Contesting the Frontier: Rethinking US Energy Innovation Policy in a Semi-Settled Landscape | American Enterprise Institute - AEI

Contesting the Frontier: Rethinking US Energy Innovation Policy in a Semi-Settled Landscape

Contesting the Frontier: Rethinking US Energy Innovation Policy in a Semi-Settled Landscape

Part of AEI’s Center for Technology, Science, and Energy’s (CTSE) Science, Industry, and the State Project

Key Points

• Market and system failures have long impeded private investment in US energy innovation. Nonmarket competition from China has recently added new impediments.
• A robust federal energy innovation policy that deploys an array of fiscal, regulatory, information, trade, and other tools can overcome these obstacles. These tools have been used piecemeal in the past but must be used systematically and strategically to be successful in the future.
• Federal energy innovation policy will be most effective if it is relatively narrowly focused, concentrating scarce innovation resources and limited executive authority on a few big opportunities.

Executive Summary

Vannevar Bush left an enduring image in science policy of an unsettled frontier that could be explored at the research community’s leisure. That image has often misled policymakers in the past, and it is particularly misleading for those who seek to mobilize American innovators to tackle today’s energy and climate challenges.

A variety of market and system failures impede the translation of technological opportunities developed in the United States into energy innovations that will achieve national goals for security, affordability, economic growth, and environmental protection. These impediments include environmental externalities, knowledge spillovers, market power, coordination failures, uncertainty, and perceived risk. Fortified Chinese “settlements” on the energy innovation “frontier,” made possible by Chinese government policies and business strategies, add another layer of impediments to US energy innovation.

The federal government has the power to enable US innovators to more effectively contest the frontier. Federal fiscal, regulatory, information, trade, and other policy tools have been used in a piecemeal fashion to advance energy innovation in the past. These tools must be deployed systematically and strategically if energy innovation policy is to effectively address all the barriers in the future.

Enacting and implementing such a policy is difficult due to the fragmentation of federal policymaking. The scope for effective policy is further narrowed by extreme Chinese first-mover advantages in specific areas. These constraints may be accommodated by focusing energy innovation policy on a few domains that are most important, promising, and consensual. Such focused forays could yield large dividends if they are informed by a deep understanding of technological opportunities, market dynamics, resource constraints, and social and geopo