In the 1970s, refrigerators were growing in size—and energy consumption. In one of the more successful government-supported programs for energy-efficient technology, research and development of better compressors now have provided refrigerators that are larger still—but use roughly the same amount of energy as the smaller iceboxes of the past.

Similar examples of the federal government at work range from the creation of an industry for producing natural gas from coal seams to the ongoing Advanced Research Projects Agency–Energy (ARPA-E), a small-scale funding agency with outsized ambitions. As the U.S. faces what Secretary of Energy Steven Chu calls a "Sputnik moment" on energy—falling behind China and others in the race to develop clean energy technologies worth trillions of dollars—the question is: can the U.S. compete? And how?

"America still has the opportunity to lead in a world that will need a new industrial revolution to give us the energy we want inexpensively but also carbon-free. It's a way to secure our future prosperity," Chu said at a press event at the National Press Club in Washington, D.C. on November 29. But "I think time is running out."

Creating a coordinated review

A new report from the President's Council of Advisors on Science and Technology released on November 29 looks at how best to accelerate the pace of change in energy technologies. The report's primary recommendation calls for setting up a quadrennial energy review—analogous to the quadrennial defense review from the Department of Defense that coordinates national security policy. Such a review would holistically coordinate the multiplicity of ways various elements of the government address energy: legislation, executive actions, research and development funding, demonstration projects, subsidies, incentives, standards, regulations, purchasing agreements, even tax policy.

"We've had technology du jour events quite regularly. We've had tax incentives that are stops and starts," says physicist Ernest Moniz of the Massachusetts Institute of Technology, co-chair of the report, which recommends the DOE start the energy review process with an interim report by June 2011. "We just have to get something that is more stable."

The report also calls for a major investment in energy research and development as well as demonstration projects—jumping to $16 billion per year from roughly $5 billion now. As it stands, the U.S. spends roughly 0.14 percent of the federal budget on energy-related research. Including the comparatively small amount spent by the private sector, the total amount spent on research amounts to roughly 0.03 percent of the U.S. gross domestic product—a number three times smaller than the amount spent by Japan and far behind other nations as well.

One way to boost funds is new fees on the production and use of electricity and transportation fuels. Moniz notes that just 0.1 cent per kilowatt-hour of electricity and 2 cents per gallon of transportation fuels would yield about $8 billion per year, although such surcharges would need to be developed "with collaboration from industry and consumers. It's clearly easy to block something."

Game-changing targets

Ultimately, the idea is to fund innovation, broadly construed, with the aim of cost reduction for various clean energy technologies, ranging from better batteries for electric cars to carbon capture and storage at coal-fired power plants. "We are not interested in funding incremental work, we are interested in funding game-changing work," Chu said in his talk, noting the potential for the zinc-air batteries currently used in hearing aids to be scaled up into better batteries for electric vehicles. "There is the distinct possibility of giving [electric] cars that have a 100-mile range, a 500-mile range at one-third the cost."

Otherwise, the U.S. risks falling further behind in the race to dominate the clean energy technology markets of the future—becoming a customer, rather than a supplier. Other countries have specifically targeted this area. "We will accelerate the development of a low-carbon economy and green economy so as to gain an advantageous position in the international industrial competition," Chinese premier Wen Jiabao told the World Economic Forum in September 2009. "We will make China a country of innovation."

China has now become, among other things, the world leader in high-efficiency coal-fired power plants. "It's now competitive in terms of power per unit of investment, but you get a lot more power per unit coal," Chu noted. And the world's largest producer of photovoltaic cells—Suntech—imports raw materials from U.S. suppliers and manufactures its high-technology product in China.

At the same time, unlike the Sputnik space race with the Soviets, significant opportunity exists for the U.S. to collaborate with other countries. In coming years, China will be constructing buildings, cities, roads and transmission lines equivalent to the entire infrastructure of the U.S.—both a market opportunity for U.S. companies and a chance to determine the most effective technologies. "If we collaborate with China and India, we both come out better for it," Chu said.

Ultimately, getting energy policy right translates into environmental and national security improvements as well as economic development. "Energy is important because the economy is important, the environment is important, national security is important," says physicist John Holdren, director of the White House Office of Science and Technology Policy. "Energy is intimately intertwined with all three."

In fact, U.S. wealth creation over the last century has largely been driven by cheap energy and innovation, whether that be the invention of the airplane or integrated circuits. "Innovation is the key to prosperity and progress," Chu said, noting the key role government funding played in making the U.S. aerospace industry a world-leading enterprise. "You're making an expenditure because, in the long run, it's the future economic health of the country. That's not 20 years in the future; we're talking one, two, three years. We've got to make these investments."