Breaking Down the Federal Clean Energy Innovation Budget: Manufacturing Investments

This is the 5th and final post in a series analyzing and detailing federal investments in clean energy innovation. Part 1 defined “clean energy innovation.” Part 2 broke down the federal clean energy innovation budget. Part 3 took a look at federal investments in clean energy demonstration projects.  Part 4 took a deeper dive into clean energy deployment policies.

In the first post of this series, I called attention to the eminent need for supporting a well-developed and funded clean energy manufacturing sector as part of a robust innovation ecosystem. The feedback loops between manufacturing and research is explicitly linked. Even with all the R&D, demonstration, and deployment of clean energy, the United States could lose its competitive advantage over production resulting in the industry (and future innovation) to move overseas without strong policy support for advanced manufacturing. But like many other parts of America’s energy innovation budget, support for advanced manufacturing is rapidly declining.

The figure below shows that investment in clean energy manufacturing has fallen from nearly $9 billion to only $700 million between FY2009 and FY2012, or a 92 percent decrease. Direct spending in FY2009 and FY2010 was directly supported by the distribution of the Recovery Act’s 48 advanced battery manufacturing grants, which the Department of Energy awarded to a range of electric-drive, battery component, and battery recycling facilities. The grants were all devoted to accelerating the development of U.S. battery and electric vehicle manufacturing (a full list of grantees is available here).

Absent these grants, EERE’s Advanced Manufacturing Office (formerly the Industrial Technologies Program) accounted for all direct spending in FY2011 and FY2012, supporting investments in furthering next generation manufacturing processes and materials, nanomanufacturing projects, and development and training projects to enhance the technical skills and energy-consciousness of America’s workforce. In FY2012 the AMO appropriations was more than double that of FY2011. The office invested 6 times more in energy-intensive process R&D this past fiscal year, and also funded the Critical Materials Hub, which was established to confront projected supply chain disruptions to clean energy manufacturing.

A significant piece of clean energy manufacturing support ($5.9 billion) came from a loan guarantee distributed in FY2009 to the Ford Motor Company through the Advanced Technologies Vehicle Manufacturing Loan Program. The loan guarantee was used to upgrade factories and increase fuel efficiency in commercially-popular vehicles. The program made three other guarantees to electric vehicle manufacturers in FY2010, which amounted to $2.4 billion.

When separated from fiscal year appropriations, Stimulus funds are accountable for a significant portion of investment in manufacturing during the last four years, both because of the loan guarantee program mentioned previously, and because of the advanced battery manufacturing grants for producers of electric vehicle batteries and components ($2.4 billion). The third major piece of clean energy manufacturing investment was the Section 48C Advanced Energy Manufacturing Tax Credit ($2.3 billion), which supported creation and updating of manufacturing facilities for renewable energy technology producers by allowing producers up to a 30 percent tax credit.

The Administration has tried repeatedly to extend the 48(c) tax credit, but has been unsuccessful to date. Combined, these three manufacturing policies accounted for 82 percent of total U.S. manufacturing investment since 2009. While they may individually have long-lasting impacts, intermittent funding opportunities like these encourages investment in the short-term. Significant growth in the clean energy manufacturing sector will only be stimulated by a strong policy commitment over time.

While clean energy manufacturing is not often characterized as part of the energy innovation ecosystem, a strong manufacturing sector acts as an integral vehicle for producing clean energy technologies at economies of scale to drive down costs as well as acting as a key source for future research. America’s declining support for manufacturing is troubling, but new ideas are being worked on, though funding concerns still continue.

Strong support for a manufacturing sector in the United States is not only necessary to develop and deploy cost-effective clean energy technologies, it is also significant to ensuring the nation’s manufacturing competitiveness on the global scale. ITIF has written extensively (and recently) on why the administration’s National Network for Manufacturing Innovation (NNMI) plan should be put to action. While the health of U.S. manufacturing has declined dramatically during the past decade, an NNMI could coordinate a recovery that leads to increases in productivity and job growth, and the recovery of America’s innovation ecosystem. To grow the clean energy economy and reduce GHG emissions in the United States, the importance of the manufacturing sector must not be forgotten.

Originally posted at Consumer Energy Report.