Innovation as the Basis for American Jobs and a Cleaner Environment

As one of the business representatives on new President's Council on Jobs and Competitiveness, General Electric CEO Jeffrey Immelt challenged the nation to re-establish itself as “a technology-based, export-oriented economic powerhouse”. He listed innovation as one of the two pillars of such an economy.

Environmentalists can agree with this general goal, but we have to be realistic about how an economy can promote innovation. While increasing federal support for research and development is certainly one component of an innovation-led, technology-based economy, research alone isn’t enough in the real world. There are deep-seated barriers to innovation, both in terms of entrenched habits and in terms of outright failures of the market.

In the case of green technology, and it would seem in broader cases than this as well, we have plenty of job-creating new technology production opportunities that are going begging because of market failures. Correcting these failures, which we can do with environmental standards, is essential to promote innovation in the market.

How do we get innovation into the marketplace? There is surprisingly little known about this. But it doesn’t happen just because we want it to. We do know one way to create innovation, and that is to require it—or to enable it—through environmental regulations or incentives. A performance-based standard or incentive sends a message to industry that just doing the same thing next year as they did last year won’t suffice. As industry looks at how to upgrade their technologies to meet environmental goals, they are encouraged to look more comprehensively at their production processes, and suppliers have the market to offer new cleaner technologies in competition with each other. This competition, and the need to produce more cleanly, provides the market for making innovation profitable.

We need to be doing more of this, because greener technology, a key part of overall technology innovation, is held back by the forces of habit and stagnation. I discuss this in detail in my book Saving Energy Growing Jobs, but in part green technologies are languishing because of a vicious circle in the economy: consumers have a hard time identifying products that truly are better for the environment, and find it difficult or unnecessarily expensive to buy them even if they can find what they want. This leads to frustration, and the frustration leads to the mirror image of the problem among manufacturers and retailers: if consumers are not expressing their desire for green purchases in the market (even if it is because they can’t find or identify them), then it makes no sense to produce or stock them.

How many of you can find a selection of fresh organic food without driving all over town? How can you identify the new TVs that use less than half the energy of apparently identical models? How can you find a compact fluorescent lamp in the size you want with the right brightness that gives you dimming ability and the color of light you prefer? How can you find a contractor who is reliable and affordable and who can remodel your house so that it cuts your utility bills in half? These questions are only the tip of the iceberg of problems that are preventing innovation from being profitable, and that are holding back job creation.

Environmental protection policies provide answers to these questions. California regulations increasing the efficiency of televisions required manufacturers to learn how to develop and deploy new technology at scale, and the Energy Star program and incentive programs operated by leading utilities helped consumers to get off to a faster start. In some regions where utilities have had active programs, it is easy to find a good selection of efficient light bulbs.

For home remodels, imagine how competitive home energy retrofit contracting would become if there were financial incentives for the first homes to make savings? (Such incentives passed the House of Representatives with bipartisan support in the form of the Retrofit Energy Efficiency Program (REEP) which was part of the Waxman-Markey climate protection bill last session.) How much easier would it be to retrofit your home for energy savings if your bank allowed you to borrow the money for the retrofit at the same interest rate as your existing mortgage, and to do it even if your loan is underwater?

Performance-based incentives and standards provide the economic motivation for innovation in many areas where it is blocked in the real-world economy. Places that have relied more heavily on environmental protection have seen greater job creation and more economic growth than those that have not.

This is a true win/win: a cleaner environment and the only known way to encourage innovation and growth on a national scale. Business leaders such as Mr. Immelt should be working more closely with NRDC to support performance-based standards and incentives for environmental protection.