A little more than two years ago, I speculated about the potential for Gainful Employment rulemaking to be applied to traditional colleges. The Department of Education (DoE) took a step closer to making my speculation a reality with its scheduling of the second session of negotiated rulemaking for the week of November 18.
The DoE’s revised draft of the Gainful Employment rule has the potential to affect community colleges rather significantly. The revised draft includes two new metrics that were not included in its August 2013 draft. The first measures the cohort default rate of former students in a specific program – those who completed and those who did not. The second is a measure of the repayment rate of the loan portfolio of a program cohort, and the principal must decrease by a minimum of $1 during a given year.
Traditional, nonprofit community colleges offer a variety of occupational programs in areas such as nursing, metalworking, fire fighting, etc. Community college programs have traditionally had relatively low completion rates. A report in my local Arizona Republic stated that six-year completion rates of the Maricopa Community College District had risen over a decade to 28%. The rate includes both students who obtained associate degrees with the intent of going onto a 4-year university and those who completed certificates and degrees closely associated with immediate, gainful employment.
Community colleges are intentionally designed to allow local students easy access to a program and the flexibility to complete courses toward certification at their own pace. Community colleges also are designed to be responsive to a broad range of working adults, including many who are from the American working class; their incomes are generally stretched to cover a wide range of family living expenses, including repayment of loans.
This round of negotiated rulemaking has the potential to result in changes at community colleges. Some of those may be positive as community colleges address the need to assure that students complete programs and find gainful employment. However, there may be negative outcomes for community colleges as well – from the implementation of restrictions on admission, less flexibility in program completion, etc. These negative outcomes could affect enrollment at community colleges. Whether the positive outcomes will outweigh the negative ones is not clear. And harm to community college enrollment has the potential to impact local economies with fewer employees with skills desired by employers. This may well be a time to analyze impacts more carefully before the planned announcement of the rule.
This past week, I experienced the enthusiasm that many Mexicans have for reform in education when I spoke at the U.S. Mexico Bar Association Annual Meeting and Conference. Reform is, of course, a subject of interest in Mexico in the area of energy as well but we have seen that education reform is much further along. Like the U.S., educational reform is essential for Mexico’s global competitiveness.
Both countries – the United States and Mexico – are challenged to compete globally and raise prosperity by the performance of their students when compared with other countries. The Organisation of Economic Co-operation and Development (OECD) will report new PISA (Program for International Student Assessment) scores on December 3. The previous report placed both countries well below desirable levels. Mexico ranked 48th among the countries tested in reading; the U. S. ranked 17th. In math, Mexico ranked 50th, and the U.S. was little better at 31st.
These low ranks for both countries represent a strong indication of the need for more educational reform. For many of us, educational reform has been part of our lives for decades but we still struggle to get reform right. Reform is essential if good teachers are to have the opportunity to do what good teachers can do – change students, indeed transform students. We can only hope that the new PISA scores will show some improvement for both countries.
Right now, neither Mexico nor the U.S. is globally competitive when it comes to how our students perform in reading, math and science. Primary and secondary education in the U.S. and Mexico still looks very familiar after decades of attempts to reform it. Teachers’ unions are still strong; especially in Mexico and it has been the struggle with teachers’ unions that has caught the most attention of many people who have watched the recent education reforms take place in Mexico.
Many teachers have feared competition, and the Mexican teachers’ union has fought reform. Competition, of course, is becoming more widely available to U.S. students via online schools, home schools, and charter schools. It is still rare in Mexico, but competition is more typical of many other countries. In the Netherlands, three-quarters of Dutch students study in private schools. Japan and Korea have an even larger proportion of their students in privately managed schools.
The good news in Mexico is that reform is underway. New standardized tests will become available for selecting teachers and for evaluating their performance. A new, national reporting system has increased transparency; the information system is called ENLACE (La Evaluacion Nacional de Logro Academico en Centros Escolares). In June, the Mexican government reported that ENLACE data covered 95% of students and 90% of Mexican schools. Scores on national tests are essential for making reforms work, and scores have to be based on a national average and be used to determine if a student is doing poorly as an anomaly in a class or school – or if the entire class or school is doing poorly relative to national averages. Mexico can now do this.
It was very positive to witness the enthusiasm for education reform this past week. That enthusiasm seemed to be driven by an understanding that reforms have to enable teachers to be more effective. Despite the reported reaction by teachers’ unions to educational reform in Mexico, it is teachers who will make educational reform lead to improved student performance.
In this – or any other age – where argumentation is often based on belief systems, science presents an alternative. Science is a systematic way of pursuing knowledge via the scientific method. It employs observation, prediction, and measurement, and it contrasts with belief systems. The purpose of today’s blog is to examine how recently published science contributes to our knowledge of energy and climate change. Science offers a foundation for improvement in business efficiency, profitability and the establishment of sound government policy.
In examining why science matters, we start with an examination of the recent scientific research associated with methane emissions from natural gas wells. The research comes from the published work of David T. Allen et al. in the Proceedings of the National Academy of Sciences, and it has already received attention in some media because of its findings and their inconsistency with some people’s beliefs and earlier research. The findings include lower than expected overall release of methane from newly drilled wells, many of which are associated with hydraulic fracturing. Hydraulic fracturing, or fracking, refers to the process of injecting water and chemicals into subterranean shale in order to release the natural gas stored within the pores of the shale. Methane is the primary component of natural gas, and it is a potent greenhouse gas that is scientifically associated with climate change.
The study by Mr. Allen and his colleagues used measurements of emissions monitoring equipment during the completion process of wells during a seven month period that included the summer, fall, and parts of the winter and spring seasons of 2012 and 2013. The method was direct measurement of methane emissions, an important contributor to the credibility of this research. The results were almost 97% less than a 2011 estimate by the US Environmental Protection Agency (EPA).
The study also examined 150 existing production sites and 489 wells with samples taken from them. These wells use pneumatic controllers, which are designed to use air pressure created by the well to drive related equipment. These devices can release methane as a part of their routine operation from equipment leaks that were detected using infrared cameras. Mr. Allen’s and his colleagues’ observations were that methane release from pneumatic controllers was 57-67% higher than earlier EPA estimates.
While this scientific paper did not address business practices or policy, there is an opportunity to look to changes in practice that could further reduce methane release. Pneumatic controllers were the primary source of methane release in this research and there are various actions that can be taken by natural gas companies, even without changes to policy that can help reduce the amount of methane release. If companies were to install low-bleed devices in pneumatic controllers, retrofit machines with low-bleed devices, and improve maintenance associated with gaskets, tube fittings and seals we could see a significant reduction in the amount of methane being released by the pneumatic controllers. Reducing the unintended loss of natural gas via pneumatic controllers has financial advantages for both the owner of the well and the environment. Owners of the wells can make more natural gas available for sale and the reduction of methane release in the environment can help mitigate any climate implications.
When taken together, methane emissions from new well installations and pneumatic controllers were 10% lower than earlier EPA estimates. These findings are a valuable addition to our knowledge base. Nine natural gas producers supported the research, and some media have indicted the credibility of the research because of the source of funding. Since most scientific research is supported by one source or another, the particular source, per se, is less important than the soundness of the method used and the design of the hypotheses. In both cases, Mr. Allen and his colleagues followed expected scientific practice that lends considerable credibility to the new information about lower than expected emissions of methane from natural gas extraction. This is the value of science.
When asked about the common core standards by the local NPR affiliate some months ago, I thought I had the right response; now I am sure that I did not. Some months ago, I praised the common core standards for raising the bar and establishing greater accountability in reading, math and writing. I also saw them as making the U.S. more globally competitive; after all I am President of the Thunderbird School of Global Management, an international business school. I also made it clear in my comments that teachers deserved our support and additional training from their local districts for common core’s implementation.
What I said in my NPR response was inadequate. Recently I served on an Arizona education panel for the Greater Phoenix Chamber of Commerce. As we panelists were asked about common core, I recognized the inadequacy of my earlier response to questions about common core. My response should have included an additional element beyond common core’s implementation and training for teachers; I should have called for education for business leaders and more specific, alternative language for business leaders to use when talking about their support for common core.
Why education and alternative language for business leaders? A little background: it was in 1996 that a group of business leaders and a bipartisan group of governors, not the Obama administration, took the initiative for common core. They called for standards-based education across the states to make our economy more competitive, and they formed Achieve, an independent, bipartisan organization to lead the effort. Because I know Craig Barrett, the Chair of Achieve’s Board, I learned about its direction and the initiative earlier than much of the public.
What has happened since 1996 is appreciated by many of us in education and business. We have admiringly watched Achieve lead in raising standards, state by state, but within the context of a state’s own initiatives. We have followed the development of standards that improve students’ readiness for college and work. Now almost two decades later, we are in the implementation stage of common core.
Why, then, are common core standards being labeled as driven by Obama, part of some “progressive movement,” or labeled by a few as reminiscent of the Hitler era? I confess that I never expected this outcome. But the likes of it reminded me when I served on the local education panel that all of us who want to see better U.S. education have to focus far more of our effort on non-educators if we are to raise accountability in our schools and U.S. competitiveness of our labor force.
It is essential that we stop using vague labels like “common core.” Instead we must return to language that can be understood. What we are really talking about is better preparation of K-12 students for work and college. What we are talking about is raising school accountability. What we are talking about is expecting more from our teachers. I failed to say these things when I spoke to my local NPR affiliate. I thought others understood that common core standards did not emanate from the Obama administration. I thought the public understood the role of common core in raising standards and increasing college and work readiness. I thought the public understood that common core standards would raise demands for what our teachers did. I was wrong.
Some states have gotten the message. They are doing a better job than I did. Tennessee, my home state, has created TNCore where the public can find out about common core and read the history and purpose of this important initiative. Every state and community that hopes to be successful in raising the bar on expectation for students in reading, writing and math must develop a plan for educating the public and training business leaders in talking – not about common core – but about accountability, expectations for teachers, and readiness of graduates for work and college. This is what I should have said.
This week’s Senate hearings for the new head of the Federal Energy Regulatory Commission (FERC), Ron Binz, former Colorado Public Utilities Commissioner, deserve the public’s attention because of the role that FERC will have on consumer prices for energy.
It will be a challenge to make the issues from the hearings clear because most of the public is unaware of even the existence of FERC. Before the Bush administration, FERC drew little attention but its power grew under President Bush, and that position of increased power has continued under the Obama administration. As a part of the Energy Policy Act of 2005, FERC was revitalized and given responsibilities for establishing and strengthening the smart grid, the integration of renewables along with the responsibility for the regulation of natural gas, liquefied natural gas terminals, natural gas pipelines, and interstate transmission of electricity.
With a broad-based charge, the Commission has the capacity to affect the costs of electricity and the prices ultimately paid by the consumer. Much of the direction that FERC takes will depend upon the assumptions it adopts about energy sources and future change to energy policy. Because Mr. Binz has a long history in the industry, he has left the public with an understanding of his own assumptions and the direction he may take as the head of FERC. For example, he is an author of Practicing Risk-Aware Electricity Regulation: What Every State Regulator Needs to Know. This report is available from Ceres, a nonprofit organization advocating for sustainability leadership.
The report focuses on how regulators and utilities make decisions relative to risk. The fundamentals of the report are straightforward; decisions are always fraught with risk, and the decision-maker, e.g., a utility, has a responsibility to moderate risk, based on assumptions about the future. What are the assumptions that Mr. Binz will make about the future?
Among them is that renewable sources of energy, like solar, will receive government incentives for their use, that additional federal regulation will be imposed on fossil fuels, that the supply of natural gas is volatile, and that the likelihood of price increases for a low carbon fuel like natural gas is moderately high. The report states, “the authors expect that the scientific evidence of climate change will eventually compel concerted federal action that greenhouse gas emissions will be costly for fossil-fueled generation.” While the scientific evidence for the impact of fossil fuels on climate change is increasingly clear, the validity of these assumptions is questionable.
Here are some of the reasons why the assumptions may be faulty. First, technology associated with solar technology is advancing, making it more likely in the future that solar energy may become increasingly affordable without the need for government incentives. Second, the impact of fossil fuels on the release of atmospheric carbon is varied. For example, natural gas is a relatively low contributor to atmospheric carbon when compared with other fossil fuels. Third, known reserves of natural gas from shale are vast and the carbon footprint for natural gas is relatively low (see EPA Study Provides Striking, Favorable findings for Natural Gas). Thus, the likelihood that natural gas prices will raise is constrained by the increasingly available supply of natural gas. Moreover, the lower carbon footprint of natural gas makes it a likely continued choice by energy generators, even in the face of the evidence for climate change.
Assumptions matter when assessing risks in decision-making. FERC can make decisions that matter for consumers. Consumers are well advised to pay attention to the Senate hearings this week on the new head of FERC. The outcome of the hearings will likely affect consumers’ wallets and energy production for years to come.
The US Government has just released data that confirm the growing role of natural gas as a source of energy in the US. The growing role of natural gas is especially important because of its relatively lower production of atmospheric carbon when compared with other fossil fuels (see Penley On Energy and Education). It is also important as a factor associated with the U.S. becoming increasingly reliant on its own energy sources and more energy independent.
We have seen considerable growth in domestic production of energy, including natural gas. This shift to greater reliance on domestic production of energy is possible because of recent technological developments, including those that have allowed energy companies to extract natural gas from shale in the U.S., using a process called hydraulic fracturing.
The Federal Government’s short-term report, released August 6, indicated a continuing trend upward in the U.S. production of natural gas with production projected to increase another 1% from 2012 to 2013 and 2% between 2012 and 2014. This modest but continuous increase comes as imports of natural gas have continued to decline over a 5-year period.
Prices for natural gas have risen somewhat, based on average future prices of $3.58 for November 2013, compared with an average of $3.26 in November 2012. There are many potential reasons for the move upward in prices. Among the reasons reported were the heat wave in the northeast that increased demand for natural gas during the summer of 2013.
Another factor contributing to the rise in prices is the continued pipeline capacity restrictions. Despite recent additions to capacity, we are still seeing restrictions that impacting price and pushing it upward.
Demand for energy, including natural gas, is also increasing as a result of the improvement in U.S. economic conditions. New orders for manufactured durable goods rose 4.2 percent in June, and sales of new single-family homes increased by over 38 percent from June 2012 to June 2013, and 8.3 percent from May 2013 to June 2013.
All these factors are contributing to the U.S. economic boom for natural gas developed here at home and helping to increase the marketplace for this increasingly desirable fossil fuel. The future of U.S. energy independence lies with the growth and development of natural gas as a primary source of energy.
It’s no surprise that Higher Education has been my professional home for most of my career. I have made it so because higher education matters for our economic prosperity and our quality of life. I have also made it so because the intellectual life is attractive. But higher education’s importance is why I have expressed concern about how little changed it is, especially in light of so much other global change since my days as a graduate student almost 40 years ago.
This is not to say that there has been no change in 40 years. Tuition is substantially higher. The for-profit sector along with state governments has made more choices widely available. Higher education is no longer just for the elite. Adult reeducation has continued to increase. Graduation rates have declined. Post-college debt loads of graduates are way too high along with accompanying too-high default rates. Online courses and online degrees are becoming more commonplace – and acceptable, and it has become increasingly hard to find a traditional course at even the most elite universities that does not include some digital, e-learning resources.
So why is the American higher education system so little changed – overall and in more positive ways? Why has innovation been so constrained? There are many reasons. Most of them stem from core institutional aspects of higher education. Here are a few reasons – and some innovative remedies.
With all the new development and changes we are still seeing faculty educated much the same way they were centuries ago – with lengthy, intensive doctoral programs. Study in a traditional doctoral program focuses primarily upon research rather than teaching. The experience is characterized by close collaboration with a single mentor – the major professor. The experience for those of us who have been through it is often frustrating but life changing. Then there is the experience as an assistant, untenured professor, again little changed since my days. This is a time where research is still the focus, despite teaching responsibilities.
Colleges and universities – at least the overwhelming majority of traditional ones – remain structurally very similar to my experience of 40 years ago. They are still places of shared governance between administrators and faculty. Shared governance in and of itself can be a value, but complex decision-making processes directed toward protecting individual faculty and departmental interests do not serve the student and public well. The low level of innovation, the lack of focus on employers’ needs from graduates, and the infrequent change to curricula, learning methods and degree programs are all testimony to the more negative aspects of what is a protracted academic decision-making process that is the norm and expectation.
What is also limiting to innovation – and surprising to some – is the too-frequent absence of institutional leadership for innovation. Whenever someone talks about leadership, one usually refers to “the leader.” In the case of higher education that leader is presumed to be the president or chancellor. But as one long-time university president and friend of mine stated, the president is at the bottom of a pyramid in the decision-making structure of a traditional, faculty-driven institution. Leading from below or behind is hard. Moreover, presidents and chancellors usually lack the independence of a corporate CEO or lack the close collaboration between CEO and a small, focused board that can align around innovations. And innovative leadership from higher education demands alignment of committed boards with visionary presidents and chancellors.
However, board structure, CEO leadership and a collaborative faculty-administration relationship cannot assure innovation. Stakeholders’ interests challenge it in higher education. For that matter, stakeholders count in all organizations’ change efforts. Employees can block change because of fear of transformed reward structures. Customers block change by their choices and preference for product and service. But for higher education, there are additional layers of stakeholders, including students, alumni, employers of graduates, and, in the case of state institutions, the public taxpayers whose taxes provide some proportion, although much smaller than before, of the institution’s budget. Not surprisingly, finding alignment among this complex array of stakeholders is a challenge. Moreover, stakeholders have varying degrees of knowledge of the state of a given institution and its market. It is no surprise that, without adequate market information and inside information about the condition of a school, they limit innovation as well.
With innovation so dependent on board and CEO alignment and so constrained by faculty preparation, decision-making traditions, and stakeholder interests the likelihood of increased innovation is low. Still there are ways to innovate in Higher Education. The Hudson Institute presented a wide-range of remedies to the lack of innovation in higher education. Its report, Beyond Retrofitting: Innovation in Higher Education, was not very surprising in some ways but the range and focus of the recommended changes were. The report included stepping back from some recent, new federal regulations: (a) the creation of a definition for a credit hour in the face of dramatically different eLearning and (b) the requirement that institutions seek state-by-state authorization for a state’s citizens to enroll via the internet in an online course. The recommendations also included changes to accrediting bodies with further shifts toward measuring outcomes like graduation and employment rather than inputs like planning and particular curricula. The recommendations also called for increased acceptance of four basic principles: (1) an outcome focus, (2) openness to new providers along with the traditional, (3) unbundling research from teaching and student services from learning, and (4) a more competency-based assessment process that enhances portability.
Innovation is challenging, but the U.S. is seeing its competitive position eroded by countries that invest more in research and eduction, that have higher college graduation rates among citizens, and whose value for education is higher. Whether one accepts all recommended changes of the Hudson Institute report, considering them and calling upon accrediting bodies, boards, and institutions, themselves, to pursue them is very much in our interest – and in the interest of innovation.
Higher Education has been my professional home for most of my career. For the most part, it is little changed from my days as a graduate student almost 40 years ago, especially in traditional non-profit colleges and universities. Teachers are still mostly responsible for their own classes with little external interference. Most students still use physical textbooks; lecture classes are still the routine for classes, and classes are often much larger in size than 40 years ago. Students in a given class still study at the same pace with the same material irrespective of their level of preparation and what might best meet their needs. And faculty are, for the most part, still responsible for teaching, research and service in almost equal proportions, just as they were 40 years ago.
There are differences, of course. There are more options among colleges today – from specialized to liberal arts to mega-universities and from the public sector, the private, nonprofit sector and the private, for-profit sector. The percentage of youth going beyond a high school degree has increased significantly as has adult reeducation. States have continuously added new colleges and universities in more statewide locations, and community colleges have proliferated and grown larger than before.
Over that timeframe, a few less desirable changes have also become evident. Tuition is much, much higher. While we have seen an increase in participation rate in colleges and universities, the graduation rates have declined. A swirling phenomenon of students’ transferring back and forth among institutions has occurred where we see multiple changes in majors but no degrees being conferred. With the rise in participation rate and the rise in tuition, we have also watched a growing number of young – and not-so-young adults – with very high post-college debt loads.
Learning has also changed somewhat in the last 40 years with the expansion of traditional options and the growth of non-traditional avenues. There has been tremendous advance in online courses and online degrees with non-traditional, for-profit colleges leading the way with online education. The expansion of online education is also occurring in traditional schools that often form an alliance with a for-profit services organization like Pearson. These alliances have permitted traditional schools to compete with the for-profits, but they generally protect the traditional core so that faculty and students appear little changed from 40 years ago. This change has made it increasingly difficult to find a traditional course at even the most elite universities that does not include some form of digital, e-learning resource.
So with all these developments why is American higher education so little changed? Why has innovation been so constrained? There are many reasons. They include the way faculty are educated, the medieval decision-making structure of these institutions, the lack of leadership – from presidents, chancellors and boards, and the influence of a complex set of stakeholders with vested interests in keeping the system the same.
If we are to see improvement in higher education – lower tuition, better graduation rates, adapted learning, and better learning outcomes – we must understand what prevents change. With that understanding, interventions are then possible, and intervention is essential – for the good of higher education, for the good of America, and for the good of our economy. There is more to say about this topic in the next few days.
The evolution of the energy industry is a change that has been evident for some time now. Shifts in energy demand from developed countries to developing countries continue to expand and what is most apparent is the shift in the mix of energy sources under demand. While demand for renewable energy has not grown very rapidly, it is becoming a larger part of the energy consumed. As Penley on Education and Energy has previously reported, consumption of energy from renewable sources has doubled in many parts of the world, including developing countries.
Still, it is the demand for “clean energy” that is changing at a rapid rate. While clean energy includes renewables, it is increasingly represented by a shift from oil to natural gas. A recent piece by The Economist titled “Yesterday’s Fuel” highlighted this shift from oil to natural gas and the concept of reaching “peak oil”. The Economist argues that consumers will reach “peak oil” consumption soon. In recent years, there has been much discussion and debate on the peak in available oil, an argument that has been a repeatedly discounted over the years as more reserves have been discovered and formerly inaccessible reserves have become available through new technology.
What is different, reports The Economist, is the shift in consumption, essentially having created a peak in demand for oil rather than a peak in its supply. Penley on Education and Energy has repeatedly described the growth in known resources of natural gas, our recently acquired access to those sources via hydraulic fracturing, and the more favorable impact of natural gas on the environment. Natural gas produces substantially lower atmospheric methane and carbon, two major sources of environmental change.
What is especially new in The Economist’s article, Yesterday’s Fuel, is the geopolitical implications of the shift in the mix of energy consumption. The Economist highlights the impact that this potential shift from oil to natural gas will have on the global balance of power. The piece notes that the Saudis have the capability to increase production, lowering the price of oil, and slowing the shift to natural gas, however, the changes in transportation and power generation will gradually make oil less desired, even at a somewhat lower price than natural gas. Moreover, the power shift will swing the energy influence to Russia and the U.S. With decreased dependency on oil, Russia’s potential for dominating its consumer’s declines. And the U.S., with its very large reserves of natural gas, will continue on its way to energy independence. This newfound energy independence makes the U.S. far less vulnerable to foreign decision-makers.
Lowering U.S. vulnerability to foreign powers will be welcomed benefit here at home while increasingly clean energy use will be applauded globally. The energy industry has been in a state of considerable change for some time. An increasingly decentralized and complex industry along with substantial changes in energy sources consumed will alter the landscape in the next decade. Most of this change will be welcomed, even by traditional energy giants that have already made substantial changes to their supplies and marketing.
President Obama’s remarks at Georgetown make certain tax reforms essential for achievement of his goals. In his remarks, Mr. Obama highlighted the role that technology plays in our energy future. New technology has yielded the drilling advances and extraction capability linked with America’s growing supply of natural gas and oil. Additional new energy technology will come not only through federal research grants but also from R&D done in the private sector. New taxes on the energy industry, in both the traditional oil & gas segment, as well as the renewable sector, will only take away money from areas that support R&D. Historically, the energy industry has sought out new and innovated technologies that increase energy capability and development which benefit everyone.
The President noted the benefits that the U.S. is receiving from the technological advances that have led to growth in the supply of natural gas. Observing that there are criticisms of natural gas extraction, the President stated, “We should strengthen our position as the top natural gas producer because, in the medium term at least, it not only can provide safe, cheap power, but it can also help reduce our carbon emissions.” The lower carbon intensity of natural gas is one of its considerable advantages (See Penley on Education and Energy – EPA Study Provides Favorable Findings for Natural Gas).
In addition to the role that new technology has played in unlocking the enormous U.S. supply of natural gas, technology is also making a considerable difference in other energy areas, e.g., efficiency of photovoltaic cells for the production of solar energy, oil sands technology and high efficiency carbon capture. The latter area of technology development becomes especially important to mitigating climate change from atmospheric carbon in that fossil fuels, as Mr. Obama observed, will be around for many years to come.
Accomplishing the President’s goals, however, makes policy change essential. Among the most valuable policy changes for incenting new energy technology is tax reform associated with R&D tax credits for U.S. companies. This type of reform was called for in a bipartisan report from the American Energy Innovation Council (AEIC): Catalyzing American Ingenuity: The Role of Government in Energy Innovation. Without broadly drawn R&D tax credits that are generally applicable to the energy industry that do not have limitations to just the renewable energy sector, it is unlikely we will achieve the President’s goals.
The AEIC has linked a viable U.S. energy policy directly to the economic health of the country. AEIC pointedly notes that underinvestment by the private sector in new R&D in energy limits U.S. economic health. As the report detailed, U.S. underinvestment in energy R&D occurs as a result of the capital-intensive nature of the energy industry, the need for large up-front investments with slow turnover in capital assets, and the imperfect energy market leading to slow adoption of new technology.
R&D tax credits have historically been subject to repeated expiration with uncertainty about their renewal or the timetable for renewal. That uncertainty limits the development of new technology in capital-intensive sectors like energy. Moreover, R&D tax credits have been targeted at specific segments of the energy industry like wind and solar. This practice of targeting specific segments of the industry limits the development of widespread new energy technology. The consequence is that the historic underinvestment by the U.S. energy industry hampers the development of a broad range of new technology — from innovative sources of renewable energy to innovative technology for capture and sequestration of carbon to cheaper and more widely available sources of cleaner fossil fuels like natural gas.
The President’s remarks at Georgetown were about more than climate change; they addressed the need for policy that will advance the development of innovative energy technology. They make the case for the President to address tax reform with specific attention to the issue of R&D tax credits that will encourage an industry that is critical to our economic health.