“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. To the naive mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions … adaptation to the unknown can be achieved more effectively by decentralizing decisions…. Yet that decentralization actually leads to more information being taken into account.”
– F. A. Hayek, The Fatal Conceit: The Errors of Socialism (1988), p. 76.
Stephen Chu, Secretary of the U.S. Department of Energy (DOE), announced last week his intention to step down once a replacement is found. His 3,800-word resignation letter should be critically studied by students of energy policy and, indeed, public policy more generally.
I offer ten critical points to bear in mind as Chu’s letter is read (other points can be added in the comments section). The first five are general; the last five are specific to energy/energy-environmental issues.
- Public policy should be judged by results, not intentions.
- Public-sector “servants” are not morally superior to the rest of us. As another Nobel Laureate posited: “Individuals who behave selfishly in markets can hardly behave wholly altruistically in political life.”
- Beware of the “fatal conceit” whereby the government planner believes he has superior knowledge to the decentralized market, allowing him to make socially optimal decisions.
- There is non-market (government) failure, not only “market failure.”
- Those in the coercion business should be judged guilty until proven innocent, not the other way around, because persuasion rules in a free society.
- “Green energy” is kept alive by a variety of government mandates (quotas; tax breaks), not only loan guarantees.
- Early DOE loan-guarantee failures likely will be joined by later failures, despite a variety of special government favors keeping the ethanol, wind power, and on-grid solar power markets active.
- The federal budget deficit has been exacerbated by the DOE.
- DOE has an opportunity cost in that the agency’s resources have come from the private sector. Any public-sector “good” must be compared to the foregone private-sector good.
- Climate science is now focusing on a lack of predicted warming; modest future warming has significant economic and ecological benefits, not only costs.
Serving the country as Secretary of Energy, and working alongside such an extraordinary team of people at the Department, has been the greatest privilege of my life. While the job has had many challenges, it has been an exciting time for the Department, the country, and for me personally.
I’ve always been inspired by Dr. Martin Luther King, who articulated his Dream of an America where people are judged not by skin color but “by the content of their character.” In the scientific world, people are judged by the content of their ideas. Advances are made with new insights, but the final arbitrator of any point of view are experiments that seek the unbiased truth, not information cherry picked to support a particular point of view. The power of our work is derived from this foundation.
This is the approach I’ve brought to the Department of Energy, where I believe we should be judged not by the money we direct to a particular State or district, company, university or national lab, but by the character of our decisions. The Department of Energy serves the country as a Department of Science, a Department of Innovation, and a Department of Nuclear Security.
I have worked each day to move the Department in a direction where the political leadership and highest levels of career managers have the intellectual curiosity and wisdom to learn from the people who reported to them and where the subject matter experts – which should include managers at the highest levels – as well as employees at our national laboratories welcome their counsel and help. I grew up and matured in organizations where a graduate student or staff scientist could have a discussion with a company department head, a professor, a national lab director and be heard, not because of their rank in the organization, but because of the quality of their ideas.
I came with dreams, and am leaving with a set of accomplishments that we should all be proud of. Those accomplishments are because of all your dedication and hard work.
- Four years ago, ARPA-E was a vision described in the report, Rising Above the Gathering Storm. I was a member of that committee, but never dreamed that I would be asked to take the concept to reality. ARPA-E was designed to support high-risk, high reward technology development; to swing for game-changing home runs that can fundamentally transform energy technologies. The program has earned the respect of industry and academia for its outstanding funding choices, and active, thoughtful program management.
- Its success was the result of the assembly of an extraordinarily talented group of individuals. This team would engage in active discussions that spilled into the evenings. They challenged each other with honest and frank discussions over their competing programs, and created an ARPA-E fellows program that was able to recruit some of the best recent graduates.
- What have been the early results? ARPA-E was described by Fred Smith of Fed Ex in his ARPA-E Summit Keynote address that in his opinion, ARPA-E was best government funding program he has ever seen. In the first few years, 11 of the companies funded with $40 million dollars have attracted more than $200 million in combined private investment. While it is too early to tell if we have home runs like ARPA-net, there are a number of investments that have certainly rounded second base.
- The spirit of ARPA-E is now being disseminated in other parts of the Department. The first transplant was a completely revitalized solar photovoltaic program that was dubbed SunShot. A small cadre of enthusiastic individuals led a transformation. Unsolicited feedback from industry and academia alike noted the dramatic increase in the quality of the program with essentially no increase in budget. One of the founding members of ARPA-E is now the Assistant Secretary of Energy Efficiency and Renewable Energy (EERE). Remarkably, a recent Forbes article described the changes now in progress with the lead, “quiet clean energy innovation revolution at the Department of Energy,” and noted “a leap in the right direction and absolutely critical to creating a more flexible, innovation-focused DOE mission.”
- I would love to describe what has been happening in many other specific areas of the Department, but my message would fill many more pages. In the last two years, we have issued two Grand Challenges to innovators in industry. The SunShot Challenge called for reducing the full cost of utility scale solar energy to $1/watt, which roughly equates to a levelized cost of electricity (LOCE) of 6 cents/kWh without additional subsidies created for the solar industry. This is close to the projected EIA cost of natural gas and the anticipated LOCE on a new natural gas electricity generator a decade from now. When we first discussed this goal, industry did not take it seriously. Today, they tell me that our input challenged them to rethink their road maps and now agree that it is an achievable goal.
- The President announced an EV Everywhere Challenge, with the goal to achieve plug-in hybrids or EVs with a 100 mile range at the same cost of owning and operating a comparable sized internal combustion engine car with 40 miles/gallon for 5 years.
- The batteries developed for plug-in EVs will also revolutionize the electrical distribution system and the use of renewable energy. Wind energy is already expected to reach grid parity in less than a decade. Unless we develop new business models with utility companies and other stake holders, we will not be able to take full advantage of the accelerating pace of technology.
- We’re also forging stronger partnerships with industry to give America’s innovators and entrepreneurs a competitive edge in the global marketplace. We have held workshops with industry in materials, computation, solar PV, plug-in electric vehicles, and many other areas to actively engage companies to take better advantage of the Department’s capabilities — from our extraordinary user facilities to our scientists and engineers. In addition, numerous industry leaders have told me of a new found appreciation of our “convening” role in many areas of energy innovation, including innovations in energy finance. Going forward, this convening role and intellectual brainstorming sessions with industry will be increasingly valuable.
- The Department has made significant progress in breaking down the walls between our basic science and applied science programs. The Office of Science and the Applied Energy programs have collaborated from the beginning in the design of Funding Opportunity Announcements. So-called “Tech teams” that span Energy, Science and APRA-E have started to meet regularly in areas such as solar energy, electricity transmission and distribution, computation, and biofuels. Brainstorming sessions where young scientists are encouraged to share ideas and joust with Department veterans have begun.
There are also far more tangible signs of success.
- In the last four years, the production of clean, renewable energy from wind and solar has doubled – driven in part by our Administration investments in the development and deployment of the latest technologies. Installations of solar photovoltaic systems have nearly doubled in each one of the last three years, exceeding 1.8 gigawatts in 2011. According to AWEA, last year 42 percent of new energy capacity in the U.S. was from wind – more than any other energy source.
- In addition to our approximately $25 billion annual budget, we were entrusted by Congress to make a $36 billion investment through the Recovery Act to help ensure that the clean energy jobs of tomorrow are being created here in America today. And we made this investment with a robust review process that brought a new level of expertise from inside and outside the Department to ensure that decisions were based on the merits of each applicant.
- The Department has helped one million low income homeowners weatherize their homes. We launched the President’s Better Buildings Challenge which has secured $2 billion in commitments from more than 100 major companies, universities, hospitals, retailers, cities and states to upgrade 2 billion square feet of commercial and industrial space by 2020. To put that in perspective, that’s more than 400 times the square footage of the Sears Tower.
- We administered a loan program authorized by Congress in the previous administration. The program generated a portfolio of loans and loan guarantees to 33 clean energy and advanced automotive manufacturing projects that will support 60,000 jobs and generate $55 billion in economic investment. Energy and infrastructure loan programs first put into action in the last four years are being replicated by numerous other countries around the world.
This portfolio includes:
- More than a dozen auto manufacturing plants built, reopened, or retooled – from Michigan to California to Tennessee – helping our auto industry compete and produce the next generation of American-made vehicles that will save consumers $1 billion a year on gasoline, including the first all-electric vehicle manufacturing plant in the world in Tennessee.
- The first national scale rooftop solar project that will include commercial buildings in up to 28 states
- The first nuclear power plants in the last three decades
- Wind farms, solar photovoltaic and concentrating solar power plants that will be among the largest in the world.
In the last two years, the private sector, including Warren Buffett, Bank of America, Wells Fargo and Google, have announced major investments in clean energy. Originally skeptical lenders and investors now see that renewable energy will profitable. These investors are voting where it counts the most – with their wallet. As one CEO recently commented, “Solar is now bankable. When solar was perceived as more risky it required a premium.”
Through the Recovery Act, the Department of Energy made grants and loans to more than 1,300 companies. While critics try hard to discredit the program, the truth is that only one percent of the companies of the companies we funded went bankrupt. That one percent has gotten more attention than the 99 percent that have not.
The test for America’s policy makers will be whether they are willing to accept a few failures in exchange for many successes. America’s entrepreneurs and innovators who are leaders in global clean energy race understand that not every risk can – or should – be avoided. Michelangelo said, “The greater danger for most of us lies not in setting our aim too high and falling short; but in setting our aim too low, and achieving our mark.”
- For decades, the Department of Energy, and the Atomic Energy Commission before it, has laid the scientific foundation that has led to transformative discoveries that have been recognized by over eighty Nobel Prizes and trained over forty students and early career scientists (including myself) who have gone on the receive Nobel Prizes. Synchrotron light sources have transformed cancer drug discovery and the battery chemistry being installed to the Chevy Volt. To accelerate this progress, the Office of Science formed 46 Energy Frontier Research Centers (ERCs) in 2009. Those centers have published more than 2,400 peer-reviewed papers, produced 55 patent applications and filed nearly 125 additional patent/invention disclosures. Most importantly, they have made significant scientific breakthroughs in areas ranging from advanced battery technology and solar energy to solid-state lighting and nuclear energy.
- Building on the success of the Bioenergy Research Centers started by Sam Bodman, we launched a set of Energy Innovation Hubs that bring together a multidisciplinary team of scientists, engineers, and industry partners to work on energy challenges. These Hubs include the use of supercomputers to improve the safety and performance of nuclear reactors, the integration of materials, designs and systems for more economical, energy efficient buildings, and science that could lead to the direct conversion of solar energy into transportation fuels. In the last two years, we also announced Hubs to dramatically improve energy storage systems and one to address the supply and use of critical energy materials.
- During the past four years, the Department reclaimed the lead in high performance supercomputing. Much more importantly, we are working harder use the extraordinary capabilities to achieve our nuclear security, scientific research and industrial competitiveness goals. In the last several years, the DOE has collaborated with industry to eliminate expensive and time consuming engineering prototyping in applications as varied as simulations that have been used to optimize diesel and jet engines, tire treads and the safety of nuclear reactor fuel assemblies. This work adds directly to our industrial competitiveness and job growth in America. In the past two years, we have held several additional workshops specifically to foster industrial collaborations.
- We mobilized experts from the Department and our National Laboratories to play a key role in times of national need. The President personally tasked me to help BP stop the massive oil leak the resulted from the Deepwater Horizon disaster. Beginning with a small team of scientists and engineers that worked many long hours each day for three very intense months, we assessed the damage to the blowout preventer, and significantly mitigated many risks in the effort to cap, seal and ultimately kill the runaway well. Well over a hundred national lab employees toiled days, nights, weekends and holidays to perform detailed analyses that earned the respect and admiration of the BP engineers and undeniably changed BP’s plans for the better. In the course of these actions, the Department also played a major role in estimating the amount of oil that was released into the Gulf. Two and half years later, this estimate has stood the test of time and scrutiny.
After the Fukushima Daiichi nuclear meltdown, other teams of DOE scientists, engineers, and emergency responders acted with admirable competence, commitment and composure.
In the wake of Hurricane Sandy, the Department assisted FEMA to help speed the response effort. As the result of our collaboration during Sandy, FEMA has asked for the Administration to support the creation of a 24/7 energy emergency response center.
- The President tasked the Department of Energy Advisory Board to form a sub-committee to bring together a team of industry, environmental, and scientific leaders to recommend a path forward with industry and regulators to recover our vast shale gas resources in a safe, environmentally responsible manner.
- The Department played the crucial role in launching the Clean Energy Ministerial, in which more than 20 countries with more than 80% of the world’s GDP come together not to argue, but to share best practices. We are working to improve energy efficiency, speed the spread of renewable power and mobilize talent from around the world to advance the clean energy revolution. With the help of a dedicated team in the Office of Policy & International Affairs, we held the first meeting in Washington, D.C. The second and third meetings were in Abu Dhabi and London, and this coming April, the fourth will be held in New Delhi.
- We also fostered cooperative agreements that resulted in three US-China Clean Energy Research Centers announced by President Obama and President Hu Jintao. The agreements focused on (i) developing cost-saving building efficiencies, (ii) the development of clean coal technologies such as carbon capture, utilization, and sequestration, and (iii) clean vehicles. The program of $150 million is equally funded equally by China and the U.S., with half of the investments made by industry in each country.
- In keeping with Congressional direction to develop appliance efficiency standards, we have greatly accelerated the development and finalization of standards on more than 40 household and commercial products – standards that are conservatively estimated to save consumers a total of $350 billion through 2030.
- Our nuclear security teams have removed 1,340 kilograms of highly enriched uranium and 35 kilograms of plutonium from vulnerable sites throughout the world—enough material for approximately 55 nuclear weapons – including cleaning out 8 countries of all highly enriched uranium.
- The President secured ratification of the New Start Treaty, under which the U.S. and Russia agreed to further reduce the number of deployed warheads to lowest level since the 1950s – an 85 percent reduction from the darkest days of the Cold War. And over the last four years, we have worked with our partners to downblend more than 100,000 kilograms of weapons grade uranium from the former Soviet Union, converting it to peaceful purposes like U.S. civilian nuclear reactors. In fact, roughly 10 percent of America’s electricity comes from uranium that once threatened the United States as part of the Soviet nuclear arsenal.
- We made historic progress in cleaning up nuclear contamination leftover from the Cold War, reducing the total footprint by nearly 75 percent and permanently cleaning up 690 square miles of contaminated land—an area more than 30 times the size of Manhattan.
Despite this progress, the environmental clean-up projects still have considerable technical and project management challenges. As an example, the Waste Treatment and Immobilization Plant at Hanford is the most complex and largest nuclear project in history. For the past 6 months, I have been working with six extremely talented people, typically devoting 5-10 hours a week that include nights and weekends. We have also been working intimately with a restructured EM management team to overcome remaining challenges. We have invited ecologists in the State of Washington to join in our frank discussions and the DOE team is rebuilding trust that had broken down over the past decade. I am especially appreciative of Governor Gregoire for her trust and support over the past six months.
This team will continue working with EM and Washington State for months and possibly years. The scientific, engineering and management reform of the Waste Treatment Plant will continue, and I am optimistic that many of the issues that have been plaguing this project for over a half a dozen years will soon be resolved. We are also bringing in the scientific talent and commitment of many scientists and engineers that will allow us to fulfill our obligations more quickly and safely. As a consequence of this renewed effort, I predict that our country will potentially avoid hundreds of millions of dollars in additional costs over the coming decades.
I want to conclude by making a few observations about the importance of the Department of Energy missions to our economic prosperity, dependency on foreign oil and climate change.
- The United States spent roughly $430 billion dollars on foreign oil in 2012. This is a direct wealth transfer out of our country. Many billions more are spent to keep oil shipping lanes open and oil geo-politics add considerable additional burdens. Although our oil imports are projected to fall to a 25 year low next year, we still pay a heavy economic, national security and human cost for our oil addiction.
- The average temperature of our planet is rising, with majority of the temperature increase occurring in the last thirty years. During the three decades from 1980 to 2011, the number of violent storms, floods, droughts, heat waves, wildfires, as tabulated by the reinsurance company Munich Re, has increased more than three-fold. They also estimate that the financial losses follow a trend line that has gone from $40 billion to $170 billion dollars per year. Most of those losses were not insured, and the country suffering the largest losses by far is the United States. As the President said in his recent Inaugural Address, “some may still deny the overwhelming judgment of science, but none can avoid the devastating impact of raging fires, and crippling drought, and more powerful storms.”
- The overwhelming scientific consensus is that human activity has had a significant and likely dominant role in climate change. There is also increasingly compelling evidence that the weather changes we have witnessed during this thirty year time period are due to climate change.
- Virtually all of the other OECD countries, and most developing countries including China, India, Mexico, and Brazil have accepted the judgment of climate scientists.
- Many countries, but most notably China, realize that the development of clean energy technologies presents an incredible economic opportunity in an emerging world market. China now exceeds the U.S. in internal deployment of clean energy and in government investments to further develop the technologies.
- While we cannot accurately predict the course of climate change in the coming decades, the risks we run if we don’t change our course are enormous. Prudent risk management does not equate uncertainty with inaction.
- Our ability to find and extract fossil fuels continues to improve, and economically recoverable reservoirs around the world are likely to keep pace with the rising demand for decades. As the saying goes, the Stone Age did not end because we ran out of stones; we transitioned to better solutions.
- The same opportunity lies before us with energy efficiency and clean energy. The cost of renewable energy is rapidly becoming competitive with other sources of energy, and the Department has played a significant role in accelerating the transition to affordable, accessible and sustainable energy.
- Ultimately we have a moral responsibility to the most innocent victims of adverse climate change. Those who will suffer the most are the people who are the most innocent: the world’s poorest citizens and those yet to be born. There is an ancient Native American saying: “We do not inherit the land from our ancestors, we borrow it from our children.” A few short decades later, we don’t want our children to ask, “What were our parents thinking? Didn’t they care about us?”
Serving as Secretary of Energy during such a momentous and important time has been incredibly demanding but enormously rewarding. I’ve been continually impressed by the talent and commitment of the men and women of this Department.
While I will always remain dedicated to the missions of the Department, I informed the President of my decision a few days after the election that Jean and I were eager to return to California. I would like to return to an academic life of teaching and research, but will still work to advance the missions that we have been working on together for the last four years.
In the short term, I plan to stay on as Secretary past the ARPA-E Summit at the end of February. I may stay beyond that time so that I can leave the Department in the hands of the new Secretary.
The journey that I began with you four years ago will continue for many years. I began my message talking about my vision of what I wanted to do with the Department. Some of those goals have been realized, and we have planted many seeds together. Just as today’s boom in shale gas production was made possible by Department of Energy research from 1978 to 1991, some of the most significant work may not be known for decades. What matters is that our country will reap the benefits of what we have started.
It has been a great honor and privilege to work with all of you.