Our friends at the Brookings Institution have a new paper out today titled Leveraging State Clean Energy Funds for Economic Development that I encourage you to read. Here are the key recommendations:
To become true economic development engines in clean energy state clean energy funds should:
- Reorient a significant portion of their funding toward clean energy-related economic development
- Develop detailed state-specific clean energy market data
- Link clean energy funds with economic development entitites and other stakeholders in the emerging industry
- Collaborate with other state, regional, and federal efforts to best leverage public and private dollars and learn from each other’s experiences
The paper also profiles our partner The Massachusetts Clean Energy Center, highlighting its role not just investing in projects, but in groundbreaking technology:
MassCEC has been smartly and strategically leveraging the funds each year to invest in clean energy companies through its various programs, which have been designed to follow a company’s growth from inception through to technology commercialization…In this fashion, MassCEC is making direct investments in game-changing clean energy technologies. These investments are helping clean energy companies establish themselves in the state, with a further benefit of attracting both human capital and other companies to grow the state’s clean energy industry.
Brookings is wise to urge states to invest in innovation, rather than just in projects and existing technologies (although that’s important.) Their plea:
State clean energy funds’ emphasis on a project finance model—which directly promotes clean energy project installation by providing production incentives and grants/rebates—is by itself not enough to build a statewide clean energy industry. State clean energy funds also need to pay attention to other critical aspects of building a robust clean energy industry, including cleantech innovation support through research and development funding, financial support for early-stage cleantech companies and emerging technologies, and various other industry development efforts.
One thing that’s helpful to clarify is the scale here. I recall at least one conversation with a colleague at a different think tank in which we were discussing the extent to which states could make up for an innovation gap at the federal level. Brookings reports that clean energy funds exist in over 20 states and generate $500 million annually (from utility surcharges and other sources). So if funds like this were set up in every state we could imagine this being at least $1 billion yearly. To put that in perspective, ARPA-E has been funded on the order of about $200 million a year (though proposed budgets have suggested both lower and higher), and we spend an estimated $5 billion on energy innovation annually.
UPDATE: Via the Breakthrough Institute I’ve been made aware of a nuance in these numbers. Brookings: “Over the last decade, state CEFs have invested over $2.7 billion in state dollars to support renewable energy (RE) markets while leveraging another $9.7 billion in additional federal and private sector investment…” So $270 million is the rough annual amount for state clean energy fund spending in aggregate. /update
To me, this indicates that states have a very meaningful role to play in funding energy innovation. And they can provide a much-needed boost during periods of federal gridlock. But they shouldn’t be asked to do it on their own. Expanded federal funding remains essential.
In any case, this paper is a wonderful contribution. Thanks to Mark Muro and Brookings for the great work.
UPDATE: Via Twitter, someone mentioned CA’s advantage. I got curious and did a quick comparison between MA and CA on both a population and a GDP basis and it seems CA does in fact enjoy a substantially larger clean energy fund, no matter how you slice it.
Sources: Google, Brookings, BEA
