Solar Panels at Dusk

Energy Diversity

Why should we care about innovation when hydrocarbons are so abundant?

Many people will naturally wonder why the government should be involved in energy innovation at all, given the potential of unconventional gas and oil to provide ample, low-cost energy supplies for many years.

The answer is simple: Market and regulatory forces today are working against America’s long-term energy interests, undermining our energy diversity and threatening the affordability and reliability of our energy systems. Effective innovation policies are the solution.

Natural gas is doing great things for America—which only highlights the need for effective federal innovation policies. The shale gas revolution is, in crucial respects, a product of federal innovation efforts—and replicating its success would allow us to enjoy its benefits today while guarding against its potential perils tomorrow.

The flood of hydrocarbons we are enjoying today contributes to, and conceals, a growing long-term threat: the loss of fuel diversity in America’s electric generation mix.

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America’s nuclear fleet is aging; even with relicensing, a growing number of nuclear plants will be retired in the coming years, and the prospects for their replacement are uncertain . Meanwhile, the low cost of natural gas, combined with Environmental Protection Agency regulations of coal-fired power plants, means that natural gas is quickly becoming an increasingly dominant fuel in the power sector.

Experience teaches us that fuel diversity is critical to long-term price stability, yet we are becoming increasingly reliant on just one fuel for electric generation.

We Can Celebrate Natural Gas while Expanding our Energy Options

With the rise of natural gas and the simultaneous decline of coal and nuclear, America is enjoying more affordable and reliable energy supplies today—but doing little to secure our energy future. Given today’s market and regulatory dynamics, the private sector generally cannot make investments at scale in developing advanced energy technologies; the risks are too great, the regulatory hurdles too high, and the rewards too far in the future for the private sector to make investments on that scale without federal support for innovation.

While enjoying the benefits of shale gas today, it would be prudent to think twice about putting all of our eggs in that single basket. Forecasts of long-term natural gas prices are inherently unreliable—and if history is any guide, we should expect prices to rise.  The only question is whether America will be ready for that eventuality—or not.

Targeted national investments in innovation are a hedge against the risk of lost diversity of energy sources and the inherent uncertainty of long-term market forecasts.

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Unless we are willing to stake the economic security of the nation on the implausible prospect of cheap gas forever, we should think carefully about ways to make more effective national investments in research and development of advanced energy technologies.

But the abundance of shale energy does argue for a strategic realignment of federal innovation efforts, refocusing more on sustained, long-term R&D on technologies that can genuinely compete on price and performance, rather than the current focus on short-term regulatory and tax policies designed to drive premature adoption of largely uneconomical technologies today. The new era of domestic energy abundance sets a higher bar for today’s competitors, justifying a stronger focus on more ambitious, longer-term innovation initiatives that will create the next energy revolution.