Clean Energy Initiative

NDN & The New Policy Institute and the National Energy Policy Institute are pleased to host Senator Jeff Bingaman (D-NM) at a luncheon on Monday, January 31 to discuss the energy agenda for the 112th Legislative Session. A panel discussion will follow.

As the chair of the Senate Energy and Natural Resources Committee, Senator Bingaman has a reputation for his astute and thoughtful leadership on energy and environmental issues. Most recently Senator Bingaman has been a strong proponent of investment in, and incentives for renewable and clean energy technologies, including a Renewable Electricity Standard (RES).

In the 109th Congress, Senator Bingaman played a major role in the passage of the Energy Policy Act of 2005, the first comprehensive energy bill to become law in 13 years. Just two years later, in 2007, he was the lead sponsor of the Energy Independence and Security Act of 2007 that created a historic increase in vehicle fuel economy and mandated the most sweeping energy efficiency legislation ever to be put into law.

After Senator Bingaman speaks, we will host a panel of prominent leaders to include:

Steve Harper, Global Director of Environment and Energy Policy, Intel
The Honorable Tony Knowles, former Governor of Alaska
Michael Moynihan, Director, NDN's Electricity 2.0 Project

Monday, January 31, 2011
12-12:30 - lunch
12:30-2:00 - Senator Jeff Bingaman and panel discussion
729 15th Street NW, Washington, DC 20005

Yesterday evening something shocking occurred at the Meadowlands stadium in New Jersey as the New York Giants faced off against the Dallas Cowboys.  It wasn't just the fact that the Cowboys, 1-7 before the game upset the  Giants who had won their last five games.  Rather, it was that that the stadium experienced two separate blackouts totaling about twelve minutes. 

When the stadium went black in the midst of a Giants possession, players reportedly hit the ground while fans in the pitchblack dome held friends and family hands and flipped out cell phones for light.  The lights came back.  However, the failure of power at a major televised sporting event bears some comment.

The Giants released a stadium afterwards that the first outage of certain lights occurred when one feeder line into the stadium failed.  A second feeder took over but then failed a few minutes later, leading to the total blackout.  Eventually the first feeder was restored allowing the game to continue.  The Meadowlands has received publicity for installing a large solar energy array that meets about half its daytime needs.  This energy used during the day, however, did not come into play during last night's outage.

While accidents happen and the 82,000 fans in the stadium last night didn't panic, a blackout at an NFL game is not a good thing and frankly shouldn't happen in a first world country.  (Tellingly, to rationalize it, all Giants co-owner Steve Tisch could say was "we have all experienced blackkouts in our homes.")  It is one more reason that America needs to update its outdated network to Electricity 2.0.

What might have prevented last night's blackout?  Onsite storage, a smarter grid to rapidly sense problems before they occur and dispatch power accordingly and greater backup capacity--all elements of Electricity 2.0 that increase reliability and network resilience, might have avoided it.  How to get those elements in place?  Open up the network to new technologies and capital.

Last week, NDN hosted an event on microgrids and localized power generation with industry leaders.  Could a microgrid have helped avoid this outage?  By themselves, islanded microgrids do not improve reliablity over the wider network.  However in combination with grid backup they dramatically improve it.  Sports complexes like military sites, univerities, corporate campuses and real estate developments are ideal candidats for microgrid and cogeneration technologies.  However, we need to put in place the policies that can enable them: policies that our panelists identified such as allowing private electricity tielines, switching to outcome-based pollution standards, driving the development of microgrids at DOD installations and the removal of barriers to microgrid-grid connections.

When people think of microgrids and on-site electricity generation, they often think of an exciting new industry that is, however, still in its infancy. Microgrids promise to change how we use power. However, many think they are something that lie in the future. In fact, microgrids and local power generation do have an extraordinary potential to revolutionize energy delivery in the United States as we know it. However, they are here today. In the United States, cogeneration--the local generation of clean electricity in the course of heating a building--is a multi billion dollar business, practiced by many Fortune 500 companies. Clean, local generation of power has been one of the great success stories of clean energy and electricity to date. Microgrids--the local management of power--are well known in Europe and China, the former as a consequence of liberalization over the last decade and in China because there is not yet a single, unified grid. Indeed, the distributed nature of China's electricity sector is one of the secrets of that country's breakneck advances in renewable power. Tomorrow, NDN is convening a panel to discuss a sector poised to grow dramatically in the US. We are fortunate to have four industry leaders who are true pioneers in the field to discuss the potential of the industry and the policy reforms needed to unlock it. Why is local power generation and management so intriguing? First, by moving power closer to the people or user, it solves transmission and line loss problems. Local generation can often cut through the gordian knot of how to site power lines in congested areas. Second, it shifts responsibility for managing load and generation to the edge, promoting energy efficiency. While large grids can help balance intermittency across wide areas, smart, localized grids provide immediate feedback on usage, creating a tighter connection between load and demand. The fact is a truly robust network requires both large and small balancing pools. Third, local generation is tangible, democratic and empowering to users, giving them new control over their energy usage. Fourth, local power networks promote security. Nowhere, perhaps, is the potential of microgrids greater than within the government. Currently, most government facilities have ordinary meters making them vulnerable to blackouts. A diversity of grids, or a network of networks arguably provides far more resilience than a single failsafe grid. Finally, however, in line with our Electricity 2.0 goals, microgrids and localized generation provide a platform for new economic activity involving new participants, ideas and capital. And no one embodies that more than our four panel participants, Sean Casten CEO of Recycled Energy Development, Guy Warner, CEO of Pareto Energy, John Kelly, Deputy Director of the Galvin Initiative and Jeff Marqusee who oversees microgrid efforts at DOD. However, a number of policy barriers are currently constraining the growth of this sector. Come learn about thse tomorrow as we discuss the job creating economic potential of the sector and the policy measures needed to unleash it. Here are the details: Electricity 2.0: Understanding the Transformative Potential of Microgrids and Distributed Power with: Sean Casten, President and CEO of Recycled Energy Development, a global leader in combined heat and power. Guy Warner, CEO of Pareto Energy, a pioneer in microgrid development John Kelly, Deputy Director of the Galvin Electricity Initiative which has championed “perfect power” microgrid development Dr. Jeff Marqusee, Executive Director of SERDP/ESTCP, who is leading microgrid initiatives at the US Department of Defense. November 10, 12:30 pm Lunch to be served NDN Event Space 729 15th Street, NW First Floor Washington, DC RSVP

Yesterday at the CTIA Conference on Enterprise and Applications at the Moscone in San Francisco, NDN released our new Acceleration Agenda to speed the rollout of Electricity 2.0.  The Agenda provides a detailed blueprint of the policy and advocacy measures needed to upgrade our electricity architecture. 

Keynoting the same conference, Department of Energy Undersecretary Dr. Kristina Johnson underscored the need to upgrade to Electricity 2.0.  (For an account of her important remarks, click here.)  As Dr. Johnson observed, the smart grid and new technologies have the potential not only to revolutionize energy but also to drive a major new wave of wealth and job creation in the United States.  However, the promise of Electricity 2.0 may not happen--at least in the US--if we fail take action to remove obstacles in the way. 

Indeed, as a high wage economy, the US really has no alternative but to innovate.  We do not want to compete on low cost labor.  Our strengths lie in inventing the future and then converting ideas into new products and services that increase our standard of living but also create high wage jobs for Americans.  But innovation grinds to a halt when it is not rewarded.  The current incentives in our electricity system do not reward innovation as witnessed by a lack of R&D in the industry, and, in fact, often work to resist it.

When Edison and Tesla working on Houston Street in New York City and in Menlo Park, New Jersey, respectively, devised the key electricity technologies that still power the world, they created not only jobs in the electricity industry but the basis for new platforms of innovation in electric appliances and electronic devices that created further waves of growth.  We saw this pattern at work again in the 1990s when the US blazed the trail for the rest of the world in Internet and telecom technologies that led in turn to new platforms for innovation in online video, messaging and social networking. It is not a conincidence that most of that innovation followed fundamental reforms in the sector in the 1990s.

The telecom analogy is not a perfect one.  Electricity differs in important ways: greater capital requirements of electricity lines as opposed to fiber, lack of a declining cost curve for the time being for bandwidth and safety issues surrounding electricity as opposed to data transfer.  Nonetheless, the parallels are strong.  In telecom, innovation and large numbers of new jobs emerged when pieces of the network were opened to new participants armed with new ideas and capital.

In the early stages of the telecom revolution, the participants were large institutions.  As Vint Cerf, the father of the Internet recently recalled these years to me, the Arpanet created a small, platfom for scientists to transmit files and later mail.  When several networks joined together, they created a larger open platform for applications.  In due course, the platforms widened to encompass businesses and then consumers and this is when the Internet exploded as an economic proposition.  Simlarly, at the CTIA conference, at the recent Gridwise Smart Grid conference in Washington and at countless other industry conferences, the action today is taking place among large players in the form of intra-uitility transactions.  But the promise is out there of a networked energy world where businesses and consumers share energy--produced locally or transmitted long distance--over lines managed by utilities, pushing activity to the edge (analagous to the shift of content to the edge of the Internet) and vastly increasing energy capability and resilience--while creating a new US-led industry.

Why has energy been centralized for most of the last century (Westinghouse's vision by the way, not that of Edison who favored distributed DC generation)?  The reasons are several fold but include the following:

• Zoning.  People prefer to burn coal, the dominant electricity fuel, away from business and residential neighborhoods.
• Location.  Hydropower has generally been located away from population by endowment while nuclear power is sited remotely for safety.
• Economies of scale.  The energy yield from large facilities has been higher than from smaller distributed ones, with these economies outweighing the huge costs of distribution.

Of these three factors, however, several are changing.

Solar energy is clean, community friendly and therefore well suited to distributed generation.  Electricity can increasingly be generated in smaller quantities from natural gas using fuel cells (like the Bloom  Box) or new generators (like the Lichtblick) unobtrusively and natural gas is already ubiquitous.  Meanwhile, many industrial facilities can easily produce electricity while producing heat in industrial parks, right where power is needed.

The economies of scale of solar so far have placed localized generation on an even footing with large scale solar. In all likelihood, both will coexist in the future.  Fuel cells may prove more efficient than traditional natural gas fired turbine generation.  And combined heat and power at industrial facilities is cost competitive with baseload power.

What are some of the platforms that could turn into economic tsunamis.  They include microgrids for buildings, office parks and residential developments, network management software, energy efficiency software, electricity commerce platforms and home energy networks.  One interesting new platform we proposed a year ago and companies are now starting to unroll would be a low voltage DC platform--think a USB network running in your home--that could power all your portable electronic devices now requiring clunky transformers.  But once innovation is unleashed, as with the Internet, new platforms may arise that we do not even envision.

The advantage of creating a platform for electricity trading that is open to small producers--from farmers who put up wind turbines to homeonwers who invest in solar panels to store owners who buy a Bloom Box is that it would tap into the energy and desire of millions of Americans to take control of their energy future.  If Germany can convert Germans into energy providers through its feed in tarriff, surely America with its entrepreneurial spirit can create millions of energy entrepreneurs.

As our Acceleration Agenda lays clear, the key to creating these platforms is to open up sections of the electricity network.  These might include the home, network software and demand response using open standards and local networks such as airports, buildings and developments.  The nature of electrical energy means that regulated utility monopolies will still be needed to manage critical flows.  However, portions of the network must be opened to others and incumbent utilities need to be offered incentives to invest in new technologies, products and services. 

We are excited about Electricity 2.0 and the traction it is getting not only in Washington but in the energy, communications and technology communities.  Please check out our acceleration agenda.  Comments are welcome.

It is my pleasure to announce the arrival of a new NDNer this past week, Clare Giesen who will coordinate and direct our new Electricity 2.0 initiative.   Clare joing our team is one more sign of the momentum emerging around E2.0 as new consensus is emerging in the clean energy community that the outdated architecture of the electricity sector is itself a barrier to innovation and clean technology.

Clare brings to her new role at NDN a wealth of high level energy experience.  She served as White House Liason in the US Department of Energy during the Clinton Administration working on such important issues as electricity restructuring and incentives for renewable energy.  She served as a senior advisor in the Rural Utilities Service within the Department of Agriculture, helping to secure grants for renewable energy for rural cooperatives.  A native of Texas, she served as Chief of Staff to Congressman Michael Andrews. She comes to us from a position as Executive Director of the National Women's Political Caucus.  We are excited and happy to have her on board as part of the E2.0 team.

The postponement of action by Congress on climate legislation this year only underscores the need for new creative approaches to accelerating the development and deployment of new energy technologies, nowhere more than in the electricity sector which is responsible for a large share of pollutants from fossil fuels yet is also on the brink of a clean technology revolution.

This fall, NDN's E2.0 project has an ambitious agenda to hold events on Electricity 2.0, bring together more stakeholders and advance understanding of the electricity network, its potential and what policy changes can accelerate Electricity 2.0 to unleash a renewable revolution.  We are going to be looking specifically at barriers to free trade in electricity, barriers to microgrids, new platforms for economic activity around enterprise power, how to build more redundancy and capacity into the network to improve resilience how to how to advance the Smart Grid, and how to accelerate the uptake of renewables.

I encourage everyone in the NDN community to get to know clare.  You can reach her by email at cgiesen@ndn.org.

When the UN awarded the Nobel prize to the scientists who make up the IPCC and Al Gore in 2008 for their work in documenting climate change from greenhouse gases, in the eyes of most of the world, the science on this issue was solved.  In recent months, however, a number of events have given heart to climate skeptics who never went away.  First hacked emails of scientists at the Climate Research Unit in East Anglia England contained statements that caused the institute's director, Phil Jones to resign.  Then the IPPC's chairman, Rajendra K. Pachauri became embroiled in conflict of interest questions.  The weather itself turned cold at least in influential places like Washington, DC which received a huge snowfall last week.  And Phil Jones recently told the BBC there is no statistically significant different in warming trends now and in the 19th Century.  The cascade of events brought the issue to the editorial page of the New York Times which this week published an editorial on the controversy, saying the stakes are so high that scientists need to act in a way that is beyond reproach.  The new datapoints are not enough to change the views of experts, but they have given the skeptics ammunition with which to launch a full scale offensive in the conservatie media and led, Donald Trump, for example, to call for Al Gore's Nobel prize to be revoked.

While I am not a climate scientist, to my mind abornormally cold weather could be as much an argument for climate change as abnormally hot weather and what happens in Washington DC is not representative of the planet as whole.  But I believe these questions are best left to scientists.  The question I want to address is whether cold weather this year has any bearing on the need to build a cleaner more efficient economy.  In my view, the answer is no.  The business and policy case for clean technology is compelling whatever may be happening to global temperatures year to year. 

Clean technology is not just about greenhouse gases.  It is about reducing conventional pollutants--particulate matter, mercury in fish from burning coal and other byproducts of burning fossil fuels.  It is also about promoting peace through renewable power since resource economies are notoriously unstable and undemocratic. (Oil is a virtual magnet for violence and the fact that the oil states tend to be anti-democratic is a special case of this general rule.)  And it is about bringing the energy sector into the 21st Century.  Something often forgotten in talking about clean technology is the fact that the energy industry--in particular the electricity industry is unique in the modern global economy in having been starved for decades for money for research and development.  The R&D deficit in the electricity industry--the industry at the center of the wider energy network--is severe and it has been severe for decades.  This is the deficit that more than climate change or anything else has created the clean technology opportunity. 

It is sometimes said that Thomas Edison would recognize today's electricity system it has changed so little in the past century.  And one of the main reasons clean tech garnered  $5.4 billion in investment last year according to the Cleantech Group, much of it in energy, is that the sector has been neglected for so many years.  Switches remain mechanical and wires are often undersized.  But the next question is why does the electricity industry spend less than 1% on R&D each year compared with 10% or more in technology industries?  The answer is that its highly regulated structure provides no reward for risk and, indeed, creates a bias in favor of legacy technology.  The decades old innovation deficit in electricity is what makes the category such a deserving one for investment today.  But the cause of that deficit is the chief obstacle to modernizing the industry.

For the investments in clean electricity to achieve their full potential, the underlying reward risk profile of the industry needs to change.  The electricity industry requires an upgrade to Electricity 2.0, a new modernized, open architecture to allow more players to participate in electricity markets, democratize global energy and unleash a renewable revolution.  Those changes and upgrading our electricity system to Electricity 2.0 need to happen no matter what occurs with global temperatures.

In short, while climate change remains a presssing and perhaps existential concern it is only one of many reasons to create a new clean energy future.  Clean technology will be central to America and the world's economic future, regardless of what happens to temperatures in a given month or year.

With the President getting ready to go to Copenhagen, the EPA did what Congress wouldn’t: It put in place a policy that ultimately would sharply reduce carbon emissions.  The EPA finding that greenhouse gases (GHG) pose a health threat and thus trigger a process to reduce the risks through direct regulation has become the president’s “deliverable” in Copenhagen.  More important, the only forces that will ever prod Congress to take action on climate are broad public opinion and pressures from powerful groups – and that’s the real importance of the EPA finding and a series of additional rule-makings scheduled over the next year.  The finding and prospective rule-makings should bolster the public’s existing opinion that serious measures to reduce greenhouse gas emissions action are required, and put the fear of God in many business executives (or more precisely, the fear of unaccountable government regulators).  And the threat that the EPA may directly regulate the greenhouse gas emissions of every company in America is a credible one, given the Supreme Court’s recent holding that the law requires that EPA come to some finding about the dangers of those emissions.  The only course left for all the powerful groups that work so hard to stop or profoundly weaken climate legislation –their most recent handiwork is evident in the effective gutting of Waxman-Markey – is to enact a serious program that would preempt EPA.  Are you listening, big coal?  And climate activists should be on the same mission, once they consider what EPA regulation could look like under the next conservative Republican president.

The finding also could accelerate the search for new approaches to climate change, broadening the debate beyond the cap-and-trade model which Congress has already rejected three times and, if Kerry-Boxer ever comes to a vote, will almost certainly defeat again.  The leading alternative, of course, is a carbon-based tax with the revenues going to cut payroll or other taxes.  It’s an approach that’s worked well in Sweden and now is being considered in France, Ireland and Denmark.  Economists like it, because it doesn’t introduce additional volatility to energy prices as cap-and-trade does; and environmentalists like it, because a stable price for carbon is a prerequisite for businesses to invest large sums in developing and adopting alternative fuels and technologies.  Now, if businesses can come to dislike the prospect of direct EPA regulation with enough fervor, a new consensus could emerge around a new way to address climate change.

Speaking of Copenhagen, let’s also cut through the nonsense about the whole project foundering unless rich countries agree to pay for the climate efforts of poor countries.  Climate change is almost entirely the business of the world’s developed and large, fast-developing countries, because poor countries simply don’t have enough electricity generation, factories, capital-intensive farming, and automobiles to produce significant amounts of GHGs.  In fact, the world’s three economically-dominant places -- America, the European Union, and China -- account for 55.5 percent of all emissions.  Include twelve more nations -- Russia, India, Japan, Canada, South Korea, Iran, Mexico, South Africa, Saudi Arabia, Australia, Brazil, Indonesia, -- and you cover 85 percent of global emissions.  Among those twelve, the only, barely plausible cases for assistance are India and Indonesia, although both are on sharply-rising growth and development paths that could soon generate the incentives and resources required to become more climate-friendly on their own.  Ensuring that the world’s 120 or so other countries, most of them small and many of them poor, share some responsibility for addressing climate change is truly a secondary issue.

It’s also clear that at this time, virtually no country seems prepared to shoulder the cost of making even its own economy truly climate friendly, much less pick up the bills to make other countries less carbon-dependent.  The best course is probably a business form of technology sharing, in which governments support the formation of joint ventures between developers in the United States, the EU and the other dozen or so large GHG emitting nations –especially China and India – to develop, produce and sell climate-friendly fuels and technologies.  Then saving the planet could end up being good business for everybody.

Washington policymaking is caught in its own version of sensory overload. All at once, there are too many problems that seem - and actually are -- urgent, mind-bogglingly complex, and politically ultra-sensitive, to handle well. The result now emerging could be waves of ill-considered decisions.

Exhibit A is climate change.Taking serious measures to protect the planet's climate and ecosystems by driving down greenhouse gas emissions comes as close to an imperative as exists in science-based policy. But a small group has used this imperative to try to force a decision quickly, without preparing the public or most representatives for how their cap-and-trade scheme would affect everybody - for example, by increasing the volatility of energy prices, and setting off frenetic Wall Street speculation in the emission permits created by cap-and-trade.That's just the start of the sloppiness: The process of corralling the support to pass the measure in the House of Representatives - the vote is expected this week - has become a frenzy of giveaways that have cost the program most of its teeth and all of its bite. The result is the worst of both worlds: A measure that most environmentalists agree (at least privately) would do little about climate change, while unnecessarily harming the economy. Thankfully, the Senate is unlikely to go along.Once it fails there, perhaps we can get on to more serious and public deliberations about what will be required from all of us to shift to a less carbon-based economy.

Financial regulation is Exhibit B. The minimum for sound policymaking here has to be a genuine recognition of how our capital markets came to melt down and what irreducible steps can prevent it from happening again. We now know, to start, that the most prominent institutions in our financial system have operated for years in ways that create unsupportable levels of risk. We also know that their risky behavior wasn't an accident, but the result of thousands of calculated responses to real incentives. The toxic combination here is what insiders refer to as limited liability plus leverage: The executives, managers, traders and deal makers at Bear Stearns, Lehman Brothers, Merrill Lynch, Citigroup, Bank of America, AIG, Merrill Lynch, Goldman Sachs and others could borrow unlimited amounts of money (the leverage) to enter into almost unlimited numbers of risky deals. For the deals that worked out, they pocketed enormous profits and additional compensation; and for those that went south, only the shareholders suffered. If the bottom fell out on thousands of deals at once, they also all believed that they would be both too big to fail and not too big to save - and but for the incompetence of the Bush Treasury in the Bear Stearns and Lehman Brothers cases, they were right.

Today, after $3 trillion to $4 trillion in federal bailouts and federal guarantees, these incentives to undertake risky deals are even greater than they were before. And if the latest OECD forecast is right, and we should expect at best a weak and fragile recovery next year, the incentives to go for a killing will be even greater still.

Yet, most current proposals for new regulation would do little to head this off. Part of the problem with the financial system comes from simple size - firms that are too big to fail - yet none of the proposals even approach this issue. For example, we could debate scaling up a firm's capital requirements with its size:The bigger it is, the less pure risk it can take on - an approach the Administration likes. And with the collapse of so many large institutions, the survivors are now even bigger. So here's another thought we haven't heard much about: Shouldn't the rules of antitrust apply to finance?

We also know that part of the problem is the nature of the risks taken by these huge institutions:Complex derivatives being traded outside regulated markets, and thus not subject to the normal capital and governance rules applied to those issuing them or to the normal disclosure and transparency requirements applied to all transactions in regulated markets. So, requiring that all derivative-like instruments henceforth be traded on regulated public markets seems like a no-brainer. Perhaps sensory overload can help explain why the leading reform proposal preserves the right of those undertaking "large private transactions" in these derivatives to operate outside the regulated markets.If this sloppy decision stands, another element for the next market meltdown will be in place.

We also know that part of the problem lies in compensation arrangements that reward executives, managers, deal makers and traders for the highly-leveraged risks that pan out, but exact no costs for those that don't.The issue here is not how big the bonuses are - that's their business - but rather a structure that actually drives decisions to take unreasonable risks because they carry no personal price.Yet, for all of this issue's urgency, addressing it among the hundreds of others demanding attention has apparently been too complex and politically-sensitive. Why can't we have a serious discussion of creating a new SEC rule that would require a shareholders' vote approving any compensation over, say, $1 million? Better still, how about a genuine debate about compensation arrangements that would claw back previous bonuses to reflect large losses by the same people?

Maybe everybody needs a break to clear their heads - and remember their principles. Let's hope it happens before the new regulatory reforms for climate change and finance become law.

New York City -- Business Week has a provocative article this week by Michael Mandel on innovation -- or the collapse of it -- in America. According to Mandel, many of our current woes stem from a failure to innovate over the last decade since the glory years of the late 1990s. While most Americans still take pride in our innovation, Mandel provides some sobering statistics: the wages of young college graduates -- precisely the group that should be succeeding in the information economy -- declined 24% between 1998 and 2007. The U.S. trade balance in high tech goods flipped from a $30 billion surplus in 1998 to a $53 billion deficit in 2007. Mortality statistics actually worsened for those 45 to 54, belying talk of medical breakthroughs.

All of this leads to my topic for today: making good on the promise of clean technology. Now one of the hottest areas in Silicon Valley and an area that the Obama Administration believes is key to powering prosperity, clean technology has -- as John Doerr has said -- more potential for wealth creation than information technology. Yet despite numerous technology breakthroughs, the clean energy and technology space has yet to generate the type of home runs on a company level or growth on an economy-wide level needed to reinvigorate the American economy and get wages moving upwards again.

In my view, there is no question that innovation is the key to America's economic future. The wealthiest country in the world cannot compete with low-wages countries on labor costs. To sustain high wages, our people must create new industries in which competition is based on new capabilities and, in effect, scientific magic, not on who can make widgets for less. We have the best scientific infrastructure and system for financing innovation on earth. Nonetheless, as Mandel points out, our system has not delivered on an economy-wide level for the last decade. 

It is tempting to blame this on the policies of the Bush Administration. And the Obama Administration has begun to reverse a reliance on financial engineering, as opposed to real engineering, to get us back in the business of creating new products. However, to really get innovation back into high gear, I believe more steps are needed.

Within clean technology, a very promising area of innovation is the smart grid. However, virtually none of the money for smart grid included in the ARRA bill will go to young entrepreneurs -- burrito-eating Stanford grads, as Doerr once described them. Because of a 50% cost-sharing requirement and large average size for grants, most will go to large regulated utilities. Moreover, the entire clean energy industry is hampered by a key difference between the energy industry and, say the Internet industry: the presence of incumbent players with an interest not in innovation but rather in preserving incumbency.

Many young clean technology companies find themselves in the role of selling to a small group of customers, most heavily regulated and unusually conservative. In a given geographic region, they may therefore have only one customer, creating a so-called monopsomy. Monopsomies, the flip side of monopolies, provide exceptional buying power to a single gatekeeper who can, if desired, not buy a product at all. A real life example of a monopsomist is a coffee buyer in a remote region who may have virtually unlimited power over small growers. Oil companies, similarly, enjoy government tax credits, market power and other incumbent advantages that can work against companies offering alternative technologies. So long as these sorts of gate-keepers and roadblocks to innovation exists, clean energy will fail to realize its promise.

What is the way around roadblocks to innovation in the energy sector? The answer, broadly speaking, is to get the end user or consumer involved.

The consumer is a great arbiter of product quality. Unlike a middleman, incumbent or gatekeeper, the consumer's highest priority is features for money expended. In software, computers, electronics and sectors where the consumer is empowered, the consumer has driven innovation.

Two policy ideas stand out as ways to get the consumer involved in energy decision making. First, the smart grid itself, if developed in an open way, will drive innovation buy allowing software developers, producers of services and others to build products around an open standard. On the other hand, the smart grid, if developed in a closed or proprietary way, will merely perpetuate the market power of insiders. The key is to set a standard that allows plug and play capability so that entrepreneurs can develop products for customers around it. Just as coffee consumers, once informed about fair trade, have begun to buy fair trade coffee, consumers, if given the choice, will buy products and services around the grid based on their preferences.

Second, it is time to revisit the issue of electricity reform to offer greater choice to consumers. Electricity reform began in the 1990s but came to a halt. Since then, we have learned what structures make markets work best and competition should be extended to the consumer level.

Finally, the government should be more flexible in how it supports research and development for clean technologies, to make more money available to smaller, more nimble firms as opposed to entrenched incumbents. While it may be possible for governments playing catch up to to bet on strategic industries, as Japan did after World War II, when it comes to innovation, picking winners should be avoided. No single analyst or committee, no matter how smart, can substitute for trial, error and the verdict of the marketplace.  However, government can encourage open standards and a level playing field to encourage numerous solutions to problems.  And by making money generally available not only to large players but to small ones, it can help rekindle innovation.

These three steps will help accelerate innovation in the clean technology space. And innovation is what is needed to raise wages, create jobs and get America's economic engine hitting on all cylinders once again.