Priority Innovation Policies

Public Sector R&D

Today’s technologies have the potential to bend the carbon-emissions curve—but new, better, and cheaper innovations are a key component of any achievable plan for reaching a net-zero emissions economy by 2050.

Government investment in clean energy research, development, and demonstration (RD&D) can accelerate this innovation and catalyze greater private-sector investment. But current levels of public sector RD&D funding are not enough to put the United States and the world on a path to net-zero emissions. The federal government should both increase funding to its energy-RD&D agencies and reorganize them to more effectively address the climate crisis.

The federal government should be set up to make the best use of its resources, with a centralized office that is responsible for inventing, piloting, and commercializing clean energy technologies. To reduce duplication, focus the government’s efforts, and get the most innovation out of every dollar of funding, the federal government should establish a National Institutes of Energy Innovation (NIEI) modeled on the National Institutes of Health.

An NIEI would have a clear mission to support the world’s best scientists and entrepreneurs as they develop the critical technologies and solutions needed to address the climate crisis. The institutes would focus on advancements in cross-cutting technologies, end-use sectors, and clean electricity and fuel sources, reducing costs and spurring large-scale deployment. They would closely integrate breakthroughs in fundamental science with subsequent stages of product development, production, and deployment to achieve successful commercialization pathways for technologies.

In the near term, there are other important actions the federal government can take to improve the focus of its R&D efforts. The recommendations below focus on these actions.

Policy interventions include:

The success of an innovation strategy depends on policies that incentivize research & development (R&D) and encourage the deployment of emerging technologies.

The U.S. research and experimentation tax credit (the R&D tax credit) is the main federal research-tax incentive. It allows companies to claim credit on their federal taxes for a portion of what they spend on experimental research. (It does not apply to spending on non-technical research, machinery, or equipment.) To spur more clean energy innovation and boost U.S. international competitiveness, Congress should expand and reform the credit to reduce the after-tax cost of investing in R&D.

Tax policies that encourage early deployment for emerging technologies are also critical to long-term GHG reductions. Policymakers designing innovation tax credits should identify the critical applications of low-carbon energy systems and develop subsidies that harness market competition to support promising solutions for each application. The policies should be stable, avoiding capricious changes that chill the climate for private investment. Eligibility should decline as market adoption for a given technology increases.

For Technology-Neutral Innovation Tax Credits: