Re-shaping the Department of Energy in Obama’s Second Term: Institutional Reform Goals

Originally posted at Forbes.

As my colleague Clifton Yin and I have written recently, U.S. clean energy innovation policy is at an inflection point. The decisions made in the coming months and years will shape America’s ability to address its climate and energy challenges as well as its international competitiveness in the clean tech industry. As such, advocates are rightly focused on creating new clean energy policies through Congressional action (see the debate on a carbon tax). Yet in the melee of federal sausage making, only minor attention has been paid to reforming the Department of Energy (DOE) as a potentially significant way of boosting support for clean energy.

Reforming DOE has been the source of continued, wonky debate since its creation in 1977. DOE last saw institutional change four years ago when current Secretary of Energy Steven Chu implemented a number of new programs like ARPA-E, the Innovation Hubs, and Energy Frontier Research Centers (EFRCs), aimed re-invigorating DOEs investments in clean energy. DOE also undertook its first Quadrennial Technology Review (QTR) to comprehensively assess the state of energy technologies. And the Department continues to implement the President’s Memorandum on Technology Transfer to accelerate the development of new ideas from Lab to market.

Without a doubt these changes have provided DOE with a new set of flexible tools to support technological innovation. Now it’s time to cement these changes as part of a long-term re-shaping of the Department. The President and the Secretary of Energy should continue the reforms of the last four years, but also continue reforming DOE to make it a well-oiled engine for clean energy innovation. In particular, the following DOE “institutional reform” goals should be addressed in a second term:

Make Energy Innovation the Mission of DOE. Cleantech private equity investor Rob Day opined at Greentech Media that the DOE “needs to transition from a focus on technological innovation (without losing the progress made there) to a focus on commercialization and consensus-building.” While Day proposes some very good policy ideas, shifting DOE’s focus away from fostering innovation is the wrong overall goal.

Part of the problem is conceptual. Commercializing emerging energy technologies is deeply integrated in the innovation lifecycle. In other words, commercialization is still research and innovation just with an outcome in mind. For example, DOE provides a nice example here of the myriad of collaborative research support it provided to commercialize NiMH Batteries. Thus it’s difficult to assess how DOE would focus more on commercialization and less on innovation.  They’re one in the same.

The rest of the problem is organizational. Believe it or not, the word “innovation” isn’t even mentioned in DOE’s stated mission. The reason being – as Day correctly points out – is that the DOE is a massive organization with different missions ranging from nuclear security, science, environmental clean-up, and energy technology development, each often pulling in different directions.  Creating a more efficient DOE explicitly focused on energy innovation (and not just re-focused on commercialization) should be the top institutional reform goal of the Secretary of Energy and the President. It’s no easy task, of course, and will take more than changing the mission statement on the agencies website. But it’s a worthy goal for the President’s second term that would have long-lasting, positive consequences for the clean energy industry.

Eliminate DOE-wide Energy Innovation Micromanagement. For many (but not all) DOE energy technology programs, funding decisions are broken up into relatively small packets with strings attached to very specific research outcomes. Put another way, DOE often dictates the path of energy research, which limits scientists and engineer’s flexibility to solve problems and come up with the best solutions because the solutions are often attached to the funding contract. For example, instead of funding contracts to increase the energy density of lithium-ion batteries for vehicles, it’s better for DOE to set the broad goal of developing cheap, scalable zero-carbon vehicle technologies and fund National Labs, Universities, and public-private partnerships on a competitive basis to meet this goal.

The Energy Innovation Hub’s aimed to solve this very issue by leveraging larger funding contracts to support collaborative teams aimed at developing solutions to broader research goals. For example, the Sunlight to Fuel Hubis tasked with coming up with innovative ways of converting sunlight into fuel, rather than DOE funding very specific technological solutions. ARPA-E utilizes a similar project management model. This funding culture should be implemented broadly across all energy programs, not just the Hubs and ARPA-E.

Unleash the National Labs by Strengthening the GOCO Model. The National Labs – the 17 DOE Labs largely born out of the Manhattan Project – represent America’s largest investment in energy innovation. The Labs also represent a unique management model[i] in which the federal government owns, funds and stewards the Labs, but independent contractors manage them on a day-to-day basis (otherwise known as Government Owned, Contractor Operated, or GOCO). It offers management flexibility as well as consistent federal funding for research, a good recipe for innovation.

Yet the Labs effectiveness has started to wane overtime because of the gradual weakening of the GOCO model. Increased funding micromanagement doesn’t allow Lab contractor management or scientists and engineers the flexibility needed to solve science and technology problems. And rigid DOE oversight of contractor management decisions is resulting in prolonged decision making and inefficiencies that are stopping contractors, scientists, and engineers from making the best project decisions based on research.

It’s time for the President and the Secretary of Energy to take a hard look at the National Labs and begin implementing reforms to strengthen the GOCO model. Of course, this isn’t anew topic among federal policymakers. Just last year the DOE Inspector General called for substantial changes at the Labs. Nonetheless, it’s an important policy issue that is crying out for reform and comes at a key time in American energy policy, in which we need much more innovation to make clean energy cheap and viable, not less.  The status quo simply isn’t working anymore.