Clean-energy wonks to Washington: Get a clue

CAMBRIDGE, Mass.--A change in national energy policies would help spur innovation around green technologies, but policymakers are motivated by power and pet projects rather than energy security or environmental protection, a panel of energy and business experts argued here Thursday.

The speakers--three academics with expertise in energy and economics and a venture capitalist from Khosla Ventures--delved into the question of what role government should play in energy at the EmTech emerging technology conference at the Massachusetts Institute of Technology on Thursday. On the whole, they were pessimistic about the prospects of effective legislation for promoting a cleaner energy industry.

The talk was timely. Although political debate in Washington has been dominated by health care over the past few months, the Senate is expected to take up a climate change and energy bill as early as next week, following a House version which narrowly passed in May. The broad House bill proposes a national system for regulating greenhouse gases, introduces higher efficiency standards, and calls for a mandate on renewable energy from utilities.

Many companies and investors see energy as a promising area of economic growth, with more than $5.8 billion of venture capital placed in green tech last year. But energy is very different from information technology or other traditional tech industries. Bringing new energy products to market requires not only technology breakthroughs but also coordination among start-ups, large corporations, financiers, and government.

The panelists argued that the House bill of the version is far from perfect but it's an important step because it puts a price on carbon emissions. Under a cap-and-trade program--one of which is already in effect in the U.S.-- large polluters, such as utilities and manufacturers, are given permits to pollute. Those carbon allowances can be bought and sold among participants so that they stay under a cap set by the government.

"We can go into the details about the problems with all the subsidy schemes that have been tried but fundamentally there is this common sense that underlies cap and trade, which is that if something is bad, you should tax it and that is, in effect, what cap and trade does. And that puts things that don't have that bad characteristic in a better competitive position," said Richard Schmalensee, the director of the MIT Center for Energy and Environmental Policy Research.

Right now, there are subsidies and tax credits to promote the installation of solar and wind power. In the federal stimulus plan, the Department of Energy was allotted tens of billions of dollars to fund long-term research and promote development of existing technologies, such as plug-in electric vehicles.

In the past, renewable energy policies have led to boom and bust periods, which resulted in many failed companies, said Henry Lee, the director of environment and natural resources programs at Harvard University's school of government.

To avoid that cycle, the U.S. needs a combination of policies, including tax incentives, research money, and a cap-and-trade program, Lee said. Caps on carbon emissions won't start to take hold for many years, panelists said. So, abandoning existing supports for solar now would essentially shut that industry down, even though the cost of solar continues to drop, Schmalensee said.

Rising oil prices can help drive investments in clean-energy technologies, but the volatility of prices makes sustained investment difficult, said Lee. Another challenge related to energy in the U.S. is the difficulty of locating good spots for wind and solar power projects and the resistance from states over national efforts to build new transmission lines to transfer solar and wind power.

No kind words
In practice, policy making around energy is messy business, the panelists said. It's even harder now, given the fierce partisanship now in Washington and the shaky economic situation, noted Lee.

The trend in energy policy has to been to promote a set of technologies, such as fuel cells or biofuels, for a while but not stay with it, said Lee. Corn ethanol, for example, has been criticized for questionable environmental benefits and contributing to higher food prices, but maintaining the program makes sense because second-generation ethanol could deliver significant improvements, he said.

"One of the problems with Washington is that they fall in love and then they fall out of love after two or three years," said Lee. "But you can't give up on these things after three or four years and in our government we have a tendency to do that. We don't have a lot of patience and it takes time to make things that really work."

Small green-tech start-ups and venture capitalists are now spending a significant amount of time in Washington because energy is heavily regulated. But there's concern that bills are structured to favor certain technologies, said Alex Kinnier from Khosla Ventures, a Silicon Valley venture capital firm that is making an aggressive push into green tech.

"We're all in agreement we want a price on carbon...The thing that concerns us greatly is that the ways these rules can be written can very much bias who the winners are and who the losers are over the long term and can sub-optimize the ultimate solutions," Kinnier said.

For example, incentives to store carbon underground at coal plants will lead many companies into that field. But Kinnier said that policies should also encourage technologies that use carbon dioxide to make a product, such as building materials or chemicals.

Ken Zweibel, director of the GW Solar Institute at George Washington University, criticized the trend toward overemphasizing high-risk, high-reward energy research. "Programs to do practical research have shrunk during the last five years and programs to do high-risk, blue-sky research have gone through roof," he said. Solar photovoltaics are becoming more affordable as prices fall, but proposals to the newly formed ARPA-E are unlikely to yield anything useful, Zweibel said.

He also complained policymakers make decisions based on "very shallow knowledge" and are easily swayed by the media. Fears that China is taking over leadership in low-carbon technologies appear to motivate policymakers more than protecting the environment or concerns regarding climate change, Zweibel and Schmalensee said.

"We are not convinced that we have a global warming problem," said Zweibel. "Let's face it--that's the truth."

Updated September 26 at 6:50 a.m. PT with correction to Alex Kinnier's affiliation.