I have seen many Earth Days come and go, but until this year, I never had the chance to hear a sitting president use the annual green spotlight to call for sweeping clean energy legislation. President Obama's speech on Wednesday was a welcome change.
I especially liked the fact that he called for clean energy legislation while visiting a thriving wind plant in Iowa. To me, it perfectly illustrated why we need the private sector and government legislation to work in tandem.
Some people believe that if clean energy technologies are really so promising, then they should compete on their own in the market without any help from government policy.
But the truth is the energy sector is different than other industries, such as finance or electronics. Things move very slowly in the energy business. Computer chips double in speed every 18 months, so if you are a chip manufacturer, you sprint toward the next innovation. Energy technologies--such as solar panels--can take decades to come to scale.
Another challenge unique to the energy sector is that the private sector tends to under-invest in new technologies because of something called "innovation spillover."
Let's say you own an innovative company that is the first to identify the best technologies for capturing carbon emissions from coal plants and putting them in the ground. You go through the a 10-year process to get permits, educate your suppliers, inform the public about its value, shape the regulatory system you will need, and then finally, go through all the learning by doing of actually bringing it to scale.
But here is the challenge. The next company can borrow 90 percent of what you just did. You can keep your proprietary knowledge, of course, but your competitors will use your suppliers, your regulations, and your public education. They can even steal your people.
So why would you want to be first out of the gate? There is no incentive to sink all that money and go through the entire learning curve, only to have your competitors ride on your coattails.
That's why the market alone won't be enough to get clean energy innovations to scale. We also need legislation that offers incentives and expands the clean energy market. We need the cap and trade system that Obama called for an Earth Day so energy companies know that their investments in developing and deploying low-carbon technologies will pay off.
To help tackle the problem of innovation spillover, we need to direct more government-funded research toward clean energy solutions. As MIT President Susan Hockfield recently pointed out, federal funding for energy has "dwindled to irrelevance." In 1980, 10 percent of federal research funding went to energy. Today, the share is 3 percent.
Of that 3 percent, only one-fifth goes to renewable power and one-fifth to energy efficiency. The rest is given to nuclear and fossil fuel energy. That has to change as we face a carbon-constrained world.
If we pass legislation that caps carbon emissions, we could use some of the billions of dollars that will be generated by distributing pollution allowances to help accelerate a low-carbon transformation.
The goal here is to reward the innovators, the ones who bet on their ingenuity and win gains for all of us.