Low-Carbon Business Innovation: A Call for U.S. Leadership

Will U.S. companies be ready to compete in the world markets of the future? Global clean energy markets pose a $2.3 trillion opportunity over the next 10 years, providing enormous potential for innovation in new technologies, products and business models. These opportunities will help us achieve the greenhouse gas emission reductions that scientists say are needed to mitigate the worst effects of climate change. 

Yet the United States’ commitment to developing these markets for innovation is lagging. While the Pentagon is calling for improved energy security, the U.S. House of Representatives is proposing funding cuts for energy innovation that would reduce our reliance on fossil fuels. After surviving the FY 2011 federal budget battle by receiving $180 million out of the $300 million requested by the President, on June 15 the U.S. House Appropriations Committee voted to cut FY 2012 funding to $100 million for the Advanced Research Projects Agency-Energy (ARPA-E). The President had requested $550 million for the agency, which funds transformational energy technology research.

Meanwhile, the United States continues to fall behind in low-carbon markets. The most recent Who’s Winning the Clean Energy Race? report highlights the European Union’s leadership in clean energy investments, with nearly $81 billion in 2010. The United States, with a $34 billion investment in clean energy, slipped to third place in 2010, behind China ($54.4 billion) and Germany ($41.2 billion). Over 85 percent of today’s market for clean energy technologies is outside of the United States, primarily in Asia and Europe.

How can the United States remedy the situation? One idea comes from listening to businesses. According to our recent survey of 35 mostly Fortune 500 companies, government policy support and certainty were cited as the most important factors influencing their decision to develop, adopt or commercialize low-carbon innovations. Companies surveyed—representing a cross-section of industries from manufacturing to finance, mining and IT and ranging in size from $600 million to $285 billion in annual revenues—emphasized the need for long-term, transparent climate and energy policies as critical to establishing a business environment that would allow for greater certainty and stability for decision-making and investment in low-carbon innovations. Among the nine policy tools listed in the survey, putting a price on carbon was by far the most important action that respondents think the U.S. government could take to advance low-carbon innovation: nearly half (47 percent) chose establishing a carbon price while the second-most selected tool, with four responses (12 percent), was establishing national low-carbon performance standards, for example, for fuels and/or electricity. With an average annual research and development expenditure of $1.4 billion among the surveyed companies, their voices should be heeded.

Reflecting the level of clean energy investments around the world, China and the European Union were rated as having the best overall business climate for low-carbon innovation. When asked why, ‘government policy support’ was most often considered the most important reason. Further emphasizing the importance of government policy, the majority of survey respondents (64.7 percent) believed that the most significant risk associated with low-carbon innovation was policy uncertainty, such as potential changes to regulations, taxes, or subsidies. This was in comparison to business feasibility (8.8 percent), which includes profitability, and market (23.5 percent) and technical (3 percent) uncertainties.

Given the business consideration that supportive clean energy policy certainty is essential for developing low-carbon innovations, clean energy policies need to be more robust. The absence of clear policy signals in the United States makes it difficult to anticipate and adapt to regulatory changes, derails low-carbon business innovation strategies, or redirects them to markets with more policy certainty. Whether it is through a clean energy standard, price on carbon, or loan guarantees, if the United States wants to play a major role in the growing clean energy economy, it needs to listen to businesses and get serious about developing more certain and supportive clean energy policies.

Sam Wurzelmann is a Solutions Fellow