocked.” The Safari web browser is used by approximately 7 percent of desktop Internet users and 24 percent of mobile users. Google responded in a statement by saying, “The Journal mischaracterizes what happened and why. We used known Safari functionality to provide features that signed-in Google users had enabled. It's important to stress that these advertising cookies do not collect personal information.” Google also disabled the code in question.

First, it’s worth discussing the actual technology involved here. When a user visits a website, the website can request that the user’s web browser store certain data in a cookie. A cookie is just a small data file stored on a user’s computer by a web browser. Most browsers, including Safari, allow this activity by default. However, the default setting for Safari is to block most third-party cookies. (Other browsers have this feature but do not enable it by default.) Third-party cookies are cookies set by a domain other than the primary one being visited. Privacy advocates dislike third-party cookies because they can be used for online behavioral advertising (which they object to); however, third-party cookies are used for many purposes. For example, if a user visits www.whitehouse.gov with Safari using the default settings, the only cookie that is set is one from whitehouse.gov. However, if a user visits the website with this privacy feature disabled or with another browser, they will get a cookie from the domain newrelic.com. New Relic is a website monitoring and management tool used to manage a website. Similar types of third-party cookies are frequently used for website analytics, such as to determine how many unique visitors come to a website. This type of use does not harm user privacy in any way.

Many web pages pull content from more than one domain. For example, a website might use a Facebook Like or Google “+1” button on its page.  To allow this type of functionality to work properly, Safari allows some third-party cookies. To decide whether or not to allow a cookie, Safari tries to determine whether the user has sent information to a particular domain. If an HTTP request is sent to a particular domain (such as by the user clicking a link or a Facebook “Like” button), then the cookies for that domain will be allowed. If not, they will be denied. Google used this browser functionality so that it could set cookies on websites using its Google +1 button or displaying Google ads. It did this by using code that would send an HTTP request to a Google domain. After sending this request, Safari would accept third-party cookies from this domain. This meant that Safari users with this feature enabled may have thought that third-party sites could not track their Internet activity, when it fact they could.

By analogy, let’s compare this to the use of a privacy device in the real-world. Suppose a company is placing cameras along a toll bridge to deliver targeted ads to drivers on billboards. Rather than charge a toll for using the bridge, the user pays for using the bridge by seeing a targeted ad (let’s ignore the possible safety issues for now). The company uses a vehicle’s license plate number to track which ads the user is shown and delivers custom ads based on that (perhaps also based on assumptions about the driver based on the time of day the driver typically passes by). Some people are concerned about their vehicles being tracked by its license plate, but still want to use the toll bridge (quite literally becoming “free riders”). So these people might decide to install an anti-camera license plate cover on their cars (such as the Photoshield which is used to avoid photo-enforced speeding and red light tickets). These covers make the license plate unreadable to cameras but the tags are still visible to the naked eye from directly behind the vehicle.  The company that sells this product says that it will protect the consumer’s privacy and people start buying it because it works. But what if the company making the cameras figures out how take better photos so that the license plate covers are now ineffective?  Is the camera company really to blame for building a more effective camera?

The main argument against Google is that since this technique hadn’t been used by others, it must be bad. But norms and conventions change over time. We’ve seen similar debates before over the use of flash cookies, web beacons and other methods that are used to track users online. Personally, I think this is mostly just clever engineering (just as pop-up blockers are), but one man’s cleverness is another man’s evil genius. Not surprisingly, most of the privacy fundamentalists believe Google falls into the latter camp. Their initial reaction was to use this as yet another attempt to call for Do Not Track or other new federal privacy regulations (and throw in a few cheap shots directed at their frenemy Google).  Even members of Congress jumped in on this with Reps. Markey, Barton and Stearns sending a letter to the FTC calling on it to investigate whether Google violated its existing FTC consent agreement. And Sen. Kerry said “It's not hard to figure out that unless and until Congress creates some common-sense rules for collecting, using and distributing personal information, companies will keep making up their own rules.”

The reality is that none of the privacy bills proposed to date would have prevented this from occurring unless the legislation banned websites from tracking users (a terrible idea if we want to maintain the Internet economy). At best, legislation might penalize companies for violating expectations, but the purpose of privacy legislation should not be to just to make it easier to sue or levy fines against companies that make honest mistakes. Instead, the purpose of any legislation should be to give people better control over their private data. Moreover, many European countries have implemented stricter data privacy regulations (with more on the way) and it doesn’t appear Europeans were any more protected from this software bug than were Americans.

Top-down solutions, whether they are policy mandates from Congress or technology mandates from privacy advocates, are not effective ways of managing user privacy. We do not want to start an arms race on the technology front between those who want to block advertisements and online tracking and those who want to circumvent those blocks. Doing so would only turn the Internet ecosystem into a highly regulated space with significantly fewer revenues to support the vast array of free content and services users now enjoy. We should continue to encourage innovation in business models and data management tool that empower user choice, but respect the economics of the Internet. This means being transparent about business practices and respecting user choice, but it also means telling users that free-riding on the Internet by avoiding ads has a cost that somebody has to pay for. Users should be able to opt out of online behavioral advertising, but they should not receive the free content that others receive. Privacy is not free. It has a price that someone has to pay.

Did Google violate its FTC agreement? That is up to the FTC to decide (the main issue will likely revolve around whether public statements from the company indicated that Safari’s third-party cookie blocking was an effective way to opt-out of targeted advertising). As always, the FTC can and should investigate if it discovers legitimate concerns about the business practices of a particular company. But companies should not face punitive sanctions for actions that do not cause consumer harm and are taken in good faith. To do so would discourage the type of fast-paced innovation that has defined the remarkable progress of the Internet era.

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This week the Sustainable Energy and Environment Coalition (SEEC) held a briefing on enriching energy innovation at the local and regional level. The idea was to show off policy approaches being implemented in our cities that could be positively translated at the federal level. And one of the most interesting examples are the policy choices being made in Boulder, Colorado, a nationally-recognized hub for clean energy innovation and sustainability initiatives.  The event panel showcased the city’s strategic approach for developing locally “networked” energy systems that promote private competition and drive energy innovation with the support of a diverse clean tech ecosystem.

Boulder is a unique city with an interesting past.  Since the 1960s the city has levied an ‘open spaces’ tax – a small sales tax that produces revenue for the acquisition, preservation, and management of public lands around the city, preventing city sprawl and acting as a source of revenue for key economic growth policies.  Building off of the successes of the open-space policy, in 2007 Boulder adopted its Climate Action Plan tax, a carbon tax on residential, commercial, and industrial consumers of electricity.  Although the tax rate is relatively minimal - $0.0046/kWh for residential consumers, $0.0009/kWh for commercial businesses, and $0.0003 for industry – the revenue raised in 2010 amounted to about $1.8 million.  For a city of about 100,000 citizens, this revenue is a substantial sum, and it is being used in a very targeted way – it is reserved for a set of initiatives pursuing widespread use of renewable energy and energy efficiency technologies, outlined by the city’s CAP strategic areas.

Since the initial implementation of the CAP tax in 2007, the city’s sustainability projects have grown in scope and depth, and are also supported by a number of state and federal loan guarantee and rebate programs that bolster project outcomes for renewable energy and energy efficiency technology commercialization.  The city’s new ‘Energy Future’ plan involves a round-table, collaborative effort between city officials, public utility companies, and representatives from the DOE’s National Renewable Energy Laboratory (NREL) and the Renewable and Sustainable Energy Institute (RASEI) at UC Boulder to create innovative proposals and improvements on the community’s solar, wind, and transportation initiatives.

The Boulder carbon tax is a central example of a high-impact way policymakers can effectively implement a small carbon price without harming US industrial competitiveness, and without incurring opposition from consumers worried about unrealistically high energy prices.  The city’s vision for a carbon charge motivates the community with resources to invest back into clean energy technologies.  This is something that ITIF has proposed as a key way the federal government can provide a dedicated source of revenue for energy innovation programs like ARPA-E and the Innovation Hubs. 

While national replication of Boulder’s adoption of a carbon tax – which passed on its first proposal with a 57% majority – may not be politically feasible currently, the city’s initiatives serve as a sophisticated model of a well-developed innovation ecosystem at work.  Boulder is home to a university and a successful combination of federal laboratories and private clean tech companies, and the city now depends on these resources to provide ideas and action in the pursuit of their commitment to sustainability.    This kind of innovation cluster – backed with a dedicated revenue stream - fosters breakthroughs in technology, commercialization, and ideas for how to bridge the gap between the two.  This case study demonstrates the capacity of communities to leverage bi-partisan support for clean energy initiatives at the community level.  A national carbon tax as a revenue raiser for innovation may be out of reach for now, but integrated community support for clean tech innovation is not.

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The next ten and half months hold little promise of Congress producing a coherent national clean energy strategy.  The same legislative gridlock over the federal budget that stalled debate on key issues last year looks to come back in force this year as well. But that doesn’t mean high-impact clean energy policy can’t be implemented.  Take for example, Congressman Charles Bass’s (R-NH) recently introduced Smart Energy Act – a bipartisan bill aimed at leveraging the federal government’s 445,000 buildings to act as a “first adopter” of innovative, new energy efficiency technologies.

For many new technologies, once it’s been conceived, developed, tested, piloted, and demonstrated one thing is usually standing in its way: a customer willing to take the initial risk of purchasing the first round of product.  In many industries, this “first adopter” issue is dampened by relatively low cost.  Millions took a chance on the first generation of Apple’s iPod because the risk – in this case cost to consumers – was modest.  Spending a few hundred dollars on a first generation iPod isn’t a personal budget altering decision for enough consumers that it creates a robust, initial market for the technology. Because there were enough first adopters, it allowed Apple to create subsequent generations, improve the technology, and lower costs over time.

But in the case of far more complex and capital intensive products like innovative clean energy technologies, the risk is significantly much greater. Utilities are largely unwilling to take a chance on a next-generation clean technology because of higher costs when given the choice between it and, say, building a natural gas-fired plant.  Building owners are largely unwilling to renovate their heating and cooling systems with advanced, super energy efficient alternatives because of significant costs. And implementing new demand-response technologies to provide consumers more control over energy consumption is often considered too costly to be considered.

The Smart Energy Act is a good first swing at mitigating this problem.  At its core, the bill aims to use new financing streams and the federal governments “footprint” to create initial markets for clean energy and energy efficiency technologies in partnership with industry.  It does so in three ways:

Expands Options for Energy Savings within the National Energy Conservation Policy Act (NECP). The NECP requires federal agencies to reduce energy consumption by 30 percent by 2015, followed by a new reduction schedule to-be-determined through 2025. The law lists a number of energy efficiency alternatives that agencies can use to meet these goals. The Smart Energy Act simply expands the options available to federal managers by including the purchase of innovative electric vehicles and the necessary charging infrastructure and demand-response programs.  This is in addition to implementing clean energy and energy efficiency technologies, which were already listed in NECP. Both additions are key, innovative technologies that could benefit from a large first adopter.

Expands the Use of Energy Savings Performance Contracts (ESPC). ESPC’s are an innovate financing tool for federal managers that allows agencies to purchase energy savings projects – be that clean technologies or energy efficiency – not with Congressional appropriations, but with the cost savings incurred through energy reductions up to 25 years after the project is completed.  The Smart Energy Act expands the technology and efficiency options that can be included in ESPC’s, providing agencies a key financing tool to purchase innovative new technologies.

Coordinates Federal R&D Programs with Industry. While falling short of creating a SunShot-like program within DOE (EfficiencyShot?), the Smart Energy Act requires the Secretary of Energy to establish collaborative R&D partnerships among the Advanced Manufacturing Office, EERE, EDER, and the Office of Science (so assumingly, ARPA-E). The goal is to leverage the full wealth of innovative R&D ongoing within DOE to accelerate the development and deployment of new technologies to U.S. industries.

The bill also offers additional policy changes to drive energy savings, such as data center consolidation, creation of a strategy to meter energy consumption at federal buildings, as well as the creation of a loan guarantee program for building retrofits of energy efficiency technologies.

But at the end of the day, it’s the above three policy changes that would go a long way to accelerating clean energy and energy efficiency innovation.  It also is complimentary to the President’s recent announcement at the State of the Union to open up public lands for the development and demonstration of innovative new clean technologies as well as the Department of Defense’s procurement power to act as a first adopter for advanced battery, microgrid, and biofuel technologies to power their bases, vehicles, ships, and aircraft. 

The federal government’s footprint and procurement investments are key “smart deployment” policies that can help truly innovative technologies make it to market and the Smart Energy Act is a great step in trying to unleash that potential.

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The fact is that Chinese policies, including dumping solar panels in the market to undercut competitors, domestic-requirement provisions for wind, and a myriad of IP-theft-related issues are not only stifling innovation, but harming nascent U.S. industries. For instance, last October, SolarWorld USA petitioned the Department of Commerce – on behalf of several U.S. solar companies – to determine whether China has been unfairly supporting its solar exporters. The U.S. International Trade Commission (ITC), which the Commerce Department tasked with investigating the complaint, unanimously declared on December 2, 2011 that Chinese solar panel and cell imports are hurting the American solar manufacturing industry and a final decision is still pending on whether punitive tariffs are justified. Furthermore, four domestic wind turbine manufacturers filed a complaint in December 2011 on unfair trade practices by China and Vietnam regarding subsidized wind turbines. And a Chinese wind turbine company is under investigation for potentially bribing an engineer at a U.S. clean technology firm to steal proprietary software that it was, at the time, paying to use in its products.

It’s clear that Chinese mercantilism is no theory and is a very real problem for the global clean economy. As ITIF President Rob Atkinson has said, “There’s been a significant shift in top-level Chinese economic strategy away from attracting multinational foreign direct investment to unfairly supporting Chinese-owned companies.” The New York Times, for example, reported late last year that China gave “subsidy grants of $6.7 million and $22.5 million to Chinese wind turbine manufacturers that agreed not to buy imported components,” a practice which the Chinese government readily acknowledged and promised to discontinue. While export subsidies and similar policies can help make the Chinese clean energy industry more competitive in the short-run by artificially lowering prices, they could potentially backfire by locking in existing, inferior technologies or diverting global investments away from truly innovative technologies. Furthermore, maintaining such policies constitute a continuous drain on precious economic resources that would be much better served if invested towards the research and development of newer, more innovative technologies. Simply put, all countries can play a positive role in the global innovation ecosystem by targeting key innovation stages to support.  Export-driven, mercantilist policies do no such thing.

At the same time, the unfortunate protectionist back-and-forth that seems to characterize the contemporary U.S.-China trade relationship can be avoided. For example, China’s ability to rapidly demonstrate new technologies, such as large-scale carbon capture and sequestration plants (CCS), allows companies – both in the U.S. and abroad – to accelerate the development of new ideas to market.  Positive partnership, such as those for CCS, focused on producing more innovation is a model moving forward. Ultimately, shifting to a more innovative Chinese clean energy policy could prove to be a truly auspicious start for a Xi-led China.

ITIF will be releasing a comprehensive report on Chinese mercantilist practices across multiple sectors, not just the clean energy industry, on February 28, 2012. For more information on the report unveiling, click here.

Photo credit: www.chinahearsay.com

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President Obama backed up his call to “double-down” on clean energy during the State of the Union address by proposing to boost key energy innovation investments in his FY2013 federal budget request. Compared to the FY2012 Omnibus Appropriations bill, the President’s FY2013 proposal would increase top-line investments in key DOE energy innovation-related Offices and programs by 6.98 percent or $578 million.  It’s a strong statement of support for developing affordable and viable clean energy technologies at a time when clean energy innovation programs are little more than a political football.

Of course, the FY2013 budget proposal still falls short of FY2010’s peak in energy innovation investments made through the Stimulus and represents only 77 percent of what the President requested for 2012.  It’s vital that more work is done to increase public investments in clean energy innovation, as the government must play an energetic role in supporting the development of next-generation technologies.  However, the FY2013 budget proposal does envision where targeted public investments can be used to positively impact weaknesses in the energy innovation ecosystem.

EERE Technology R&D Programs

Overall, the President’s budget request gets a lot right. Many important clean technology R&D programs within the Office of Energy Efficiency and Renewable Energy (EERE) would receive relatively significant budget increases compared to FY2012.  In particular, programs aimed at developing solar, wind, advanced vehicle, biomass, building efficiency and geothermal technologies all would receive a 2 percent to 71 percent increase compared to FY2012 (and in the case of the Industrial Technologies program a whopping 150 percent increase). 

But in many cases, the details of each programs funding increase is important.  For example, the solar technologies program (the SunShot Initiative) would receive a $20 million boost, but divvied up to different stages of innovation.  Almost $20 million in proposed cuts would be made to early stage and emerging technology R&D, while later stage manufacturing scale-up (DOE’s SunPath program) and market barrier solar projects would receive a $40 million boost. Similar transfers of funding from earlier stage technology development to later stage demonstration and scale-up is also found in the biofuels and building efficiency programs as emerging technologies developed using previous fiscal year investments are moving through the innovation lifecycle. It’s represents a potentially positive case where innovative technologies are moving from the lab to later stages of development, but require fundamentally different investments and RD&D to get closer to market viability and scale.

The biggest changes would come to the Industrial Technologies program, which the FY2013 budget proposal renames the Advanced Manufacturing Office.  The refocused mission of the office would be to perform RD&D on new energy efficient manufacturing processes and materials that reduce the energy intensity of manufactured products by 50 percent over 10 years. A key highlight of the program would be its continuing focus on bridging the so-called “valley-of-death” by creating manufacturing demonstration facilities where emerging technologies can be evaluated, demonstrated, and tested in cooperation with industry to more rapidly deploy those technologies to manufacturers. In fact, the lion’s share of the $174 million proposed increase to the office would target this stage of technology development.

 The two new programs tasked with developing next-generation small modular reactor (SMR’s) nuclear technologies in FY2012 would receive continued support.  The budget includes almost $90 million for RD&D and licensing of these new reactors.  While this is a $10 million decrease in funding, it’s largely the result of progress in researching technology issues related to licensing and not a policy shift away from SMR’s.

In addition, the budget proposes to cut the advanced fuel cycle RD&D program by over $10 million, as the program aims to refocus more resources on existing reactor issues and emerging light-water SMR’s and less on fast-reactor technologies which are deems decades away from development and deployment. In the long-term this shift is troublesome if this becomes a trend, but given the immediate needs in rapidly developing light water SMR’s, this small shift is understandable.

DOE’s high-risk, high-reward clean energy R&D program ARPA-E would also receive a boost of $75 million to $350 million. As ITIF and many others have stated before, ARPA-E is one of the most important clean energy innovation programs within DOE, so any funding increase is welcome. But even this modest boost still puts ARPA-E’s budget at a fraction of what the National Academies originally recommended and two-thirds that of President Obama’s FY2012 request.

In particular, the President’s budget request envisions using almost two-thirds of the additional investment to not only bolster existing technology categories like next-generation biofuels and vehicle batteries, but to also next-generation natural gas and hydrogen transportation fuels. The remaining third is envisioned to focus on baseload clean energy and infrastructure technology development.

Just the Beginning

Of course, the President’s FY2013 budget request is just the first shot in what will almost definitely be a yearlong battle over the shape of next year’s federal budget. And the above top-line highlights are not the only energy innovation budget pieces.  The budget would continue funding for the vitally important Energy Innovation Hubs program as well as provide a $20 million boost to the basic energy science Energy Frontier Research Center’s which are tackling key chemistry, physics, and material science questions related to clean technologies.  Also, the President proposes significant investments through the tax code as well as within the Department of Defense, which ITIF will discuss in upcoming posts.

For a better understanding of what makes up energy innovation investments as well as ongoing discussion on the federal energy innovation budget, check out the Energy Innovation Tracker Project which catalogues project-by-project, clean energy innovation investments.  We’ll be updating the database continually this year by adding in more specific energy innovation investment data as well as keeping up with ups-and-downs of the FY2013 budget debate.  

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Why does spam and other detritus drive out authentic interaction in online medium after online medium?

Those of us who remember UseNet will recall the sickening descent of what was once a great chat bazaar into a maelstrom of pitches, flame wars, and "wassup"-style yahoo-ery.  MySpace suffered a similar fate.  My kids' generation is abandoning Facebook because, as Yogi Berra once said, it's so crowded nobody goes there any more.

Email hangs in the balance, an arms race between spammers and email marketers on the one hand, and the rest of us on the other.  That it is still a usable medium is debatable (and widely debated).

Gresham's Law is usually stated as "bad money drives out good", but, as Wikipedia points out, it is "...more accurately stated: 'Bad money drives out good if their exchange rate is set by law.'"  If a debased currency is artificially propped up in exchange value, people will prefer to use it for exchange and will hoard the non-debased currency for its greater value.

Is this what happens with spam?  I'm not sure I get it.  In UseNet, in email, in MySpace, in Facebook, no one is propping up the value of crummy interaction.  Au contraire.  The cost of interaction is so low that there is almost a superconducting medium for bad traffic.  (For a decent account of the economics of penis enlargement email offers, see here.)

Proposals to counteract spam often take the form of increasing the cost of sending traffic in order to make it "uneconomical" to send out huge numbers of emails with very low conversion rates.  Require a server to do a small mathematical calculation for each email message: not a problem for "normal" traffic, but intolerable for spam transmitters.

Can someone more economically literate than me either show that this is a form of Gresham's Law or show what law is at work here?  And hopefully suggest a cure.

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As a recent post by Stephen Ezell referenced, a recent op-ed by Christina Romer has touched off a back and forth on the blogshere on whether manufacturing matters.  The fact that the question is even asked illustrates the lack of understanding of the issue and of the structure of our economy. Back in December Susan Hockfield, the President of MIT, made the case for manufacturing in her own op-ed "Manufacturing a Recovery". Central to her argument is a description of some advanced manufacturing companies:

Like the jet aircraft made by Boeing, one of the country's largest exporters, products like these require sophisticated manufacturing equipment, operated by skilled workers, and benefit from the tight integration of design and production. With goods like these, the United States can reassert an economic advantage. If we can find ways for companies of every size to exploit the possibilities of nanofabrication, advanced materials, robotics and energy efficiency, we can create networks of innovation, joining lab research to new production processes and business models.

That tight linkage between product creation and product manufacturing has been highlighted by a number of others, most notable Gary Pisano and Willy Shih at the Harvard Business School in their HBR piece "Restoring American Competitiveness".

I would go one step further and stress the tight linkage between product manufacturing and servicing.  As I have noted many time in this blog, the difference between "manufacturing" and "services" are eroding.  Service activities are increasingly linked manufacturing activities. In fact, companies such as the German Mittelständler companies are successfully competing in "old" industries based on that linkage.  They offer knowledge -- not low cost.  Knowledge is what gives them a superior product and knowledge is what makes their services so valuable. But is it not just generic knowledge. They are selling their knowledge as a means to create solutions for their customers. Their customers want the knowledge to be specifically applied to them - not some abstract concepts. That is the "service" part of the equation.  So, all of the activities described above for helping manufacturing should recognize that these manufacturing companies are already in the "service" business.

The fusion of product and service is part of the overall shift of manufacturing.  As I pointed out in the Athena Alliance Policy Brief--Intellectual Capital and Revitalizing Manufacturing, manufacturing is in the process of being transformed into a much more knowledge-intensive activity.  The process is analogous to the transformation of agriculture in the early 20th century.  Farming did not simply move to other nations with lower-cost producers using the traditional techniques. Agriculture was mechanized--or industrialized, if you prefer. That transformation led to efficiencies that revolutionized the production of commodities and contributed to U.S. economic growth.

As manufacturing is transformed into a much more knowledge-intensive activity, it will require attention to all the inputs to the production process -- technology, worker skills, and cooperative/collaborative organizational structures.  All of which are key intellectual capital and intangible assets.

Embracing the role of intellectual capital and intangible assets in manufacturing requires going beyond the narrow view of formal intellectual property. Scientific and creative property are valuable assets that include product development activities beyond the patent, new architectural and engineering designs, and social and organizational sciences research. Computerized information, including customized software and databases, are other important company assets that go beyond our definitions of intellectual property. Specific business models, organizational structures, and organizational capabilities are key elements of any company's ultimate success. Worker skills and tacit knowledge--both general and firm-specific--are assets that managers describe as leaving the company every evening and returning every morning. Brand equity, reputation, and relationships with customers and suppliers are all important. All of these forms of intellectual capital need to be explicitly developed and managed by successful manufacturing companies.

The policy question, therefore, is how do we position American manufacturers to make the transformation.  It will not be an overnight leap, but a gradual process that will require sustained attention.  At the heart will be helping companies understand the transformation and how to best utilize their intellectual capital. 

There are a number of specific actions that could be taken to support the transformation.  We should expand the Manufacturing Extension Partnership (MEP) services to explicitly include assistance in identifying and managing their intellectual capital.  Likewise, we should include intellectual capital management in Small Business Administration (SBA) training programs and Economic Development Administration (EDA) business incubator programs.  We could also create a specific award and assessment program similar to the Baldrige Award. 

Assistance for on-the-job training should be expanded.  We should also create a program to allow businesses to use their intangible assets, specifically their intellectual property, as collateral on loans.  This could provide an important source of capital to help companies finance the transformation.  The government could also do more to promote innovative manufacturing through its procurement process and through the establishment of demonstration and technology diffusion programs.

Research on the manufacturing transformation should also be undertaken.  But this should go beyond the traditional advanced manufacturing concept to embrace the entire transformation.  For example, the concept of "design thinking" is becoming increasingly important in product development.  Just like we have created Engineering Research Centers in a number of areas (including advanced manufacturing), we should create one for design thinking.  Likewise, research need to be continued on new manufacturing business models and the linkages between services and manufacturing.

Next, it should be recognized that all of the activities described above for helping manufacturing also apply to services. Service industries are becoming more knowledge-intensive and need to understand and better their intangible assets.  MEP could be further expanded to a offer assistance to service providers -- just as the Baldrige Award was opened up to service businesses.  Promoting innovative service delivery activities the government procurement process and through the establishment of demonstration and technology diffusion programs is also just as important as in manufacturing.  Likewise, research on the organizational and business model aspects of service delivery should be undertaken.

Thus, it is not just a movement to advanced manufacturing in the sense that Hockfield describes that concept -- as important as that is.  What we face is a transformation of the entire production system.  Companies are already in the middle of that transformation.  Our public policy needs to catch up.

Crossposted from The Intangible Economy

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First, those who call for a U.S. manufacturing strategy aren’t asking for special treatment or handouts from Washington. They aren’t asking—as Romer suggests—for differential, preferential tax rates specifically for U.S. manufacturing firms, that U.S. trade enforcement activity focus especially on protecting U.S. manufacturers, or for bailouts from Washington. (Notwithstanding the irony that it was Romer’s very CEA that supported the bailouts of GM and Chrysler, “special treatment” interventions which she now doth protests.) And they aren’t asking for an industrial policy that picks national champion winners to compete in manufacturing sectors like automobiles or advanced batteries.

Rather, those calling for a Strategy to Revitalize U.S. Manufacturing seek a coherent strategy regarding technology investment, tax, trade, and talent policies. While such policies will bolster the competitiveness of U.S. manufacturers, they also benefit other U.S. enterprises, especially those in traded sectors. Such policies seek to improve STEM education, to expand the R&D tax credit into an investment and innovation tax credit, and to invest in not just basic but also applied and translational research into cutting-edge technologies and processes like nanotechnology, robotics, or microelectromechanical systems. A strategy would also seek to increase investment in programs like the Manufacturing Extension Partnership (MEP), which bolsters the innovation and productivity capacity of SME manufacturers, who account for 98 percent of manufacturing establishments and 40 percent of the manufacturing workforce; though presumably Romer does not support such programs, because they provide “special treatment” for U.S. manufacturers. The point is there’s a clear difference between having a thoughtful manufacturing strategy and entering into the realm of providing “special treatment” that constitutes an “industrial policy” for manufacturing, and Romer way too cavalierly conflates the two.

Second, and more disconcerting, is Romer’s “Boskinian” equivalency between forms of economic output: $100 of output from semiconductors, potato chips, or haircuts is all the same to neoclassical economists. But Romer’s argument misses that manufacturing jobs are in fact not the same as all other jobs in the economy. Romer offers up three straw men—market failures, jobs, and income distribution—as potential economic rationales for a manufacturing policy and then (upon weakly defending them) argues that “none are completely convincing.” However, many of the arguments made by supporters of manufacturing on why manufacturing jobs are different and more important are valid. Indeed, as ITIF documents in The Case for a National Manufacturing Strategy, these include that: 1) manufacturing jobs pay more; 2) manufacturing has a higher multiplier so it leads to more jobs in downstream industries; 3) manufacturing is a key driver of innovation, and without manufacturing non-manufacturing innovation jobs (e.g., design, research) will not thrive; 4) manufacturing is a source of good jobs for non-college educated workers; and 5) the United States will not be able to come close to balancing its trade deficit without a healthy manufacturing sector.

But as important as these are, they are not the major reason why it’s critical to have an internationally competitive manufacturing sector. The major reason is that it’s still the largest “traded sector” of the United States economy and will be for a long time and it is simply impossible to have a vibrant economy without a healthy traded sector. (Traded-sector companies are those that ring up a not insignificant share of their sales by people or companies who do not reside in the United States.)  Indeed, manufacturing still contributes $1.6 trillion to U.S. GDP and employs 13 million workers; it’s a critical component of the U.S. economy that we cannot allow to wither.

The third flaw with Romer’s argument is that the real challenge facing the U.S. economy isn’t a lack of aggregate demand, but rather it’s the fact that the overall U.S. economy is losing international competitiveness, as ITIF documented in Explaining Anemic U.S. Job Growth: The Role of Faltering U.S. Competitiveness. This is actually seen most clearly in manufacturing. Over the past decade, the United States lost 5.4 million manufacturing jobs, or 32 percent of its manufacturing workforce; saw 54,000 factories close; and, when the figures are counted correctly, actually suffered an 11 percent decline in manufacturing output (in contrast to dramatically inflated official government figures which suggest manufacturing output grew 16 percent over the past decade). In reality, fourteen of the nineteen aggregate-level U.S. manufacturing sectors actually produced less in 2010 than they did at the start of the decade in 2000, even though the economy grew by 18.2 percent over the last decade. Put simply, manufacturing job losses were not primarily the result of increased productivity that maintained high levels of output with fewer workers. Rather, the U.S. manufacturing sector and workforce contracted over the past decade as output shrank, in large part because a number of manufacturing sectors were losing their international competitiveness.

However, if U.S. manufacturing had contributed its same share to GDP growth this past decade as it did in the 1980s and 1990s, overall GDP growth would have been 28 percent in this last decade, rather than 18 percent. And if manufacturing output had grown at the same rate as GDP from 1997-2010, there would be 2.2 million more manufacturing jobs in the United States. Given the multiplier effect that manufacturing jobs have on the rest of the economy, which is at least two to one, (and as high as five to one), had manufacturing not shrunk, there’d be perhaps 8 million more Americans working today. In other words, the impact of manufacturing decline is not just on the 5.4 million manufacturing workers or in a few “manufacturing” states, it’s on an entire economy.

So ultimately, Romer’s diagnosis and prescription to solve the problem of a lack of aggregate demand addresses the symptom, but not the cause, of the economy’s travails. Demand is depressed from the high levels of unemployment and because many of the new jobs being created are in the lower-wage sectors of the economy—hospital orderlies and nursing aides, secretaries and temporary workers, retail and restaurant workers, etc. There was evidence of this even before the Great Recession, as wage data from 2000 to 2007 showed a shift in the “occupational mix” of the jobs in the U.S. economy, meaning that U.S. workers are taking home less in hourly wages. The data show that if the United States had the same composition of jobs in 2007 as in 2000, average wages paid to U.S. workers would have increased twenty-two cents an hour, whereas on average U.S. workers only realized one-half that increase, because a larger share of workers in 2007 were in lower-paying occupations. It’s lack of earnings from high levels of unemployment and lower wage levels from lower-skill, lower-paying jobs that’s depressing aggregate demand. And in part that stems from the failure of the United States to maintain its competitiveness in the global economy, particularly in manufacturing, which means that the overall U.S. engine of growth is not running on all cylinders and that the recovery is halting. Addressing the competitiveness problem is what will solve the demand problem.

Finally, neoclassical economists would perpetuate the myth that manufacturing is passé in all developed economies, and so can’t be counted on as a future jobs and growth engine for the United States. Yet this analysis is oblivious to what’s going on in the manufacturing sector in countries like Germany. There, manufacturing accounts for 20 percent of GDP (compared to 11 percent in the United States); the country’s share of world manufacturing output has remained roughly stable since the 1970s, while the U.S. share has fallen 12 percentage points; manufacturing workers earn more than 40 percent more per labor hour than U.S. manufacturing workers do; more than 60 percent of the country’s manufacturing activity is in medium-high or high-technology industries (compared to just 40 percent of U.S. manufacturing activity); and the country’s exports of high-tech, research-intensive products is seven times greater than the United States’.

The success of Germany’s manufacturing economy rests not on special treatment, but because Germany is but one of a long list of countries—including Australia, Austria, Japan, India, New Zealand, South Africa, the United Kingdom, and many others—that have a manufacturing strategy. Elements of Germany’s manufacturing strategy include its network of 59 Fraunhofer Institutes that conduct cutting-edge, industrially relevant research across a range of sectors and technology platforms. (A recent ITIF event on Boosting Competitiveness by Connecting Science and Industry: Insights from Germany's Innovation Model explains in detail how the Fraunhofer’s support manufacturing innovation in Germany). Investment is another element: Germany invests six times as much as the U.S. does in industrial production and technology, and it invests twenty times as much, as a share of GDP, in its SME manufacturing support programs as the United States. (Nor is Germany alone: as a share of GDP, Japan invests forty times more in its SME manufacturing support programs than the United States does and Canada invests ten times more). Finally, Germany has put in place effective talent and education policies to assure its manufacturing workforce is amongst the world’s most highly skilled.

If the United States wishes to restore long-term growth and to ensure that current and future generations enjoy the standard of living to which Americans have grown accustomed in the post-War period, it will have to restore the international competitiveness of the traded sectors of its economy, principally in manufacturing. To do so doesn’t require giving these sectors special treatment, but it does require that the United States have a strategy to support the competitiveness of its manufacturers marked by sound and coherent policies regarding the four “Ts” of technology, tax, trade, and talent.

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A debate has been boiling over China’s current command over the extraction and export of rare earth metals critical to the function of a variety of high-tech products.  This debate seems to be kicking into a higher gear as a result of the WTO case against China’s export restraints on several popular industrial materials, possibly preceding the establishment of a WTO precedent for ruling on international export of “critical materials.”  In particular, China’s tremendous influence over the market for critical materials presents a unique issue for the nascent clean energy economy. As demand for these materials increases with greater clean technology deployment, their supply could potentially be limited, affecting their cost-competitiveness and availability.  Challenged by limited supplies in the short and medium terms, the DOE and others are supporting the development of marketable substitutes for rare earth metals through breakthroughs in advanced material science.

The case against China’s export practices of raw materials was brought to the WTO in 2009 by the United States, the European Union, and Mexico, who accused China of distorting international trade of raw materials with export duties, quotas, and licensing requirements.  Control over the market for raw materials, said the complainants, has allowed the Chinese economy an unfair advantage associated with both supply and price of these raw materials.  The appellate body of the WTO concluded in January that these practices are inconsistent with China’s original accession protocol for becoming a member of the WTO, and recommended the country realign export policies with initial agreed-upon conditions. 

While the recent victory is significant, this case did not include any reference to rare earth metals, on which China has placed similar export restrictions.  Chinese production of rare earth metals started in the 1990s and undercut prices to dominate the global market – today China controls almost 95 percent of the world’s extraction and production of these materials, prompting international worry over price volatility.  The instability of the market is enhanced by the rapidly increasing demand for these materials, which has depleted resources during the past decade, threatening global supply. 

But U.S. policymakers aren’t waiting around for a resolution. The DOE recently released its 2011 Critical Materials Strategy, highlighting the supply and demand challenges for several elements in what it calls “criticality matrices” which plot rare earth elements on a grid associated with their importance to clean technology and their supply risk in the future.  The results show that critical elements like dysprosium, neodymium, and yttrium – which are the most relevant materials to clean technologies like wind, solar, and energy storage – are also associated with the greatest supply risk.  The report outlines the challenges surrounding the critical materials market, and sketches out suitable approaches to overcoming these obstacles.  The DOE suggests diversifying global supply chains of rare earths by encouraging the development of mining and processing points in the United States, Australia, Vietnam, South Africa, Russia, and India, where emerging production capacity is being established.  In fact, U.S.-based rare-earth mining company Molycorp is gearing up for production, as is the Australian-based Lynas Corporation. But diversifying and increasing supply is just one potential solution.  More importantly, the DOE also points to the need to research and develop cheaper, next-generation critical materials substitutes that the United States could export.

ARPA-E (Advanced Research Projects Agency – Energy), the DOE’s DARPA-esque agency created to facilitate the development of high-risk/high-reward energy technologies, recently approved and funded 14 projects for a total of $31.6 million through its Rare Earth Alternatives in Critical Technologies (REACT) program.  The projects all focus on the development of next-generation technologies for wind generation and vehicle motors using synthesized substitutes for rare earth metals – technologies that mimic and even exceed the magnetic properties of rare earths, created with elements that are readily available domestically. 

Additionally, the FY2012 federal budget included funding for a new Innovation Hub within the Industrial Technologies Program focused on developing new critical materials substitutes. The DOE’s Hubs are multi-team research collaboratives working on overcoming scientific barriers to developing and deploying breakthrough technologies related to clean energy. 

In both cases, the DOE is taking the long-view – in order to make clean energy cheaper than fossil fuels, we need abundant, viable materials.  In other words, increased supply of rare-earth materials is important, but only a part of the solution.  Innovation in critical materials is vital. Support for these early-stage innovation projects are essential to strategically facing the difficulties and shortages of critical materials in the future, and for reducing American dependence on imports from China in the present.

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Lest you think I exaggerate, just read today’s New York Times article, about the White House’s effort to “lure” jobs to America.

The reporter quotes the usual suspects of neoclassical economists whose job it is, like the Iranian morality police who crack down on anyone with the audacity to think independently, to punish economic apostates. Case in point is C. Fred Bergsten, director of the Peterson Institute for International Economics, who says when asked if the President’s plan could be effective: “The best we could possibly get is continued modest growth in manufacturing jobs.” What he is really saying is that manufacturing is no different than any other sector. Since we can’t get many jobs in manufacturing, there’s no point in favoring this sector. We’d be just as well off getting jobs in health care or fast food restaurants. Not surprisingly, since they all sing from the same neoclassical cannon, Harvard economist Larry Katz agrees, stating, “It’s totally implausible to think that there’s going to be a surge in manufacturing jobs.”

But this completely misses the point since it treats manufacturing jobs (and the traded export sector more broadly) as exactly the same as the jobs in any other industry, like fast food restaurants or bowling alleys. Repeat after me: “It’s not the jobs!” Or perhaps more accurately, “It’s not just the jobs.”

Even the White House makes this mistake when they defend their plan on the basis that manufacturing is important because it creates good jobs. Sure, but if you defend your plan on the jobs basis you open yourself up to attack from the neoclassical priesthood who will rightly say it doesn’t create many jobs.

The point is not jobs, it’s about economic competitiveness. There is simply no way to run a robust fast growing economy if the nation’s traded sector is in uncompetitive. Manufacturing makes up a large share of America’s traded sector. If America loses its manufacturing base to foreign competitors—which contrary to the neoclassical belief is what has actually been happening to the U.S. economy over the past decade, as ITIF’s report The Case for a National Manufacturing Strategy made clear—that value similarly disappears as the industry’s supply chains and industrial commons are hollowed out. Moreover, when an economy loses 1/3 of its manufacturing in a decade (which is what the United States did in the 2000s), a rate greater than in the Great Depression, that loss turned the U.S. economy into a leaky boat with worn sails so it couldn’t tack the headwinds that increased into a gale force in the last decade. It’s not the manufacturing jobs per se, it’s the ability to have a competitive economy which then creates jobs

But there is a second, more subtle, but ultimately more important impact on the economy with regard to the loss of U.S. manufacturing competitiveness: it erodes the confidence of businesses, workers, and consumers. Ultimately, a strong and brisk recovery will depend on a faith that America will once again lead in the global economy. Absent that faith—or in the presence of a sense of economic foreboding and decline—the rational exuberance needed to power investment and spending will be lacking, and recovery will continue to drag along. As Keynes noted, “Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits—a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.” And given that America has lost a greater share of its manufacturing jobs AND output in the last decade than virtually almost any other nation, that goes a long way to explain why the animal spirits are so weak.

So given that reality, shouldn’t we put in place policies to restore U.S. manufacturing competitiveness? Not for the neoclassical priesthood. Bergsten is quoted as saying that trying to slow the offshoring of jobs by making America more competitive was “trying to buck two major trends.” This is simply nonsense. There is no inherent trend that says an economy must suffer from massive trade deficits. There is no iron law of economics that says that if your corporate tax rate is the second highest in the world that perhaps reducing it might “buck a major trend” and actually lead companies to invest in manufacturing in the United States. Moreover, if this is a major trend why have other nations like Germany, Sweden, Austria, and Japan not seen losses in manufacturing output? Of course, it all goes back to the neoclassical religion. Any “trend” in the economy is sacred because the market produced it. “Bucking” it is the dreaded “industrial policy.”

Which gets me to the last point about the article. The New York Times author summarized the situation as, “It all adds up to what economists might call an industrial policy, the out-of-favor practice of using tariffs, taxes and other measures to help a particular industry.” First of all the term is only out of favor among the neoclassical economics priesthood. Second, have we really sunk so low in our intellectual discourse about economic policy to where even a policy to broadly support manufacturing is derided as “industrial policy.” That term—a completely loaded term that cuts off all opportunity for rational debate, not that most neoclassical economists are noted for rational debates—historically has referred to government efforts to pick particular firms and technologies. That is not what the Obama administration and others like ITIF who support a national manufacturing policy are advocating for.

To be clear, we don’t agree with all of the Obama proposals (especially ending deferral of foreign sourced income), but a policy that seeks to increase tax incentives for ALL domestic manufacturing, to enforce trade agreements, and to train workers is far from “picking winners.” If we’ve come this far (or low) in the debate that a policy to help ALL manufacturers is industrial policy, then essentially neoclassical economists are saying that all policies need to be completely neutral between industries. Potato chips, computer chips, what’s the difference. And, in fact, that is actually where we are. What a sad state of affairs that neoclassical economists can’t tell the difference between potato chips and computer chips. Every other nation can. But, it appears, not us.

This is too critical an issue for our nation’s future for it to be decided in the newspaper articles and offhand quotes from neoclassical economists. So Fred or Larry, anytime you’d like to debate this critical issue in public, I am happy to do so. 

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A few days ago, I received an email from an advocacy group alerting me to the fact that Google was causing trouble again on the consumer privacy front. Like any good Internet populist, I immediately went to sharpen my pitchfork and grab a torch to join the masses in public outrage. Unfortunately, my pitchfork was broken and I was all out of torches. Dismayed I went online to buy new ones. Unfortunately, when I tried to search online for “pitchfork”, the top search results directed me to a music blog and a music festival named “Pitchfork.” Slightly discouraged, I then searched for “torches.” But again, I received search results taking me to information about an album called “Torches” from the band “Foster the People” and some restaurant called “Torches” in New York. Stymied by Google again! If only a search engine knew enough about its users to be able to return relevant results…

To recap, Google announced last week that it plans to consolidate over 60 privacy policies for individual products into a single policy. For the most part, data governed by Google will be consolidated and managed by a single policy linked to a user’s Google account. This means that consumer data from products like Search, Gmail and YouTube can be used together to offer better services to users. For example, Google might make sharing a video easier on YouTube by allowing you to share a video with a set of contacts from your Gmail account with fewer clicks. Another of the touted features is better personalized search. The idea is that Google will be able to better tailor search results based on your interests, including your search history (mobile and desktop), email and videos watched on YouTube. For example, if you search for “jaguar,” are you searching for a cat or a car? If you search for “puma,” are you searching for a cat or a pair of shoes? If you search for “cougar,” are you…well you get the idea.

To be clear, Google has not made any radical changes to its privacy policies. Google still does not sell personal information to third parties. Google is not collecting more or less information than before. Google still does not have people in its company reading through people’s email or search history. And Google still offers users the ability to control their data through various tools including the Google Dashboard, an opt-out feature for personalized ads, and the Data Liberation Front which allows users to export data from Google services. More importantly, users can simply opt to not use Google products. As great as Google is, there are plenty of alternatives if users choose to leave. This includes areas like search (e.g. Bing, Yahoo, etc.), email (e.g. Hotmail, Yahoo Mail, Zoho, AOL, Hushmail, GMX, etc.), video (e.g., Blip.tv, Vimeo, Veoh, etc.), and mobile OS (iOS, Symbian, Blackberry OS, Windows Phone). And users have plenty of time to learn about this change and decide. The proposed changes will not go into effect until March 1, and Google has been sending email notices and displaying pop-up reminders about this change across its products to ensure its users are aware of the change.

For those who follow online privacy issues, the latest uproar among privacy advocates about Google changing its privacy policy is coming as no surprise. It seems that no company, especially if it is named Google or Facebook, can do anything new or innovative that involves consumer data without privacy advocates immediately attacking them. For example, after the recent announcement from Google, John Simpson at Consumer Watchdog complained “Google has eliminated its last pretense that it protects consumer privacy - the walls are torn down. Instead of a privacy policy Google has finally admitted they have a profiling policy - and every Internet user is a target to be spied on.” And at the urging of these groups, members of Congress sent Google a letter asking the company to respond to their privacy concerns. Today, Google responded and reiterated that these changes were created to make privacy policies simpler and offer better services.

While privacy groups continue to complain about these changes, it is worth remembering that these complaints are neither new nor unusual. Google is a company that has not only developed new products and services internally, but also assimilated others through acquisitions. For example, much of Google Apps (e.g. Google Docs, Google Calendar) comes from technology it acquired from other start-ups (e.g. Writely, JotSpot, Deja News) and sites like YouTube were not originally part of the Google family. Naturally, many of these pre-existing products came with their own unique privacy policies and practices. As with most acquisitions, eventually the parent company tries to harmonize policies across all organizational units. In 2010, Google did just that and implemented a similar consolidation among privacy policies for Gmail, Google Docs, Google Calendar and Google Talk. Doing so allowed them to reduce the number of privacy policies and better integrate services across these products (such as easily sending Google Calendar invites to Gmail contacts). Privacy advocates were similarly outraged by these changes two years ago. Writing in 2010, a coalition of privacy advocates claimed that the change would “reduce privacy safeguards for hundreds of millions of users of Google's Internet-based services.” Yet here we are two years later and I have yet to hear of an example of how this change hurt a single Google user.

What these privacy advocates would like is for Google to create artificial barriers between its products and services and build data silos that compartmentalize every piece of data. Moreover they are strictly opposed to a unified user-experience across products and services. Yet there is no reason to create a distinction between different products and services when doing so would limit the ability to create an integrated service for users. At best, these advocates want a “HIPAA-notice” regime for the Internet where users are constantly bombarded with meaningless privacy notices. At worst, they want to erect roadblocks to innovation by forcing users into an opt-in regime for any change in the governance of consumer data.

These privacy advocates want Google to treat each user as a new visitor as they navigate from one Google service to another. They are like teenagers who ask their parents, “When we’re in public, can you pretend that you don’t know me?” But Google and other companies should be allowed to consolidate data and offer better services to users across products because this is an important step in innovation. Imagine if tech companies were unable to buy new start-ups because regulators would stop them from integrating new technology and services with existing products. We would put the brakes on new development and make investors hesitant to support start-ups whose path to profits lies with acquisition rather than an IPO.

I understand that people do not like change, but these over-the-top claims are baseless. Google has provided more than sufficient notice to users and users have plenty of options if they disagree with this change. Moreover, Google is making consumers better off by simplifying their privacy policies and making them easier to understand by writing them in plain English. Regulators and privacy advocates often complain of dense privacy policies that the average consumer cannot understand. For example, the FTC has called for privacy notices that are “clearer, shorter, and more standardized.” It is ironic that when companies respond appropriately to address these concerns, the privacy advocates are so caught up in an anti-Google fever they cannot recognize progress when it happens.

The sad reality is that companies dealing with consumer data will always be criticized no matter what they do to improve consumer privacy. Had Google not made this change, these critics would have just been complaining about the burden on consumers of having to read over sixty privacy policies just to use Google. Rather than trap companies in a catch-22, policymakers should be encouraging companies to take pro-active steps like this that make data practices more transparent.

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By Matthew Stepp, Clean Energy Policy Analyst at the Information Technology and Innovation Foundation and Jesse Jenkins, Director of Climate and Energy Policy at the Breakthrough Institute

It is time to take stock of our current climate trajectory, and consider what it means for climate policy. In Part 1 of this week long series, we argued that our current climate trajectory means we must 1) redouble efforts to reduce CO₂ emissions as quickly as possible, and 2) we must proactively build resilience to the uncertain impacts of a changing climate. Part 2 examined why voluntary economic contraction is a not a viable strategy for reducing emissions “as quickly as possible.” Part 3 explained why implementing a robust clean energy innovation strategy is the key way to making clean energy cheaper than fossil fuels, thus enabling the rapid adoption of low-carbon energy sources and drastically reducing CO₂ as quickly as possible. Part 4 discussed why adaptation through innovation is central to preparing for the impacts of a warmer world. Finally, Part 5 discusses how reducing a set of non-CO₂ pollutants and greenhouse gases can make a significant, near-term dent in warming and buy time to decarbonize the energy system.

As we have argued previously in this series, averting as much dangerous climate change impacts as possible hinges on our efforts to drive innovation and make clean energy cost competitive with fossil fuels. The cost of decarbonization is the key moderating force affecting the pace of carbon dioxide (CO₂) reductions, and innovation is the key to lowering these costs and accelerating climate progress. However, CO₂ isn’t the only powerful contributor to global warming, and scientists have identified opportunities to make a significant, near-term dent in warming by tackling other greenhouse gases and pollutants.

While we cannot effectively manage human impact on the climate over the long-run without decarbonizing the global energy system — a task that hinges on the energy innovation efforts described in Part 3 of this series — in the short term, we would do well to seize opportunities to reduce non-CO₂ emissions, particularly those with immediate co-benefits (e.g. profitable byproducts, improved public health, or better agricultural yields) that align incentives for rapid action.

Scientists estimate that at least 30 percent and as high as 50 percent of the manmade increase in average global temperature measured to date is a function of climate destabilizers other than CO₂, including methane, soot, tropospheric ozone precursor gases, and deforestation. These non-CO₂ factors will remain significant contributors to global climate change in coming decades.

This month, an international team of two dozen climate scientists published their latest findings, indicating that aggressively tackling soot and methane emissions, the #2 and #3 most potent contributors to climate change (after CO₂), could reduce the amount of global warming in 2050 by 0.5°C. Methane emissions derive mostly from landfills, agriculture (particularly rice farming), livestock, and natural gas and coal extraction, while soot, otherwise called “black carbon”, results from the incomplete combustion of fossil fuels and derives primarily from primitive cook stoves used throughout much of the developing world, as well as diesel engines and coal-burning power plants.

Reducing global warming by 0.5°C may not sound like much, but when it comes to climate change, every tenth of a degree matters, and slowing near-term warming is particularly important to avoid triggering feedback loops that could accelerate further warming. Tackling methane and soot could reduce the scientists’ projections of average warming in 2050 by 40 percent, which could mean the difference between triggering serious feedbacks in the global climate systems or not.

And the best news about methane and soot is that there are numerous ways to effectively control these two climate destabilizers, often at minimal initial costs and with large near-term benefits.

Image: U.S. Navy project in Hawaii to capture methane at a wastewater treatment plant to use as an alternative fuel source.

All 14 of the best methods to reduce methane and soot identified by the team of scientists — including capturing methane at landfills and coal mines, cleaning up cook stoves and diesel engines, and changing agriculture techniques for rice paddies and manure collection — are already being used efficiently in many places, but are not universally adopted, the study's lead author, Drew Shindell of NASA, told the Associated Press. That means, just as our colleagues argued in Climate Pragmatism, that there are numerous opportunities to cost-effectively tackle these “no regrets” pollutants “through traditional air pollution regulations, the spread of best practices, and multilateral cooperation.”

Better yet, reducing methane and soot emissions would have significant, near-term benefits in addition to helping mitigate climate change. Cleaning up soot pollution could prevent between 700,000 and 4.7 million premature deaths each year, according to the international team of researchers, while capturing methane from coal mines, landfills, and agricultural waste can yield natural gas, a less carbon intensive and increasingly valuable fuel. The scientists also estimate that aggressively cutting methane and soot could boost agriculture yields worldwide by almost 150 million tons and yield overall net benefits 10 times greater than the initial costs of tackling the pollutants.

Yet for those most concerned about climate change, there’s an added imperative to tackling these non-CO₂ climate forces: cutting emissions of soot and methane could be the fastest ways to reduce near-term warming and thus buy critical time to decarbonize the global energy supply system.

It all comes down to basic chemistry: CO₂ accumulates in the atmosphere and persists there for a hundred years or more before being sequestered by natural forces or breaking down chemically. The longevity and sheer quantity of CO₂ means that over the long term, the cumulative amount of CO₂ emissions is the biggest and most important driver of long-term warming. However, the corollary of this fact is that driving CO₂ emissions downwards now does little to reduce warming in the near-term. All that CO₂ already in the atmosphere persists, and it continues to lock us into warming that is taking us closer to climate tipping points.

Not so with methane or soot. Cutting emissions of these two agents will yield almost immediate reductions in total global warming. Methane resides in the atmosphere for only 9-15 years, while black carbon precipitates out of the atmosphere after a matter of weeks.

That means that once we cut back on new emissions, the warming effect of soot and methane begins to abate almost immediately. That’s why climate scientist’s estimate over a 20 year time frame, black carbon has an impact many thousand times greater than CO₂ on a ton-for-ton basis, while methane has a more than 70-times greater warming effect than an equivalent amount of CO₂.

If our current climate trajectory has us hurtling towards a world of substantial warming, aggressive reductions of soot, methane, and other non-CO₂ climate “forcings” (i.e. nitrogen oxides and fluorinated gases) should be a central component of any climate policy strategy. These are the “fast acting” efforts that can yield critical near-term reductions in warming while delivering substantial co-benefits that justify the relatively modest costs of mitigation. There’s no reason not to act on this front, and fast.

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By Matthew Stepp, Clean Energy Policy Analyst at the Information Technology and Innovation Foundation and Jesse Jenkins, Director of Climate and Energy Policy at the Breakthrough Institute

 It is time to take stock of our current climate trajectory, and consider what it means for climate policy. In Part 1 of this week long series, we argued that our current climate trajectory means we must 1) redouble efforts to reduce CO₂ emissions as quickly as possible, and 2) we must proactively build resilience to the uncertain impacts of a changing climate. Part 2 examined why voluntary economic contraction is a not a viable strategy for reducing emissions “as quickly as possible.” Part 3 explained why implementing a robust clean energy innovation strategy is the key way to making clean energy cheaper than fossil fuels, thus enabling the rapid adoption of low-carbon energy sources and drastically reducing CO₂ as quickly as possible. Part 4 discusses why adaptation through innovation is central to preparing for the impacts of a warmer world and buying us time to drastically cut emissions.

The door is closed to mitigating away all of the potentially dangerous impacts of climate change.  We’ve simply waited too long to take sweeping action and provide a cheap and viable clean energy substitute to fossil fuels. In Part 1 of this series, we discussed that even so, the goal is still the same – we must drastically cut emissions as quickly as possible (and Part 2 and Part 3 discussed how). 

Yet the warmer world we have locked ourselves into does inform other policy choices. In particular, building our resilience to extreme weather and increasing our adaptive capacity is now equally as important as mitigation and should be treated as such. Advocating for adaptation and mitigation is nothing new – in fact it’s common place. The argument here is that adaptation must now be a cornerstone of all climate policy choices – domestic or otherwise.

When it comes to climate adaptation policymaking, a lot of work needs to be done, as it’s still a topic that has been largely ignored by U.S. decision makers. In fact, the most immediate hurdle is for decision makers to stop paying lip-service to the need for an adaptation policy and begin aggressively implementing real resilience efforts.

Understandably, adaptation has long played the role of the ugly headed step-child of climate policy, as decision makers focused almost entirely on ways to significantly cut emissions. Of course, ten or twenty years ago, mitigation clearly seemed the more immediate and pressing priority. Yet times have changed as twenty years of mitigation efforts have yielded little progress and the adaptation challenge has now become a pressing priority. Recognition has begun to sink in, but most adaptation policy discussions in recent years are still found towards the margins, largely in international climate negotiations or in select U.S. states and local communities. Case in point is the internationally proposed Green Climate Fund that intends to offer financing options for both mitigation and adaptation projects across the world. Or the efforts of major metropolitan areas like San Francisco, New York, and Seattle to plan resilient strategies for a changing climate.

Yet climate adaptation is scarcely heard within the halls of Congress or among most domestic policy advocates. This must change and it should be a top priority for all climate advocates. Adaptation must be vigorously discussed alongside climate mitigation efforts, instead of as an afterthought, or as a Plan B, to be initiated sometime in the future. Building climate resilience must begin now, and in earnest.

But for any vigorous policy discussion to have an impact, we need to throw away some old mischaracterizations. Namely, we should stop narrowly defining adaptation policy as only addressing anthropogenic (aka man made) climate change impacts and instead define it as addressing resilience to extreme climate and weather, regardless of the cause. This may sound odd, but it’s a key nuance. As last year’s Hartwell Group report, Climate Pragmatism (which ITIF and BTI are signatories), points out:

“[N]ations must shift their focus away from adaptation to anthropogenic climate change and towards resilience to extreme weather events of all types, without regard to cause. After all, it is immaterial if a hurricane is marginally more intense due to climate change than it would otherwise have been; the route to resilience is the same regardless. Societies remain vulnerable to many types of hazards, and resilient societies are those best prepared to respond effectively to a diversity of threats.”

The idea here is that we shouldn’t be spending time trying to discern between human-caused weather extremes and natural-caused weather extremes, at least from an adaptive capacity point-of-view. Doing so adds yet another layer of policy tension and debate as policymakers try to figure out what constitutes human-made climate change impacts from “normal” impacts. In reality, with or without the threat of climate change, it’s important for communities to build resilience to extreme weather and climate impacts. Instead of creating a new subset of needs for communities, we should be vigorously stepping up our existing development, infrastructure, agricultural productivity, and economic resilience efforts. Climate change adds a greater sense of urgency and aggressiveness, not the need for new and artificially segregated efforts.

Furthermore, policymakers must recognize the role that innovation plays in building climate resilience. We need new technical, organizational, and societal solutions to better manage risk and expand options for boosting resilience, both in developing and developed communities.

These innovations will arise in all facets of science and engineering. Medical innovations in prevention, drugs, and drug delivery are needed to stop the spread of infectious diseases as regions become warmer and disease vectors (mosquitoes, etc.) spread across wider regions. Agricultural innovations, particularly around genetically engineered crops, are needed to continue to increase crop productivity to avoid falling yields, even in high temperature environments and instances of flooding. Breakthroughs in water recycling and purification are necessary to ensure communities in drought-prone regions and those impacted by rising sea-level or disappearing mountain glaciers have access to drinking water, while new engineering innovations are needed to safeguard those communities, buildings, and crops against rising water and other extreme weather.

Innovations in information and communication technologies are also vitally needed. New remote sensing instruments are needed to provide better data for weather forecasters and numerical models. High-speed supercomputing could allow for better risk management and scenario analysis to better prepare local and regional disaster management decisions. New software that gathers, manages, and analyzes key data to quickly provide disaster managers with real-time updates are vitally important. Information technology systems to enable better flood warning are needed.  And ensuring new and functional weather and climate satellites provides key datasets for policymakers.

Therefore, everything from R&D policy and farm bills to infrastructure funding and space policy is key to an aggressive adaptation strategy. In other words, adaptation policy is cross-cutting and deeply infused with innovation policy questions. And just like policies aimed at limiting potentially dangerous climate change, adaptation policies will be implemented in the face of uncertainty, both in climate impacts and variance in extreme weather.

Even under uncertainty, one thing can be certain – in a warmer world, there is no such thing as “normal” climate or weather anymore. In the face of uncertainty, resilience is key. Given our new harsh climate realities, aggressive mitigation and climate resilience is an imperative. U.S. climate policy discussions that don’t include building resilience to extreme weather are set for failure.

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Stephen Ezell, Matt Stepp, and Rob Atkinson contributed to this summary.

• Funding R&D: “Innovation is what America has always been about,” he said. Absolutely. We laud him for prodding Congress to maintain basic research funding budgets. However, the President should have included applied research in his prod. To understand why, look at Germany. Its manufacturing sector accounts for 20% of the country’s GDP as opposed to the United States 11% and German manufacturing workers earn 40% more in hourly wage compensation than U.S. manufacturing workers. Its exports of research-intensive high-tech products are seven times greater than the United States’ as a share of GDP. One reason is that the country spends six times as much on industrial research and production technologies as does the United States. Through its network of Fraunhofer Institutes (supported one-third by Germany’s federal and state governments and two-third by industry), Germany invests heavily in collaborative, pre-competitive applied (or “translational”) research into key emerging technologies or sectors (such as robotics, nanotechnology, or photonics). In other words, they make sure basic research gets turned into commercial products by supporting applied research.

• Manufacturing: Kudos as well for the President’s stress on manufacturing. However, we wished he had announced a manufacturing technology initiative that would invest $500 million in public-private partnerships supporting advanced manufacturing and technology development in the United States, as the June 2011 PCAST Report to the President on Ensuring American Leadership in Advanced Manufacturing advocated. While it’s all well and good to tell stories of manufacturers returning to the United States from abroad—and no doubt smart and effective policies can and should abet that process—the United States needs to make serious investments in advanced manufacturing to both match those of our competitors and to ensure that U.S. remains competitive in the advanced high-tech manufacturing sectors of the future.

• Trade: The President’s announcement of a Trade Enforcement Unit (TEU) is a step in the right direction. ITIF has long advocated giving more resources to USTR for enforcement and making it a high priority. The President was spot on in saying that “It’s not right when another country lets our movie, music, and software be pirated. It’s not fair when foreign manufacturers have a leg up on ours only because they’re heavily subsidized.” But let’s not kid ourselves. Enforcement is only part of the challenge. The President needs to call out China as a currency manipulator and to insist at the highest levels that the country immediately begin to adhere in full to its WTO commitments (including participating in side agreements such as the Government Procurement Agreement). Perhaps the Administration’s best option would be to pursue the creation of a new multilateral trade agreement, a Trans-Atlantic Partnership, whose members would enter into a gold-standard trade agreement that seeks the highest levels of open market access, elimination of both tariff and non-tariff barriers, and protection of intellectual property rights.

• Taxes: The President was absolutely correct to observe that “companies who choose to stay in America get hit with one of the highest tax rates in the world” (second only to those in Japan, in fact). But so do U.S. multinational companies. We agree that U.S. corporate tax reform is sorely needed but we remain wary of simplification for simplification’s sake. We need stronger, not weaker, incentivizes for investing in the building blocks of competitiveness: R&D, workforce training, and capital equipment and machinery. The President got applause when he said, “Second, no American company should be able to avoid paying its fair share of taxes by moving jobs and profits overseas. From now on, every multinational company should have to pay a basic minimum tax. And every penny should go towards lowering taxes for companies that choose to stay here and hire here.” Well, that sounds good but it ignores the fact that this proposal will raise taxes on some companies, especially companies that are in traded industries facing the most robust international competition. The President needs to stop trying to get “pay fors” by ending deferral, and rather recognize that any reform cannot be revenue neutral. We need lower effective corporate tax rates. It’s much better to get multinational companies to want to be here because we have low and globally competitive corporate income tax rates rather than having to threaten them with paying a basic minimum tax.  

• Technology and Jobs: We were disappointed when the President said, “Technology made businesses more efficient, but also made some jobs obsolete.” The problem with this is that it stokes distrust of technology at a time when we can really use it. The data is unambiguous that higher rates of productivity lead to more jobs in the medium to long term, not fewer jobs. In addition, with the declining worker to population ratio as baby boomers age over the next 25 years, we need to ensure that either their after-tax incomes don’t go down or retirees expected incomes don’t go down. Boosting productivity is the single best way to do this is and we need technology for that. As NIST Senior Economist Greg Tassey has said, “If you don’t invest in productivity, you lose all your jobs.”

• Energy: The President made a strong case to “double-down” on federal support for clean energy. He pointed out the important, yet often under-reported role of the government in supporting breakthrough energy technologies such as those used to extract natural gas from shale. It’s an important story that mirrors the story of most clean energy technologies today. But the devil is in the details. First, we laud the President for wanting to spur more “energy innovation,” but he largely ignored implementing an aggressive clean energy R&D agenda. Supporting new ideas and earlier stage technologies is absolutely vital because we need cheaper, better technologies than what we have today. Second, because of budget austerity and stimulus funds drying up, many key public investments in R&D are disappearing and new revenue streams are needed. We’d like him to consider an idea ITIF has supported and argue for diverting tax revenue from the expansion of oil and gas drilling or the elimination of fossil fuel subsidies to fund clean energy R&D. Third, the President called for additional support for late-stage clean energy deployment tax incentives and a clean energy standard. While both would provide additional support for the clean economy and could potentially play key roles in an energy innovation strategy, as they’re conceived today both policies would only deploy less competitive, existing technologies and fail to spur greater innovation. A good hard look at reforming those policies to drive increasing performance improvements and cost declines is a must. Last, the President was correct to mention the vital role DOD is playing in spurring energy innovation, as it represents a robust energy innovation ecosystem that could have significant spill-over benefits. Let’s hope his budget reflects that belief when it comes out in three weeks.

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By Matthew Stepp, Clean Energy Policy Analyst at the Information Technology and Innovation Foundation and Jesse Jenkins, Director of Climate and Energy Policy at the Breakthrough Institute 

It is time to take stock of our current climate trajectory, and consider what it means for climate policy. In Part 1 of this week long series, we argued that our current climate trajectory means we must 1) redouble efforts to reduce CO₂ emissions as quickly as possible, and 2) we must proactively build resilience to the uncertain impacts of a changing climate. Part 2 examined why voluntary economic contraction is a not a viable strategy for reducing emissions “as quickly as possible.” Part 3 explains why implementing a robust clean energy innovation strategy is the key way to making clean energy cheaper than fossil fuels, thus enable rapid adoption of low-carbon energy sources and drastically reducing CO₂ as quickly as possible.

As we wrote in Part 1 and Part 2 of this series, our current climate trajectory and global political economy dictates that the only way we can limit potentially dangerous climate change impacts, above the dangerous impacts we’re already locked into, is to redouble efforts to reduce global CO2 emissions as quickly as possible. To rapidly decarbonize the economy requires greatly accelerating the replacement of fossil fuels with low or zero-carbon clean energy substitutes. Implementing the right strategies to do so raises numerous stark policy choices and issues.

The most fundamental issue is that energy is largely a fungible commodity – the electricity coming out of your wall socket doesn’t have any immediately tangible differences whether it comes from a coal plant or a wind farm. The only immediate difference is cost. This key reality means that the rate of adoption for new clean energy technologies is largely moderated by two principal levers:

(1) The level of public tolerance for paying for the cost of cleaner energy in the form of higher energy costs, subsidies, or reduced economic welfare; and

(2) The cost competitiveness of clean energy compared to fossil fuels.

To be clear, we’re not ignoring systemic moderating forces like regulatory and infrastructure barriers to clean energy. These barriers to adoption must be addressed in turn. But here we’re simply stating that as a matter of first principle, when choosing an energy technology, cost is the most immediately important factor.

As it stands today, clean energy is, by and large, more expensive than fossil fuels. (EIA analysis here, DOE QTR overview pg. 107-108, and EPRI technology assessment table 1-2 for starters). On their own, energy consumers and utilities will predominately choose lower cost fossil fuel technologies over more expensive clean energy substitutes. So accelerating the deployment of today’s clean energy technologies is moderated by the public’s tolerance for higher energy costs.

Determining how much publics are willing to pay for cleaner energy is a difficult social science question. But a survey of the literature by Evan Johnson and Gregory Nemet of the University of Wisconsin-Madison published last year found that households are willing to pay between $22 and $3,624 a year in response to climate policy. A wide range, to be sure. However, after eliminating the outliers, the majority of studies found that publics are willing to pay somewhere in the range of $100 to $300 per year extra for cleaner energy. This suggests that the public has a pretty low tolerance – on the order of a few extra dollars a month – for higher costs related to climate policies. While public tolerance for higher energy prices may vary in different political economies, it is always fairly limited.

We can see this basic dynamic play out all across the world. We are probably all familiar with a pretty recent example: the proposed national cap-and-trade legislation defeated in the Senate in the summer of 2010, which, according to its advocates, would have increased consumers’ energy costs by about the cost of one postage stamp per day. Yet the legislation ultimately met with defeat, despite this very limited projected impact on energy prices. In a more positive example, Australia recently enacted a national carbon tax. But the increase in energy costs amounts to about six cents per gallon of gasoline, once again illustrating the constraints political economies place on efforts to substantially raise energy costs to pay for or incentivize clean energy alternatives.

We can also see this limited tolerance in action through the numerous mandates requiring utilities to adopt renewable energy alternatives. For instance, many renewable portfolio standards (RPS policies) includes one or more “cost containment” provisions limiting the ultimate cost of compliance to ensure they do not expend the limited public tolerance for higher energy prices. In Oregon and Washington, for example, state RPS policies limit the cost of compliance to a 4 percent increase over an alternative, fossil fueled energy mix. The federal RPS included in the American Clean Energy Leadership Act, an energy bill considered in the Senate in 2009, would have implemented a similar 4 percent cap on total retail rate impacts. It also offered an alternative compliance payment of 2.1 cents per kilowatt-hour, which utilities could pay in lieu of purchasing or generating renewable electricity, effectively limiting the incremental cost of renewables above fossil fuels to less than 2.1 cents per kWh.

To make matters worse, we can expect this public tolerance to be even lower in emerging economies, where the vast majority of energy demand and emissions growth will occur in the coming decades. The millions simply struggling to gain access to energy will surely go for the least cost option as their ability to take on additional costs will be small to non-existent. Along the same lines, the governments of emerging economies won’t also be able to sustain high public subsidies for clean technologies, as some Western European nations have.

In response to this reality, an intense and robust climate communications effort may indeed help by incrementally increasing the public’s tolerance for higher energy prices in the name of climate mitigation. But should we expect these PR efforts to double or triple Americans’ apparently low tolerance? How about in developing nations that have trouble affording not only cheaper fossil energy, but medicine and food?

We should clearly pursue efforts to increase the public’s willingness to accept the costs associated with today’s investments in clean energy alternatives wherever and whenever such strategies prove effective. But we cannot expect public willingness to pay for climate mitigation or cleaner energy to ever be infinite, and we must plan for success within the constraints this entails.

With that in mind, we now turn to the second lever at our disposal: making clean energy cost competitive with fossil fuels.

In the near-term, we can make clean energy cost competitive simply through subsidies, which artificially lower the cost of cleaner energy. For instance, New Jersey’s Renewable Energy Credits for solar have been on the order of $300 to $700 per MWh (or an order of magnitude above retail rates). But this causes an immediate issue, as subsidies are a public cost to consumers (albeit a less transparent cost than higher utility bills). If subsidy efforts succeed in driving wide-spread adoption, the cost of subsidies will concurrently increase unless the real costs of clean energy fall and subsidies fall along with it. For example, if the federal wind PTC stays constant at 2.2 cents/kWh in 2011 dollars and wind installations grow to provide 20 percent of U.S. electricity in 2030 (the stated goal of the wind industry), the public cost of the PTC would total more than $20 billion annually (assuming EIA estimates for 2030 electricity demand). That would make wind subsidies one of the largest single incentives across all government.

In short, as subsidized clean energy deployment mounts, public cost will rise, eventually to unsustainable levels – unless the unsubsidized costs of clean energy steadily fall alongside deployment.

That means we have to invest every public dollar wisely and use our limited public tolerance for subsidy or higher energy prices to maximum effect. The best way to do that is to invest in ways that drive down the real, unsubsidized cost of clean energy as rapidly as possible. In other words, we need to leverage each public dollar we spend to make clean energy cheap.

This brings up a key point because in many cases, we simply don’t have all the cheap, clean technologies we need. In fact, we need much better technologies than what we have now, especially if we expect to deploy them worldwide. Fortunately history shows us how to do this: through a more diverse and targeted set of policy tools aimed at supporting a robust and aggressive energy innovation system.

In fact, it easy to see how a well functioning innovation system can yield far more progress towards rapid clean energy deployment than communications efforts, as important as the latter is.  Take a look at utility-scale solar PV. According to the World Resources Institute (WRI), solar PV has dropped in cost by 90 percent in the last 30 years. If we had tried to accelerate decarbonization by deploying 1980s solar technology, it would have cost a staggering $53.5 trillion to scale up solar to provide just 11 percent of total global electricity supply, according to WRI’s numbers. Yet at dramatically reduced 2008 solar costs, that figure drops to by more than a factor of six, to $8.46 trillion. The power of innovation doesn’t stop there. According to WRI, if further innovation achieves the cost targets set by the US Department of Energy’s SunShot initiative, the cost of solar scale-up would be fall again by more than a factor of five.

It should be clear that innovation is essential to dramatically reduce the public costs required to drive the rapid adoption of clean energy. At the same time, it is difficult to imagine even the most effective climate communications efforts boosting public tolerance for higher energy costs by a factor of five or ten. While climate communication efforts are important, they cannot supplant a robust innovation effort as the central lever to accelerate clean energy adoption.

Unfortunately, efforts to build consensus around an innovation-centered approach to climate mitigation have been marred by at least two major mischaracterizations that have muddled the debate.

First, counter to what many folks believe innovation does not mean deployment with a little bit of R&D sprinkled in. A “deploy, deploy, deploy, R&D, deploy, deploy, deploy” approach either ignores the need to drive cost reductions in clean energy alternatives or assumes that the lion’s share of clean energy cost reductions will come via scale-up (while ignoring the public’s low tolerance for subsidies). This is fundamentally inaccurate. The large and growing literature on what is really behind “learning curves” – the complex processes of research, learning, new technology adoption, and supply chain improvements that typical lead to falling costs alongside expanding technology adoption – puts to lie the idea that deployment alone is all we need to drive down costs. What lies behind significant declines in the price of solar PV over the last thirty years, for example? Equal parts ongoing R&D and economies of scale, according to research from Univ. of Wisconsin-Madison’s Dr. Gregory Nemet. In other words, you need both robust R&D system and aligned incentives for market adoption that reward innovators who adopt cutting edge methods and continue to cut costs.

Second, innovation does not mean R&D alone. While public investments in R&D are an absolutely necessary part of a clean energy innovation approach, it is but one piece of the puzzle, something innovation experts have always been quite clear about.

The bulwark of an effective energy innovation system is the aggressive pursuit of new products, new services, performance improvements and cost declines across each stage of innovation and technology maturation. It includes major support for R&D for both radical new clean technologies like vehicle batteries that travel 500 miles or more on a single charge as well as includes steady incremental improvements in existing designs like on-shore wind turbines. The ecosystem supports the accelerated commercialization and demonstration of new clean technologies so potential breakthrough ideas don’t collect dust on a laboratory’s shelf. And the ecosystem includes deployment policies that should be explicitly designed to ensure that every dollar invested provides the best incentives for further innovation and cost declines. Deployment policies must play a key role in creating markets for clean energy, but we must ensure that those markets have the right structure and offer the right incentives to demand and reward continual improvements in the price and performance of clean technologies.

The ultimate goal of this system is to use limited public investments to support a variety of clean energy technologies on a path to subsidy independence and true cost competitiveness with fossil fuels, as quickly as possible. It ensures we not only smartly deploy clean technologies today, but make these technologies affordable enough for the rapid, widespread, global adoption needed to drastically cut emissions.

As it stands, America’s clean energy innovation ecosystem has significant weaknesses and is not running at top gear. The goal of climate advocates should be to strengthen the innovation ecosystem so it can develop cheaper options in a small fraction of the time it took solar PV to decrease in cost. If we take our climate outlook seriously, we have to focus just as seriously on efforts to strengthen and support the energy innovation ecosystem to make clean energy cheap. It’s our only realistic way to limit any further potentially dangerous climate change than what we are already locked ourselves into.

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President Obama’s State of the Union address last night demonstrated the importance of U.S. science and economic competitiveness to a prosperous and growing middle class. His focus on “keeping the American Dream alive,” invoking core American values of “fair play,” and “shared responsibility,” were inexorably linked to his administration’s past innovation policy actions and proposals for 2012.

This reflects the Obama administration’s clear understanding that innovation is an intrinsic aspect of the American identity, and an indispensable tool to ensuring the future success of our economy and middle class. Indeed, as the president said last night, “innovation is what America has always been about.”

Certainly, technology can be a double-edged sword. It creates, as the president said, “new American jobs, and new American industries,” but “technology… also [makes] some jobs obsolete.” The only way to sieze the upsides and mitigate the downsides of inevitable technological change is to keep our economy on the cutting edge by investing in the building blocks of innovation—the assets our businesses, workers, and industries need to stay best in class. The blueprint the president unveiled last night outlined a robust vision to invest in those building blocks, which include:

• Innovative manufacturing
• A work force with technical skills
• Thriving small and startup businesses
• Modern infrastructure
• Access to international markets
• Robust public research and development

These innovation building blocks mirror closely the broad policy areas we identified and developed in our recent package of five policy reports on U.S. science, innovation and economic competitiveness.

The president in his speech gave key examples of these innovation factors now at work in our economy. First, he alluded to the importance of innovation in manufacturing when he touted his policies that helped Detroit retool and restructure to adapt to changing market conditions. Proposing that high-tech manufacturers who innovate here at home rather than outsourcing their facilities get a tax deduction, Obama suggested “what’s happening in Detroit can happen in other industries. It can happen in Cleveland and Pittsburgh and Raleigh.” Our work on innovation clusters has long argued the same thing, and a forthcoming paper on manufacturing innovation looks into this in more detail.

The next part of the president’s blueprint for an innovative economy is technical skills for the workforce. “Higher education,” said the president, “is an economic imperative,” and outlined the problems our innovation-intensive industries face today:

“I hear from many business leaders who want to hire in the United States but can’t find workers with the right skills. Growing industries in science and technology have twice as many openings as we have workers who can do the job. Think about that: openings at a time when millions of Americans are looking for work. It’s inexcusable. And we know how to fix it.”

To address the problem, the president invoked the story of Jackie Bray, who benefited from a regional partnership between a Siemens gas turbine factory and a local community college that helped her get the skills she needed to help fill one of these technology job shortages.

In order to better equip our students with the skills they need to stay competitive in the 21st century global innovation economy, he outlined proposals to expand access to higher education, transform community colleges into community career centers, and streamline access to scattered federal workforce training assistance programs through a single program. Our papers “Building a Technically Skilled Workforce” and “Rewiring the Federal Government for Competitiveness” contain detailed versions of these proposals.

The president also noted that another piece of the puzzle to building the workforce we need is to “stop expelling responsible young people who want to staff our labs or start new businesses.” Our paper “Immigration for Innovation” addresses this need to reform our high-skill immigration system to ensure the United States remains the land of opportunity for all.

The president also spoke forcefully about the importance of inventive entrepreneurs to our economy and of the returns on public investment in research and innovation. Noting “most new jobs are created in startups and small businesses,” President Obama called for policies to help them succeed.

“Thousands of Americans have jobs,” he said, thanks to our public investments in clean technology innovation. He also pointed out that “the payoffs on these public investments don’t always come right away. Some technologies don’t pan out; some companies fail.” The fourth paper in our series on science and competitiveness, “Universities In Innovation Networks” contains five broad pieces of policy that would help accelerate the motion of basic research to market through the commercialization of university research.

President Obama also reiterated his proposal to consolidate trade and commerce agencies to make the federal government work better in ensuring businesses large and small have access to international markets for their products and technologies. Our paper “Rewiring the Federal Government for Competitiveness,” takes this proposal and goes into deeper detail about how consolidation of federal trade, technology, workforce training, and economic development programs and agencies can help promote more strategic coordination of these activities and promote innovation and competitiveness of U.S. businesses and regional economies.

The president’s State of the Union address demonstrates the importance that science and innovation policy play in his larger efforts to rebuild our middle class and return to our core American values. Innovation policy is a key piece of the toolset the Obama administration will use to develop an economy build to last and keep alive the American dream for the middle class.

Ed Paisley and Sean Pool are the coordinating editors of the series on U.S. science and economic competitiveness by the Center for American Progress. Ed Paisley is Vice President for Editorial at the Center. Sean Pool is assistant editor in charge of the Center’s Science Progress project. You can also read this article at Science Progress here.

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I should just get a macro for my computer so that when I type "Control T" it writes "Tom Friedman is wrong because" since he so often is, as I pointed out here. But in Today's New York Times Op-Ed he does it again, only maybe even worse; blaming technology for joblessness.  When will he and others realize this is not the case. He writes that information technology "is more rapidly replacing labor with machines." Well, if this were true, how does he explain the fact that productivity growth rates were much higher in the last five years of the 1990s than the last five years of the 2000s? And yet, unemployment was much lower in the 1990s period.

He then goes on to quote Davidson's equally incorrect article in The Atlantic which rightly points to the devastating loss of U.S. manufacturing jobs in the last decade and blames technology. No. As we point out, it was the loss output due to decline in U.S. competitiveness, not automation, that was responsible for the big loss of manufacturing jobs. Manufacturing experienced about the same rate of productivity growth in the '90s as it did in the 2000s and yet only lost one percent of jobs in the '90s, but 32 percent in the 2000s.

But in typical Friedman fashion he goes even farther with "analysis by anecdote." He tells us that there are now iPads that let people order their meals from their table without a waiter. And writes "you ain't seen nothin' yet" when it comes to IT automation.

I could write a full report on why Tom is wrong (well actually we did) but suffice to say three things. First, the economic evidence. If Tom had bothered to review it, it is unambiguous that higher rates of productivity lead to more jobs in the medium to long term, not fewer jobs. As the OECD states in a definitive review of studies on productivity and employment, "historically, the income generating effects of new technologies have proved more powerful than the labor-displacing effects: technological progress has been accompanied not only by higher output and productivity, but also by higher overall employment." Second, the most serious challenge facing the U.S. economy over the next 25 years is the declining worker to population ratio as the baby boomers age. The ONLY way to ensure that either their after-tax incomes don’t go down or retirees expected incomes don’t go down is by seriously boosting productivity, and the single best way to do this is through the use of IT. Tom, you ought to be celebrating the iPad in the restaurant, not engaging in neo-Ludditism. Finally, if we want to raise the living standards of Americans now holding low wage jobs, the best way to do it is to increase, not decrease, automation of these jobs. When a job can only produce 10 dollars an hour in value, there is no way to pay more than $10 per hour. If we can use technology to boost the productivity of many low wage, low productivity jobs, we can pay more for these jobs and workers who move out of these occupations can move into higher value added ones.

In short, it’s time to bury the myth that technology causes job loss and that we should fear it and resist it. It does not. And we should welcome it and encourage it. 

Image credit: Flickr user Charles Haynes

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