Make Locally and Sell Globally
The world is in transition and is offering possibly the biggest economic opportunity of the 21st century. The question is: Can we grab it? I believe we can, but we need to be both smart and strategic about it. Let me explain this through a macro-picture and some global trends.
First, the long-term trend shows that the global economy (1) will undergo steady growth and, on average, people’s income levels and buying power will rise around the world. This prosperity is the good news. History tells us, however, that consequently in many countries, energy use per person is likely to rise as well (2), especially for developing economies. Access to affordable energy supply as well as their environmental impact poses many risks. Second, the world population is also growing from 6.5 billion people today to almost double by the end of the century, mostly in developing economies. This dual growth of population and the economy suggests that the total world energy demand will very likely increase steadily.
Where will this energy come from? In the transportation sector, the largest oil consumers are USA, China, Japan and India. They also happen to be nations that are the largest oil importers. Hence, access to and purchase of transportation fuel pose the dual and common risks of national security and trade deficits. Much of the world is looking for alternatives that reduce their dependence on foreign oil. For the electricity sector, coal is by far the largest source of energy and, fortunately, some of the largest reserves of coal are found in the USA, China, Russia and India. However, traditional large-scale utilization of coal leads to harmful environmental impact, both locally and globally, which many countries are keen to overcome. Fortunately, the US has found massive reserves of natural gas, but other nations have not. In short, many nations are faced with the daunting challenge of how to sustain long-term economic and population growth. Business-as-usual seems to be unsustainable because of a combination of national, economic and environmental security risks. The world is in transition and is looking for leadership.
This transition offers the opportunity for the US to innovate, manufacture and sell those clean and affordable energy technologies that will allow sustainable growth not just in the US, but around the world. A few examples include clean electricity sources such as solar, wind and nuclear as well as alternative renewable fuels and electrification of transportation. Others include low-cost and energy-efficient water purification and waste utilization. Innovations are needed to reduce the cost of these clean technologies to levels that make them competitive with traditional approaches so that they could be sold profitably without subsidies worldwide. Manufacturing and scaling of these technologies in the US and selling them globally will lead to our economic prosperity via creating millions of high-paying jobs. But there is an on-going global competition - other nations are also positioning to avail themselves of this opportunity. Speed is of essence because we are in a Sputnik-like moment and our children’s future is at risk. Quoting Rev. Martin Luther King, we need to have the “fierce urgency of now.”
The US has by far the best science and engineering based innovation infrastructure and ecosystem in the world– that is our core competency. We have the ability to grab this opportunity and we are certainly doing so – I am fortunate enough to encounter many of these innovations at ARPA-E (3). However, in the last two decades, we as a nation seem to have taken our eye off the ball in terms of manufacturing and scaling clean energy technologies, which is where a large fraction of the jobs are created. These manufacturing jobs have a multiplying effect, i.e. they create other jobs along the supply chain, and positively impact the whole economy. Furthermore, the feedback loop between manufacturing and R&D is critical to create a cycle of technological innovations. Without manufacturing, we run the risk of breaking this cycle and hurting our core competency of innovation.
Other nations have learnt this and are cherry picking our innovations and attracting them overseas to manufacture and scale. We as a nation need to revert this trend. But there is no silver bullet – we need a multi-pronged approach. First, we need to support R&D for innovations of clean and affordable energy technologies, and in particular those that are scalable by low-cost manufacturing. The government’s role is to fund the science and technology that is too risky for the private sector, with the goal of catalyzing the private sector. While this is necessary, it is not sufficient. Second, we need to create demand for these clean energy innovations here in the US – for example, via a mileage standard for automobiles or a clean energy standard for electricity generation that the President has proposed. This US demand will lead to local deployment and related jobs. It will also lead to some local manufacturing but not all, because part of the demand could be met by imported goods. Again, demand creation is necessary but not sufficient. Third, we must also capitalize on our technological innovations by building first-of-a-kind and commercial manufacturing plants here in the US to also meet the global demand, not just the US one. How do we achieve this?
We need to create new private-public financing schemes that will provide the long-term signal and the cost-effective capital for this infrastructure to be built. To incentivize manufacturing and perhaps bring back some from overseas, we also need to carefully look at our tax policies. The states could create local ecosystems for technological innovation and manufacturing, which is what the US has done very effectively in the past for automobiles, airplanes, semiconductors, etc. Finally, the US higher educational system is by far the best in the world and has attracted global talent to the US. We need to continue supporting this core value, while also paying close attention to our broader education system at all levels, and ensure that it is the best in the world. This is critical for educating a new generation of workers for high-value manufacturing and deployment jobs.
In summary, let us take the lead from the President to out-innovate, out-build and out-educate the rest of the world. That is the best course of action for our nation to create a secure future for our children.
Dr. Majumdar is the Director of ARPA-E