The failure to invest in innovation will inhibit decarbonization goals
The past year has witnessed an unexpected trend in the U.S. electricity sector: the announcement of several utility-scale hydrogen capable power plants. Unlike fossil fuels, hydrogen does not emit carbon pollution or other particulate matter when burned. The primary byproduct of burning hydrogen is the creation of water. While attractive from a clean energy perspective, it is widely acknowledged that hydrogen technology is not advanced enough to cost-effectively run utility scale operations today.
That is exactly what makes this year’s announcements so intriguing. First, Los Angeles, through the city’s municipal utility, committed to constructing a hydrogen-fueled power plant to replace its coal-fired Intermountain Power Project located in Utah that will be retired in 2025. Then, Mitsubishi Power Americas Inc. announced that it had landed contracts to provide hydrogen-compatible gas turbines for three new power plants in New York, Ohio, and Virginia. In late September, Entergy proposed developing a similar plant in southeast Texas. These five power plants will principally run on natural gas when they begin commercial operations. However, initially, they will have the ability to burn up to 30% hydrogen, and, as technology advances, will target to run 100% on hydrogen at a later unspecified date. And, finally, in October, San Diego Gas & Electric announced the development of two hydrogen long-duration energy storage facilities in Southern California, but has yet to announce substantive details on the technology to be used.
At the heart of these announcements—the aspiration to eventually operate purely on hydrogen—is the recognition that innovation is required in the U.S. electricity sector to meet ambitious decarbonization goals. Entergy CEO Leo Denault made this abundantly clear in an earnings call last year stating, “Innovation and new technologies will be an important part of our business as we continue to explore solutions to improve our customers’ everyday lives.” While the commitment toward hydrogen-enabled technologies from private industry appears to be a step in the right direction, is the U.S. investing enough in energy innovation to realize the full potential of hydrogen—or other clean energy—technology?
U.S. federal spending on energy innovation
The Congressional Budget Office projects the U.S. federal budget for fiscal year 2020 will be $6.6 trillion. By any stretch of the imagination that is a massive amount of money. With goals of decarbonization expanding across the country, how much is focused on energy innovation? Due to the inherent complexity of the federal budgeting process, the answer depends on whom you ask.
The American Association for the Advancement of Science (AAAS) tracks trends in federal research and development expenditures across a number of sectors. According to the AAAS, federal spending on energy R&D has been relatively consistent over the last decade at approximately $2.5 billion per year. However, not all energy related R&D falls directly under the AAAS’ categorization. A 2018 Congressional Research Service Report frames the data differently, indicating that federal R&D spending over the previous 10 years on energy was closer to $4.8 billion per year. Of that $4.8 billion annual R&D budget, nearly 50% was spent on fossil and nuclear energy, 30% on electric systems and energy efficiency, and less than 20% on renewables.
A recent report by Columbia University School of International and Public Affairs suggests that the amount spent on energy innovation may be higher. Acknowledging that innovation is much more than R&D, the report states Congress appropriated nearly $9 billion for energy R&D as well as demonstration projects for fiscal year 2020. However, that number is far below what the authors believe is an optimal amount, arguing that federal spending should be increased to $25 billion per year. This level of spending would put the United States on par with the amount of money China spent, as a percentage of GDP, on energy R&D and demonstration projects in 2017, which is still less than 1/10th of one percent. The report argues that innovation is not just a matter of meeting clean energy aspirations, but also maintaining the competitiveness of U.S. industry within the world economy.
What investment in energy innovation brings to the table
“The clean energy technologies we will need tomorrow hinge on innovation today,” declares the International Energy Agency. In a new report, the IEA argues that continued R&D support after a technology is introduced to the market is one of the most vital tools government can wield to enhance the realization of clean energy goals. More specifically, R&D support after market introduction is proven to bring down costs of new technologies and improve overall performance.
Lowering costs and technological advancement, though, are not the only benefits of innovation. Breakthrough Energy, a coalition of investors led by Bill Gates, recently released a study sending a similarly clear message that investment in energy innovation can help bring prosperity across the U.S. economy. They find that increasing energy R&D spending to 1% of GDP by 2030 would support 3.4 million jobs, add $301 billion in labor income, $478 billion in economic value, and $81 billion in tax revenue to the U.S. economy.
These studies make it clear that energy innovation needs to be thought of as much more than creating fanciful new technologies to invent us out of today’s problems. It should be considered a pragmatic means to reduce costs for existing technologies that will also accelerate economic growth. To achieve clean energy objectives, regardless if hydrogen technology is ultimately deemed viable, enhanced investment in innovation needs to be brought to the forefront of carbon policy today. Without it, achieving net-zero carbon emissions by mid-century is not possible.