Scattered across a swath of Michigan that’s been devastated by the state’s slowdown in automobile manufacturing, a half-dozen or so companies have begun construction on facilities to build advanced batteries for electric vehicles. In the Southwest, two solar thermal plants, each supported by more than a billion dollars in federal loan guarantees, will soon sprawl across thousands of acres in the desert. From Hawaii to northern Maine, ridgelines have begun bristling with wind turbines, made possible in part by government funding.
Enacted 18 months ago, the American Recovery Act is now delivering $80 billion in loan guarantees, tax credits, and cash grants to projects aimed at developing and deploying energy technologies. Speaking in mid-July at a ground-breaking ceremony for an advanced battery factory in Holland, MI, President Obama promised that the plant would be “a boost to the economy of the entire region.” But beyond spurring new jobs in clean energy, the Obama administration says, the unprecedented injection of federal money into the energy sector is meant to be a first step in creating “a comprehensive strategy that will pave the way toward a clean energy future for our country.” Remaking the nation’s energy infrastructure will, of course, take years. But a year and half after passage of the stimulus legislation, it is worth asking whether the strategy is on track. Do the billions of federal dollars being spent on energy research and commercialization really represent the beginning of a comprehensive plan for a clean-energy future? Or are they simply piecemeal investments that will become irrelevant once federal incentives disappear?
The U.S. Department of Energy, which alone controls $36.7 billion from the stimulus bill, is now spending from $800 million to $1 billion of that money every month on R&D and the commercialization of new energy projects, according to Steve Isakowitz, the agency’s chief financial officer. In a recent interview, Isakowitz said it has been a “huge challenge” to spend the money quickly and efficiently. Some programs have been expanded significantly: spending on modernization of the electric grid, for example, soared from less than $200 million to $4 billion. In other cases, the DOE had to fund entirely new programs. The agency spent $350 million, for instance, to start up the Advanced Research Project Agency-Energy (ARPA-E), which backs high-risk research projects. Despite the challenges, he expects the stimulus-related spending to reach $14 billion in 2011 before dropping off to $9 billion in 2012.
Though President Obama and other supporters of the legislation justified much of the spending as a way to create “green jobs” and thus stimulate the economy, many economists dismiss that idea. Even those who strongly support government investment in technology point out that any spending on research and new energy sources will take years to produce economic growth. Daron Acemoglu, an economist at MIT and a leading authority on the link between economic productivity and innovation, says that while he strongly favors increased federal support for energy innovation on the grounds that we need new technologies to forestall climate change, it is “a joke and totally misguided” to think it will help solve the nation’s unemployment problem.
The real value of the stimulus spending has always been in its potential to compensate for years of declining investment in energy R&D and to jump-start commercial use of cleaner energy technologies despite that long decline. The United States spends shockingly little on energy research. In that context, the stimulus bill provided a much-needed boost by allocating $3 billion for energy R&D, including the creation of ARPA-E and a series of research centers around the country. But by far the largest energy expenditures in the stimulus bill support the demonstration and commercialization of new technologies. Loan guarantees, tax credits, and cash grants will supply tens of billions of dollars to advanced battery factories, solar power plants, and biofuel refineries (see “Taking Stock of the Stimulus”)–large speculative projects for which tight credit and depressed financial markets would have made private funding nearly impossible.
These are fragile gains, however. The benefit of increased R&D spending will depend on whether future funding levels remain high or suddenly drop again. Likewise, the fate of the new commercial projects will depend on what happens when federal funding winds down; many of the projects will not, at least in the short term, thrive without various government incentives. For the federal spending to have a lasting impact, the stimulus bill will have to be followed by a practical plan for energy innovation and investment. And as budget hawks in Washington begin to tear apart federal expenditures, any sustainable energy policy will need to justify its government funding in terms of direct, clearly recognizable benefits.