An Energy Innovation Agenda for the 118th Congress

Now that the dust has settled from the November elections, Washington faces a split government and a divided Congress along the narrowest lines, with Democrats holding a one-seat majority in the Senate and Republicans holding a 4-seat majority in the House.

The federal government plays a vital role in supporting early bench-scale research through our robust system of national labs, federally-funded universities, and favorable tax policies that incentivize firms to invest in RD&D while supporting firms that take risks in bringing early-stage technologies to market. For example, Tesla, the seventh largest company in the world, was an early beneficiary of the Department of Energy’s Loan Program Office in 2010, helping the company innovate and lower battery pack costs. The administration and Congress must also recognize that the problem we are trying to solve is global warming rather than merely American warming. This means that policymakers must work with foreign partners to develop strategies to reduce emissions while not letting other countries get a free pass to pollute. Policies and solutions to help deploy the technologies necessary to decarbonize our economy must recognize that U.S. firms must be able to profitably sell our technology abroad and work with partner nations to reduce emissions fairly, across-the-board.

ITIF has outlined five areas where a divided Congress can still find common ground to spur continued growth for American energy innovation.

Fully Fund Existing Programs That Are Proven Successes

Congress passed the CHIPS and Science Act with broad bipartisan support in 2022. This critical industrial policy will strengthen America’s advanced semiconductor industry by providing tax credits for facility development alongside significant scientific research funding. Yet much of the essential funding, up to $175 billion cumulatively through 2027, has not been appropriated. This funding is authorized for the National Science Foundation, the National Institute for Standards and Technology (NIST), and the Department of Energy’s Office of Science for research facility improvements. Critically, the sizable additional funding authorized for NSF would go toward speeding up domestic development and commercialization of key technologies like quantum computing, advanced and additive manufacturing, 6G telecommunications, and materials science for new uses of carbon-based products and industrial materials. NSF is also authorized to receive $20 billion in new funding to establish a new technology, innovation, and partnership directorate.

If the 118th Congress fails to adequately appropriate authorized funding for these programs, long-term gains from federally-funded RD&D programs will be underrealized. Holding back or conditioning approval of authorized funding on additional legislative requirements will keep vital infrastructure from being built, such as the $10 billion authorized for NIST to build 20 regional technology and innovation hubs across the U.S. Finally, while minimal in total overall funding at just $40 million, Congress must appropriate funds for DOE’s new Foundation for Energy Security and Innovation, an idea critical to accelerating innovation across the clean energy technology portfolio.

Pass Comprehensive Federal Permitting and Siting Reform

Many in Congress recognize that federal permitting is necessary to reap the benefits of infrastructure and energy investments. Without it, the pathways to dramatically reducing economy-wide emissions will be foreclosed; the technology we need to decarbonize much of the economy will not be able to be built and expanded, keeping costs high and adoption low. Key permitting and policy reforms the next Congress should expand on include the Federal Energy Regulatory Commission’s federal transmission permitting authority; streamlining safety, oversight, and approval of hydrogen and CO2 pipelines; shortening environmental reviews; and facilitating greater agency collaboration up and down the decision-making process.

Not only will the chances of success for the IIJA and IRA be undermined without permitting reform, but the ability to take advantage of the CHIPS Act funding for critical semiconductor fabrication in the U.S. will also be diminished if plants face hurdles to being sited and built. Congress must recognize that every delay in the permitting process is a delay in the innovation pipeline and work to pass comprehensive federal permitting reform to reap the benefits of energy innovation.

Conduct Smart Agency Oversight

Congress plays a key role in ensuring that agencies are properly administering and implementing programs authorized by Congress. Without smart oversight, agencies may not meet their statutorily required objectives, threatening both agency legitimacy and future federal funding. Thankfully, agencies such as the DOE have a long history of cooperating with and working collaboratively alongside congressional oversight, with DOE’s Inspector General requesting a budget increase to provide adequate oversight of new programs that are now flush with federal money.

Congress ought not forget that the point of DOE’s RD&D funding is to fund risky technologies that do not yet have fully developed pathways to broad commercialization. If the technology poses little risk, then there is little reason for DOE to invest at all because the private market presumably should be able to bear that risk. Ultimately, Solyndra was the only major failure in the DOE’s portfolio, yielding a weighted risk profile around one percent, far lower than what even private capital would tolerate. In fact, LPO turned a profit from its portfolio of projects as early as 2014. Thus, the DOE’s program was likely not risky enough given its broad mandate to build a bridge to bankability.

The 118th Congress should ensure that their congressional oversight role is geared toward ensuring that massive federal funding programs are largely free from political interference, corruption, or efforts to steer money toward politically connected constituents. Congress should engage in smart oversight of IIJA, IRA, and CHIPS Act funding. This means ensuring that agency funding is balancing both risks and payoffs, funding the technologies that might have a little more risk but could also lead to both large carbon and financial payoffs. Congressional oversight of political interference, corruption, or misappropriation of taxpayer money is the key function of oversight. Congress should just avoid the urge to see any one single program shortcoming as an indictment of the entire RD&D efforts of the DOE. Additionally, Congressional oversight should ensure that technologies funded, supported, and built in America are not stolen or sold off to foreign competitors, like when this U.S. long-duration battery storage company was not properly supported by DOE and was sold off to a Chinese battery developer.

Fund Robust Energy Efficiency Efforts for Buildings, Materials, and Facilities

Energy efficiency continues to be left out of consideration of the clean energy transition. For example, ITIF research notes that while the U.S. building sector makes up roughly 14 percent of national emissions, it receives just seven percent of DOE’s energy RD&D funding. This mismatch in funding has led to an increase in the building sector’s emissions, the only sector of the economy to increase emissions (though per-square footage emissions have modestly decreased over the past two decades). The 118th Congress, through its annual fiscal appropriations process should increase funding for DOE’s energy efficiency building and facility programs. For example, one key area that ITIF research identified as a high-impact area of RD&D energy efficiency investment is for water and wastewater treatment facilities. To date, in conjunction with the EPA, DOE’s budget includes a modest $20 million for RD&D focused on wastewater treatment facilities’ energy efficiency.

Restore Full Expensing for Investments in Equipment and RD&D

Key tax provisions that allow firms to fully expense societally valuable business RD&D spending expired at the end of 2021, with the phase down in full expensing of qualified capital expenditures set for the end of this year. This will keep firms from fully realizing the full present value of RD&D expenses as they will no longer be able to deduct the full real value of capital and RD&D expenditures. Private businesses are vital to supporting America’s vibrant RD&D ecosystem, spending more than $500 billion in RD&D activities in 2020 alone. Yet, much of this value accrues to society as a whole rather than just the individual firms, with the full benefits of private RD&D spending not fully realized by the investing firm. Rather, RD&D spending represents a long-term bet—a bet that funding certain sectors, technologies, and projects will now have long-term financial gains. Proper tax incentives play a role in supporting this private RD&D.

The 118th Congress should consider legislation like the ALIGN Act (S.1166 and H.R. 2558), which would restore full expensing for capital expenditures, and the American Innovation and Jobs Act, (S.749) which would restore immediate expensing for RD&D investment and expand the available tax credit to small firms. Supporting American innovation is a bipartisan priority, and the next Congress ought not miss the opportunity to reinstate a broadly bipartisan tax proposal to support domestic private RD&D.

Conclusion

The beginning of a new Congress brings the opportunity for new perspectives on current issues—regardless of party affiliation. The next Congress, with its split nature, will require bipartisan cooperation within and across both chambers to pass any piece of legislation. While some may see this as the making for endless gridlock, this should be seen as an opportunity to build cross-party consensus in supporting American clean energy innovation.