Varun Sivaram

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Pairing Push and Pull Policies: A Heavy-Duty Model for Innovation

by Varun Sivaram
September 27, 2016

The Peterbilt SuperTruck makes a stop as its tests in fuel efficiency on the road (U.S. Department of Energy) The Peterbilt SuperTruck makes a stop as it tests its fuel efficiency on the road (U.S. Department of Energy)

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This post is co-authored by Sagatom Saha, research associate for energy and U.S. foreign policy at the Council on Foreign Relations.

When policymakers mandate adoption of a particular technology, they run the risk that the technology may not yet exist or is too expensive for consumers. Similarly, when the government funds research, development, and demonstration (RD&D) of new technologies, it can’t be sure that any advances it underwrites will get picked up by the private sector and successfully taken to market. Even if the government pursues both activities separately—“pulling” technologies into the market through mandates or standards and “pushing” the development of new technologies through RD&D funding—these risks don’t go away.

But the strategy embodied in the Obama administration’s recent push to clean up emissions from large vehicles could address both of these risks in one fell swoop. Last month, the administration released new rules limiting emissions from heavy-duty vehicles like vans, trucks, tractors, and buses. Alongside the standards, it also announced $140 million in new funding for innovative technologies to improve the efficiency of both light and heavy vehicles. Pairing these pull- and push-policies has already proven effective at making sure the right technologies are developed to achieve ambitious standards.

This strategy could work to commercialize other energy technologies as well. Indeed, tight coordination of push and pull policies is a staple in other fields, like defense and global health, and should be applied more broadly to energy innovation. That will be tougher politically, however, requiring institutions to cooperate in ways that weren’t envisioned when they were set up.

Who’s A-Freight of Efficiency Standards?

Under the recent Obama administration standards issued by the Environmental Protection Agency (EPA), heavy trucks must reduce their carbon emissions by 25 percent. Although these vehicles only account for 5 percent of vehicles on the highway, they guzzle 20 percent of the fuel. And because carbon emissions from the transportation sector recently overtook those from the power sector, curbing heavy truck emissions could be crucial to meeting U.S. obligations under the Paris Agreement to reduce its emissions by 26–28 percent by 2025.

Although the administration can’t guarantee that manufacturers will be able to meet the mandate, it has strong evidence suggesting they will. Under the Supertruck I program from 2010 to 2015, the Department of Energy funded truck manufacturers and suppliers to improve trucks’ “freight efficiency,” or the amount of freight hauled per gallon of fuel used. All but one manufacturer successfully beat the target of a 50 percent increase in freight efficiency over that of 2009 trucks (the last firm is expected to meet the goal this year). Moving forward, the administration believes manufacturers can match the previous improvement so that the freight efficiency of trucks in 2021 is 100 percent higher than those in 2009.

But not only is the administration betting that manufacturers are capable of meeting the new standards—they’re supplying resources to ensure they do. Along with pulling up vehicle performance through regulatory emission standards, the administration is pushing technology improvements through the newly announced Supertruck II program, which will spend $80 million on RD&D programs. The program will aim to build on its predecessor’s progress in commercializing technologies like lighter materials, more aerodynamic designs, and lower-resistance tires.

Together, the standards and RD&D funding compose a coordinated push-pull approach that has a better chance of succeeding than either component alone. And we’ve seen examples of orphaned push or pull policies for clean energy before. For example, in 2007 Congress enacted the Renewable Fuels Standard, a pull policy that set mandates more than a decade into the future for the quantities of advanced biofuels that oil refineries would need to blend into gasoline. But few manufacturers have been able to make such advanced fuels, so the federal government is forced to relax the standards year after year. And a memorable example of a failed push policy is the notorious Synthetic Fuels Corporation, into which the federal government poured billions of dollars but cancelled when falling oil prices erased any market demand for oil substitutes. Together, these examples demonstrate that push without pull, or vice versa, can doom policies promoting technological change.

Finally, a push-pull approach could overcome political barriers that obstruct pull approaches in particular. When it came time to create the heavy truck standards, the Obama administration had already provided RD&D funding to manufacturers and suppliers like Freightliner and Cummins; these firms were then willing participants in helping set ambitious but achievable efficiency standards. Contrast this collegiality to the simmering tensions between the administration and the auto industry as the two sides spar over the future of light-duty vehicle fuel economy (CAFE) standards. Perhaps a compromise to maintain stringent CAFE standards, paired with additional RD&D support for automakers to meet them, would be mutually acceptable.

Extending the Pipeline

In their book, Technological Change in Legacy Sectors, Chuck Weiss and Bill Bonvillian argue that the military has adeptly combined push and pull policies, creating an “extended pipeline” to fund innovation from basic research all the way through commercial deployment. For example, institutions like the Defense Advanced Research Projects Agency (DARPA) funded the development of drone prototypes and precision strike capabilities, and the military services later procured these technologies at the other end of the pipeline. Despite some bureaucratic wrinkles, this model worked well to identify a need, specify a desired technology, and acquire the resulting product to guarantee a market to private sector partners. More recently, the U.S. Navy collaborated with the DOE and the Department of Agriculture to create an extended pipeline for advanced biofuels to run military ships and planes–the partnership includes funding for biorefineries to produce military-spec fuels that (presumably) the Navy will then procure.

Elsewhere in the global health field, coordination of push and pull policies is common. Indeed, Doctors Without Borders has expanded this paradigm to develop drugs to fight tuberculosis, coining a “Push, Pull, and Pool” model. As before, this model would provide RD&D “push” funding, and it would “pull” new drugs by offering a prize or advanced commitment to purchase a substantial quantity upon development of an effective and affordable drug. On top of this, to be eligible for funding or prizes, private firms would have to agree to submit their chemical discoveries into a pool to enable collaborative research and technology licensing.

These models hold lessons for clean energy, and the Obama administration’s coordinated clean truck policies are a step in the right direction. But broadening this approach will require some heavy institutional lifting. Currently, energy R&D is funded in the United States largely by the National Science Foundation (NSF) and the DOE. Demonstration—the middle of the extended pipeline—is funded somewhat haphazardly by DOE. And then deployment standards and support emanate from various other agencies (for example, the National Highway Traffic and Safety Administration (NHTSA) and EPA set light-duty vehicle fuel economy standards). Getting all of these organizations to coordinate with one another is a tall order, and in the long run an institutional reorganization akin to what the United Kingdom undertook in recent decades may be necessary. In the meantime, President Obama has left his successor with a modest but effective blueprint to push and pull energy innovation at the same time.

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