A Good Customer for Clean Energy

[Note: I jointly authored this with Dan Sarewitz of ASU]

The House of Representatives has passed a massive climate change bill aimed at legislating a new, climate-friendly energy supply into existence through emissions caps, technology standards, and incentives. The bill’s champions assume that, in response to an array of mandated carrots and sticks, nimble startup firms will be motivated to develop new clean-energy technologies that will ultimately revolutionize our use of energy, while investors smelling early profits will line up to fund these activities.

Unfortunately, a crucial question remains embarrassingly unasked: Who is going to buy enough of these new technologies to establish a market that’s large enough to meet our carbon reduction goals? This question is particularly vexing because, in the energy sector, existing business models are deeply entrenched, huge capital investments are at stake, and new technologies often require changes in consumer behavior that inhibit adoption.

Large, reliable, early-adopter customers are essential to new markets—to bring in revenue that helps scale up operations, and to foster confidence that attracts more customers and new investments. Real-world customer feedback also promotes rapid innovation and improves the chances that new products will succeed in the market.

What would the ideal clean-energy customer look like? Imagine an organization big enough to have energy systems that mirror the real world’s, rich enough that its purchasing power could command the attention of innovators, sophisticated enough to assess and deploy the latest technologies, and disciplined enough to push those new technologies relentlessly in the direction of greater efficiency and lower cost, year after year.

Something akin to this ideal customer exists: The Department of Defense, funded annually at about $500 billion (roughly the GDP of Sweden). DoD owns a huge infrastructure, including 570,000 buildings at more than 5,000 facilities and bases (many of which are the equivalent of small cities), hundreds of thousands of vehicles and tens of thousands of aircraft, and annual energy costs of about $20 billion.

For more than 60 years, DoD has been by far the world’s most important customer for driving high-tech innovation. In aviation, telecommunications, advanced materials, semiconductors, and many other fields, the dual role of DoD as investor and major customer has stimulated rapid technological improvements, allowed scale-up of high-tech systems so they became both practical and affordable, and catalyzed the growth of the private sector so technologies could flourish in the broader marketplace. The Internet may be the DoD’s crowning achievement. First conceived at DoD’s Advanced Projects Agency, this early computer network eventually created a market for equipment and service providers that soon spilled over into the private sector as the Internet, an unparalleled platform for innovation and wealth creation.

Yet policymakers have, amazingly, ignored the critical role of government as a strategic customer for energy technology. DoD, with its hunger for energy, huge size, and sophisticated technical capabilities and needs, could quickly become the world’s most important consumer and catalyst for clean energy innovation—even as it vastly improves its operational efficiency and flexibility in providing for the nation’s defense. We can see the latent capacity for this role in the early adoption of solar energy cells by the military for use on satellites (in the 1950s!); in the ever-increasing demand for better batteries to support troops in remote locations; in the nation’s largest solar energy farm on Nellis Air Force Base in Nevada.

Congress or the President should ask the Department of Defense develop a plan for committing to a path of progressively increasing efficiency and clean energy across all aspects of its operations, from tanks in the desert to the supermarkets on its bases. This plan should include a DoD commitment to purchase prescribed amounts of increasingly efficient clean energy capability in 2015-2030 time period. Such a commitment would send an immediate, strong economic signal to innovators and investors, and would decisively put the nation, and the world, on a path to a clean energy future.