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December 22, 2011

Unlocking Energy Innovation

The authors of Unlocking Energy Innovation describe four stages of energy innovation:

1. the creation of new options;
2. demonstration;
3. early adoption;
4. and the optimization of large-scale technologies.

The costs associated with each are vastly different, and they increase by roughly an order of magnitude as technologies are scaled up.

1. the creation of new options; Several billion dollars per year now and needs to be tens of billions of dollar per year.

2. demonstration; Tens of billions per year now and needs to be hundreds of billions.

3. early adoption; Needs to be hundreds of billions more than now

4. and the optimization of large-scale technologies. The world is spending $3 trillion per year on energy now and this will increase to about ten trillion per year in 2030

This analysis highlights one of the most challenging aspects of energy innovation: how to fund and select the demonstration and adoption of new technologies before they are commercially competitive. Lester and Hart call these "learning investments" and point out that they can cost billions of dollars.

NBF - You will know that the USA has gotten serious about reforming its energy industry when there is a funded plan to displace or radically overhaul all of the coal plants at the rate of at least 45 gigawatts per year within 5 years.

China's energy policy is operating at near the appropriate scale, but the US does not have large scale energy growth like China's 5-10% per year.




Conventional wisdom among many energy experts, particularly economists, suggests that an effective energy policy will be based on supporting research and setting a price, or tax, on carbon emissions. But Lester and Hart say that such a strategy neglects to support the critical middle stages of early adoption and deployment. The problem is that new technologies cost so much a modest carbon price alone will provide few incentives to producers. So how to support these costly stages of energy innovation? Lester and Hart spend much of the book laying out a scheme that they believe might work.

The problem is complex. Specifically, it will require reforming our system of electricity generation and distribution, which is a mess after decades of partial deregulation. Though Lester and Hart readily admit that their proposals might not be the eventual solution, they do offer something that is all too rare these days: a logical strategy for tackling climate change that has both the aggressiveness needed to lower carbon dioxide emissions in the coming years and the planning needed to support the far greater changes needed by midcentury.




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