Trumping Innovation

Yale economist William Baumol has written extensively on the connection between innovation and economic productivity. He has demonstrated that the United States has long been committed to promoting innovation, and through innovation, virtuous circles of economic growth are created. Unfortunately, the current administration appears committed to curtailing, even stopping, that growth.

The president's first budget has many targets. One, though, directly contradicts Baumol's research and, more problematically, directly contradicts the U.S. Constitution. From the Founding, it has been a fundamental principal of the United States "To promote the Progress of Science and useful Arts." Art. I, §8, cl.8. But the Trump 2018 budget imposes severe – some congressional Republicans call them draconian – reductions in these areas. Among the most drastic is the greater than 30 percent sledgehammer applied to the Environmental Protection Agency (EPA) and the elimination of the highly successful Advanced Research Projects Agency-Energy (ARPA-E).

Housed in the Department of Energy, ARPA-E was created by the George W. Bush administration in 2007 and was first funded in 2009 with an initial allocation of $400 million, and since then, the agency has provided more than $1.5 billion in funding dozens of programs totaling over 580 projects. ARPA-E funds early-stage energy technologies, demonstrations projects, and provides funding and other resources for commercial deployment. Target areas include energy storage, electric vehicles, alternative transportation fuels, "clean" coal, advanced nuclear power, and the smart grid, among many others. 

Through organizations known as Energy Innovation Hubs and Energy Frontier Research Centers, ARPA-E creates consortia comprised of academic institutions, private firms, businesses, nonprofits, and federal and state government agencies. Public and private partnership is essential to their operation and success. Most notably, while ARPA-E engages in basic scientific and technological research, its long-term focus is on the commercialization and marketability of a wide range of innovative energy technologies. Remember, innovation is directly tied to economic growth; it is also directly tied to job creation.

ARPA-E uses both performance metrics and cost metrics to assess the success of their investments. Projects that do not meet performance milestones are terminated. Importantly, the agency's cost metrics provide solid evidence that its public-private investments have generated concrete and positive results. Most notable, they have been able to significantly leverage government funding. For example, 56 project teams have formed new companies, 68 have partnered with other government agencies to continue their technology development, and 74 teams have raised more than $1.8 billion in funding from the private sector to bring their technologies to market. 

In February, ARPA-E published a second volume reporting on project outcomes. The report groups projects according to areas such as transportation fuels, electric power generation and distribution, and building transportation and industrial efficiency. The report lists 25 projects and for each discusses technical challenges, innovation demonstrations, and pathways to economic development. Additionally, each snapshot identifies the intellectual property and publications generated by each project. A project team led by Dioxide Materials, for example, is engaged in converting carbon dioxide to transportation fuels. Fuel production from carbon dioxide can serve a global market with the largest potential for reducing carbon emissions, and the project is entering the demonstration stage. Another example is a project led by the Ford Motor Company for high-precision testing of batteries for electric vehicles and the grid. This project has been brought to market already. 

Our energy future depends on innovation developed in public-private partnerships. Indeed, investment in energy innovation was a central concern of the Paris climate talks. Significantly, in Paris, a group of more than 20 billionaires announced the formation of a multi-billion dollar fund named the Breakthrough Energy Coalition to create a new, clean energy mix for the future.  The Coalition will work with a group of countries through a project known as the Mission Initiative intended to accelerate the clean energy revolution. More importantly, the need for investments in clean power is now being recognized in the marketplace as financial institutions such as Goldman Sachs, Citi, and Bank of America also announce multi-billion dollar investment commitments in a clean energy market currently estimated to be worth more than one-half trillion dollars. 

Trump's proposal to eliminate ARPA-E is not only shortsighted, it is contrary to our historical commitment to science and innovation, directly contradicts the business consensus on the importance of government research and development funding, and frustrates the development of new and competitive energy markets. The energy sector has enjoyed public-private cooperation virtually since its inception, and an essential component of that cooperation has been government-sponsored research and development.

Affordable and reliable energy is essential for our daily lives. Among many other things wrong with the 2018 budget, the elimination of an essential scientific and innovation function stands out.