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How to Power the Energy Innovation Lifecycle

How to Power the Energy Innovation Lifecycle

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The United States lags behind other countries in emerging technologies because public policy doesn't recognize the importance innovation plays in economic growth and development. We need policy that bolsters the energy innovation lifecycle, and makes use of the United States' enormous resources of physical and human capital.
The United States lags behind other countries in emerging technologies because public policy doesn't recognize the importance innovation plays in economic growth and development. We need policy that bolsters the energy innovation lifecycle, and makes use of the United States' enormous resources of physical and human capital.

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Published by: Center for American Progress on Apr 11, 2011
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1Center for American Progress | How to Power the Energy Innovation Lifecycle
How to Power the EnergyInnovation Lifecycle
Better Policies Can Carry New Energy Sources to Market
Sean Pool June 2010
Introduction
Freeing our economy rom is dangerous addicion o ossil uels and avering hecalamious risks o climae change will require a major echnological ransorma-ion in he way we produce, ransmi, and consume energy. Invening, develop-ing, building, and deploying hese new echnologies will require a new era o American echnological innovaion. e resul will be new indusries and jobs,along wih more clean energy and less polluion.e good news is ha we know ha innovaion is aundamenal drivero eco- nomic growh, and America has led he world in innovaion or hepas wocenuries—rom he mechanizaion o exile manuacuring in he lae 18hcenury o he invenion o he Inerne in he lae 20
h
cenury. Innovaion isAmerica’s rs and greaes compeiive advanage—or, as Presiden Obama saidi’s in our DNA .” weny-rs cenury clean energy echnologies are already beingdesigned, buil, markeed, and insalled o replace more han a cenury’s worho enrenched ossil uel inrasrucure, and arecen reporby he Deparmeno Commerce indicaes ha here are nearly 2 million clean energy jobs in oureconomy oday, wih more on he way.e bad news, however, is his: he Unied Saes lags behind many oher coun-ries in hese emerging echnology secors because our public policy does no ully recognize he cenral role ha innovaion plays in susaining qualiy economicgrowh and job creaion. Par o he problem is a lack o undersanding abouexacly wha innovaion is, how i works, and more imporanly who is involved(see box). Policymakers in paricular need o undersand how dieren public
 
2Center for American Progress | How to Power the Energy Innovation Lifecycle
and privae secor players inerac o orm innovaion neworks, and how heseneworks change over ime, which is why we’ve pu ogeher his primer on heenergy innovaion liecycle.We’ll rs dene he dieren sages o he innovaion liecycle, hen describe henework o players engaged a each sage o he process. is “nework liecycle”approach can help us beter undersand who does innovaion, he processes hadrive i, and he opporuniies or public policy o aid i a various poins in heprocess. As you’ll see, our innovaion economy in he energy arena needs somekey reorms o perorm a is peak again.
“Innovation” is a broad and oten vague term, and its meaning varies in dierent policycircles. But no matter what the context,innovation isundamentally the process o inventing, introducing, and adopting a new product, practice, system, or behavior.An innovation can be a new product, machine, policy, business model, administra-tive structure, managerial system, or even a new cultural or social norm that benetssociety. But regardless o whether an innovation aects social processes, economicprocess, or physical and technological processes, what distinguishes an innovationrom an idea or a principle is that it creates value and improves society.This paper ocuses on clean energy technology innovation—the invention andpropagation o new machines that generate, save, or transmit energy. But as we willshow, producing these new devices also requires the use o new modes o manuac-turing, which can be thought o as technologies themselves, as well as new businessmodels that can nance, produce, market, and sell these new machines.Creating a clean energy economy is just as much about “process innovation”—incre-mental improvements to the materials and manuacturing process o technologieswe already know about—as it is about nding new or undiscovered “breakthroughtechnologies.” Understanding the ve phases o energy “innovation liecycles” andthe ve kinds o participants in “innovation networks” will help show how theseseemingly separate goals are actually related.
Defining innovation: new ideas that create value
 
3Center for American Progress | How to Power the Energy Innovation Lifecycle
The vital role of federal policy in catalyzing private sector innovation
Innovaion on he scale necessary o solve our climae and energy crises canno bedriven solely by he governmen—ye key ederal policy decisions and invesmensare needed o caalyze privae secor innovaion. While counries such as China,Spain, and Germany have pursued rapid energy echnology expansion hroughop-down governmen spending programs, America’s engine o innovaion is morebotom up. Innovaion in America has always resed wih is privae secor enre-preneurs, small businesses, invenors, and invesors. Bu ha does no mean hahe governmen has no role o play a all.While he privae secor mus ulimaely supply he bulk o he money and exper-ise o build he clean energy economy, he governmen mus creae he condi-ions ha allow or his by correcing or win marke ailures ha keep privaeinvesmen lower han he economically ecien level: he hidden coss o carbonpolluion, and he hidden benes o innovaion and knowledge spillover.Because markes do no recognize hese hidden coss and benes (wha econo-miss call negaive exernaliies and posiive exernaliies, respecively), privaeinvesors and enrepreneurs end o underinves in clean energy innovaion.For every $1 million in pros he producer o a new innovaion earns, someesimae ha “knowledge spillovers” creae as much as$4 millionin hiddeneconomic benes or sociey. ese spillover benes manies as he creaiono new high-wage jobs, he esablishmen o new businesses ha use he new echnology, and he benes o uure innovaors who can build on he new knowledge in unexpeced and advanageous ways. e governmen is jusiedin helping companies innovae because o he addiional social bene o inno-vaion ha privae invesors would oherwise ignore.Many o he echnologies on which our modern economy now relies resuledrom he unexpeced applicaion o knowledge creaed in par wih he help o governmen innovaion programs. Early microchips designed originally or usein he Apollo space vessels and inerconinenal ballisic missiles gave rise o hemodern microprocessor upon which PC’s, mobile phones, and iPods are now buil. e Deense Advanced Research Projecs Agency, or DARPA, served as avial incubaor or he early compuer-o-compuer communicaion echnologiesha evenually led o he Inerne, and early NASA saellie applicaions in he1950s helped spur he developmen and demonsraion o phoovolaic solar cells.

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