Both/and energy strategy: need to decarbonize energy and transport now, and look toward breakthroughs for manufacturing

From an interview of Ernest Moniz (DOE) by David Roberts at Vox, one of our favorite writers/explainers!

What fraction of the GDP is energy?

David Roberts

I don’t know that off the top of my head.

Ernest Moniz

Eight or 9 percent. And as you know, the private energy sector has been very weak in its R&D investments.

It’s easy to understand. Pharmaceuticals, say, is a strongly IP-based activity. If you aren’t developing new IP, you aren’t going to be around for very long. And so they have 15 percent of revenues going to R&D.

Whereas the electrical utility industry, one of the historical benchmarks is, it has had a lower rate of investment in R&D than dog food companies. And the reason is that a) it’s a commodity business, and b) it’s a highly regulated business. That’s not a pejorative statement; that’s because of what it means to society. There’s lots of reasons why it’s lower, but it’s way too low.

So a benchmark to keep in your head is: The federal energy R&D budget should be roughly 8 to 9 percent of 1 percent of GDP. Okay, so now calculate that!

David Roberts

I was told there would be no math.

Ernest Moniz

Take 8 percent [of 1 percent] — that would be roughly $13 to 14 billion per year.

DOE is 4.8 [billion]. The entire government is 6.4 [billion] — times two, that’s 12.8 [billion]. It looks like 2.1 [times the current budget] should be the exact right number.

(AAAS)Seems low.

Now, I want to make it very clear, I’m not saying, “We’ve got a number.” What I am saying is that these kind of simple, heuristic arguments tell you that’s a reasonable ballpark. It’s not the way I would build an R&D portfolio, obviously — that’s more of a bottom-up thing — but the message is, as you design the R&D portfolio, $10 billion leads you to a different way of thinking.

David Roberts

More ambition, presumably?

Ernest Moniz

More ambition, more risk. That’s a different way of thinking, and we are doing that thinking right now as part of an exercise, something to leave the next administration — ideas about a portfolio structure that is more in that $10 billion range than the $5 billion range.

David Roberts

Some people have argued that venture capital funding is not well suited to the energy space — there are lower margins, you need much more patient capital. Energy in particular needs public money. Do you find that convincing?

Ernest Moniz

As AEIC said, the federal role in energy R&D is often denigrated, incorrectly. It’s always been critical, and remains critical, and increasing it, along the lines we discussed, is critical.

Bill Gates has been very clear in saying cleantech 1.0 was a learning experience. They’ve learned. The Breakthrough Energy Coalition says three characteristics are critical. One is patience; they now understand 20 years is probably their return horizon, not 20 months. Two, they cannot be risk-averse. And three, a willingness, when the time comes, to scale.

So that’s very explicitly part of the mentality. This is going to cleantech 2.0, with both sides of the equation, public and private.