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Two Roads for Energy Innovation

by Michael Levi
November 8, 2010

Shifting the focus of climate policy to investment in energy innovation has long been touted as a way to cut through international bickering over who should shoulder the cost of cutting emissions. Recent squabbling between the United States and China over whether Chinese government support for clean energy technology violates trade rules, though, should wake us up to the fact that life is not so simple.

Three colleagues of mine and I have an essay in the new issue of Foreign Affairs that takes a look at these tensions. (Use this link, rather than trying to go directly through the FA homepage, if you want to avoid the paywall.) We argue that the United States and others need to boost their support for clean energy innovation. But we also warn that as governments becomes more involved in the innovation system, pressure to impose barriers to cross-border trade and investment will increase, while support for cooperative approaches to energy innovation will flag. That, in turn, will retard innovation, particularly in the private sector. The U.S. government will need to protect against this dynamic as much as it possibly can.

How will the recent election affect all of this? It should be a mixed bag. Government spending on innovation (like government spending on everything else) will be difficult. A more Republican Congress will probably be a stronger supporter of an open trading system – but Democrats, concerned about their base, may actually double down on that front. (The executive also has more freedom to pursue trade cases than it does not create new trade agreements.) The climate for cooperation on energy innovation, meanwhile, may sour, at least to the extent that it requires money to be spent overseas. But some important elements, such as international coordination on standards setting, will probably proceed untouched.

In any case, this is a long-term issue. The United States needs an international innovation strategy that harnesses the best of what all countries can contribute to developing cheaper, cleaner sources of energy.

P.S.: The essay is based in substantial part on a large study that we’ll be publishing next week. I’ll have more to say about the subject then.

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