Proposed Policy Reforms
Boost basic scientific research
Companies have little incentive to make large investments in basic research because of high risks and unclear benefits. Often, decades are needed before the fruits of research are realized. Public investments are needed to support the American legacy of innovation — and yet, we’re falling behind China, South Korea, and many other countries. China spends more than twice as much as the United States on government energy research as a percentage of GDP.
Expand private-public partnerships
Tax credits are not the only way the government can support the private sector: national lab equipment, expertise and research can be better shared; local academics and companies can work together in cost-shared “innovation hubs”; or the government can experiment with completely new programs like the one modeled after the Department of Defense’s successful research program called DARPA.
Follow the X-Prize Model
Innovation prizes, modeled after the popular X-prize competitions, can also stimulate more private investment than conventional grants or tax incentives. Similar prizes were the inspiration for Charles Lindbergh’s famous flight across the Atlantic, and more recently, Virgin Galactic’s private space exploration venture. X-prizes could be established to spur on additional energy research.
Background
- China is expected to overtake U.S. R&D spending by 2022
- America can boost energy R&D by opening up federal territories for oil and gas development
America only dedicates 2% of its R&D budget to energy.26 According to chief executives from GE and others, this is only a fraction of what’s needed. Failing to invest in next-generation energy technologies risks America’s long-term competitiveness in the global economy because China, South Korea and others are prioritizing energy R&D ahead of the United States.27

At current rates, China will invest more in energy R&D than America by 2022.
Source: American Energy Innovation Council28
Our brightest companies and business leaders are working hard to fill the void. Bill Gates is personally investing $1 billion to make energy cleaner and more affordable.29 GE is putting $15 billion into its future energy division.30 Wells Fargo31, Citi32, and Bank of America8 have each pledged multiple times more.33However, the private sector is ill-equipped to take large risks on basic science research.
1. Boost basic scientific research
The government should pick up the slack where the private sector doesn’t operate, as it does in building bridges and roads. One lesser known public responsibility is incremental and basic scientific research. Only 5 percent of private-sector R&D funds are devoted to basic research.34
Basic research provides a foundation for American industry to innovative around. Like national defense and our highways, scientific research is a public good. The government should invest in public goods because we all benefit from that single investment.The private-sector alone tends to under-invest in innovation.
Companies are ill-suited to conduct basic research requiring significant, long-term investments with unclear commercial applications. The private sector excels at bringing products to market, which is typically improving on existing science.
Industry commercialization efforts are complemented by sustained, government investments in basic research. On the other hand, some government programs can crowd out private sector funding. These programs, such as the $7.5 billion Advanced Vehicle Manufacturing Program, should be phased out in favor of a larger commitment to the basic sciences.35,36
2. Expand public-private partnerships
You don’t need to look far back in history to see how the private sector and government can work together. Fracking, the drilling technique behind the recent U.S. oil and gas windfall, relied heavily on government research to reach commercialization.37

New drill bits, 3D imaging, and horizontal drilling technologies developed decades ago in America’s national laboratories were critical to fracking’s success.38
Source: US Department of Energy39
Many private sector options exist to jumpstart American research. Leaders from some of America’s largest businesses, from Lockheed Martin to General Electric, are calling for a doubling of our federal R&D budget.40
New initiatives, such as the Energy Department’s Innovation Hubs, are showing early promise. They bring the government, academics and industry together to develop technologies that reduce carbon pollution and our dependence on foreign energy. After being seeded with federal money, the progress and funding of each hub are systematically reevaluated every five years.41 Recent hubs are focused on themes ranging from energy storage and nuclear reactor design to artificial photosynthesis.42
The Advanced Research Projects Agency – Energy (ARPA-E) is another energy research initiative modeled after DARPA, the successful Department of Defense R&D program. It applies venture capital management techniques to potentially transformational technologies deemed too high-risk for industry-driven development. More than 45 of its projects have secured over $1.25 billion in additional private sector funding.43 Initial ARPA-e investments helped the technologies scale to the point where they attracted private capital.
3. Offer X-prizes for Innovation
The Solyndra bankruptcy gave us 535 million reasons why government should not play an active role in commercialization. If taxpayers needed any more reasons, other companies receiving millions in federal assistance also suffered the same fate: Abound Solar ($70 million), Fisker Automotive ($139 million), A123 Systems ($132 million). Next-generation energy technologies should be driven by American inventors, not a bureaucrat’s pen.
Innovation prizes, modeled after the successful X-Prize,44 provide a more conservative way of accelerating clean technologies. A single prize can encourage hundreds of inventors to develop new and creative energy solutions. They can also spur private investments multiple times the prize amount: the $10 million award for the flagship X-prize for private spaceflight generated over $100 million in private investment. The innovation stimulated by the competition did not end after the prize was awarded.45 The winning spacecraft was bought by Richard Branson, who created Virgin Galactic to continue developing the technology for commercial use.46

The Orteig Prize, the inspiration for the X-Prize, spurred Charles Lindbergh’s famed 1927 flight across the Atlantic.
Today, the X-prize Foundation is setting the stage for better batteries,47 electrified roads,48 and carbon capture.49 The carbon capture competition holds especially large promise. Cosponsored by NRG, America’s largest owner of coal power plants, the competition will give $20 million to teams that can recycle carbon pollution from power plants into valuable products such as fabrics, pharmaceuticals and advanced building materials.50 The government could capitalize on this momentum with its own prizes.
In 2006, conservatives in both the House51 and Senate52 sponsored bills that would have established up to $100 million in awards for clean energy breakthroughs. The prizes were designed to foster wide public participation, run outside the government, and leverage industry expertise. These bills should be emulated to advance a broader clean energy agenda.