Roundtable

Energy Change:
What Are the Consequences
for the German and U.S. Innovation Systems?

Chair:
Tim Stuchtey
Director, Brandenburgisches Institut für Gessellschaft und Sicherheit

Seth Winnick, Counselor for Economic Affairs, Embassy of the United States

Sylvia Kotting-Uhl, Green Party; Member, Committee for Education, Research, and Technology Assessment

Albert Rupprecht (CSU) Committee for Education, Research, and Technology

Ernst Dieter Rossman, Social Democratic Party, Schleswig-Holstein (SPD); Member, Committee for Research, Education, and Technology

Arati Prabhakar, Partner, U.S. Venture Partners

Mr. Stuchtey introduced the members of the roundtable, who included two representatives of the German Bundestag, and noted that for this session speakers would be using their native language. He gave a brief summary of the topics discussed during the two-day workshop, and asked Mr. Winnick to begin.

SETH WINNICK

Mr. Winnick began by noting that energy policy is an area “ripe for innovation,” and where innovation will “very much drive what happens over the next years and decades.”

His first observation was that the United States and Germany share similar goals, but approach them from different perspectives. A shared goal is to “make a transition to a low-carbon economy and society.” The approaches differ



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PROCEEDINGS 165 Roundtable Energy Change: What Are the Consequences for the German and U.S. Innovation Systems? Chair: Tim Stuchtey Director, Brandenburgisches Institut für Gessellschaft und Sicherheit Seth Winnick, Counselor for Economic Affairs, Embassy of the United States Sylvia Kotting-Uhl, Green Party; Member, Committee for Education, Research, and Technology Assessment Albert Rupprecht (CSU) Committee for Education, Research, and Technology Ernst Dieter Rossman, Social Democratic Party, Schleswig-Holstein (SPD); Member, Committee for Research, Education, and Technology Arati Prabhakar, Partner, U.S. Venture Partners Mr. Stuchtey introduced the members of the roundtable, who included two representatives of the German Bundestag, and noted that for this session speakers would be using their native language. He gave a brief summary of the topics discussed during the two-day workshop, and asked Mr. Winnick to begin. SETH WINNICK Mr. Winnick began by noting that energy policy is an area “ripe for innovation,” and where innovation will “very much drive what happens over the next years and decades.” His first observation was that the United States and Germany share similar goals, but approach them from different perspectives. A shared goal is to “make a transition to a low-carbon economy and society.” The approaches differ

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166 MEETING GLOBAL CHALLENGES in areas such as risk, risk management, tax policy, incentives to renewal energy, and application of federalism to national energy policy. For example, while there is heightened concern with U.S. security following the Japanese nuclear disaster at Fukushima, “there is every intention to not only continue operation of the existing nuclear fleet, but also to resume construction of new plants.” The first two plants are nearing the beginning of construction, and others are seeking approval. Research also proceeds on nuclear reactor technologies, including thorium-fueled reactors and mini-reactors. In terms of energy efficiency and controlling emissions, he continued, Germany has relied on market-based mechanisms, especially the feed-in tariff system to promote solar energy, and the aggressive use of tax policy and gasoline taxes to incentivize efficiency. “I find it ironic that the United States, which believes in market forces above all else and opposes regulation, uses regulatory tools for energy efficiency and emissions.” For example, he said, the mandated corporate average fuel economy (CAFÉ) standard is the key instrument in reducing fuel usage in transportation. Heavy taxation of gasoline to foster conservation is not politically acceptable, he said. Similarly, while Germany has promoted increased use of renewables done through a market mechanism, the feed-in tariff, while the United States has used what is basically a regulatory approach—but at the state level. More than half the states have mandated that a percentage of energy consumption must be produced by renewables by a specific date, varying from 5 to 40 percent or even higher. For example, California, one of the most aggressive states, requires that 1/3 of its electricity be produced by renewables by 2030. “So if Germany is disappointed in the U.S. Congress for not passing a comprehensive climate bill,” he said, “there is at least extensive action at the state, local, and also corporate levels.” His second observation was that the degree of U.S.-German cooperation in science and technology is “huge.” Each heavily invests in the other’s energy systems, he said, as well as research, development, and innovation. He gave “representative examples” in both directions, with Siemens and E.ON investing in wind energy in the United States, and First Solar Arizona making a large investment in Frankfurt on der Oder. Solar World in Bonn has production facilities in the United States, and Sulfur Cell based in Berlin has received substantial investment from Intel Capital. In research cooperation, the National Renewable Energy Laboratory (NREL) and three Helmholtz Association laboratories have agreed to conduct joint research in photovoltaics, solar cells, and concentrating solar power. Fraunhofer opened a center for Sustainable Energy Systems in Cambridge, Massachusetts, several years ago. Finally, he said, the two countries signed a “significant S&T cooperation agreement” in 2010, which will be implemented over several years. “So our S&T cooperation is a big story for innovation policy,” he concluded, “and for our transformation to a low-carbon economy.”

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PROCEEDINGS 167 SYLVIA KOTTING-UHL Mr. Stuchtey turned to Mrs. Kotting-Uhl, and asked about the implications of Germany’s decision to abandon nuclear energy. “What impact will this have on our research, development, and innovation system here in Germany?” Mrs. Kotting-Uhl said that the trend away from nuclear power was at least a decade old, and that the events in Fukushima had only strengthened the Greens’ belief that “the nuclear phase-out was, and remains, the correct path.” She said that because she is “primarily an environmental and energy politician,” for her the “biggest task before civilized and highly industrialized societies is to stop climate change. This means that the goals dictated by climate change are the ones we need to focus on; they’re the ones indicating where research is primarily needed.” Whether nuclear energy is part of this mix or not, she said, a conversion of the energy system toward renewables is essential. “This requires much research,” she said: “How are we going develop storage technologies? Electric mobility? Other ideas are larger renewables power plants, large power storage ability, perhaps even storage power plants in Norway. There are many ideas and I think a lot of money should be directed toward them.” She added that it was wrong to bet on nuclear projects, including nuclear fusion. “The energy system that we need for 2050 is an energy system that shows we have learned to handle precious energy with great awareness, and sparingly, without lowering our quality of life, but in an economic and efficient way.” In terms of climate, she said that by 2050 the country should be converted 100 percent to renewable energy. “This means that we should already be laying the groundwork today. We can no longer afford to do any non- application-oriented research regarding the ‘great task.’ That is, we must know what we need by 2050 and we must align our research accordingly.” By then, she said, nuclear fusion might just be coming into feasibility, but that to count on it “would mean counting on suddenly having loads of energy in 2050—and we won’t need this amount of energy within the [more efficient] system we will have by then. So even if fusion worked, it won’t be necessary at that time. This is why I am of the opinion that it is a waste of research energy and money. I think we will be well advised to focus all our energies on the system of decentralized, renewable energy with storage technologies, and networks.” She said that her conclusion was “to think from the point of view of the goal: what do we need in 2050? What is the great task we must fulfill? And what does this mean for the research funds and brains in which we’re investing? On these issues, we cannot afford any detours or dead-end streets.”

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168 MEETING GLOBAL CHALLENGES ALBERT RUPPRECHT Mr. Stuchtey introduced Mr. Rupprecht, an economist and member of the CSU from Bavaria. He had served in the Bundestag since 2002 where he is a member of the Working Group on Education and Research. Mr. Stuchtey asked Mr. Rupprecht for his assessment of what the phase-out of nuclear power and the increasing role of renewables would mean for the innovation system in Germany. Mr. Rupprecht offered to formulate the issue the other way: what abilities do we have to meet our goal of a renewable energy economy? In terms of research, he said, Germany is well positioned. Since the physicist Angela Merkel became Chancellor of Germany in 2005, he said, the budget available for research and education through the end of the current legislative period had grown by 74 percent. This is “historically unique, one-of-a-kind,” he said, “and even in an international context remarkable.” Some of the important areas affected by this increase, he said, were in the energy sector, and it is a point of emphasis of the High-Tech Strategy, as is the “sub-domain of electric mobility.” A continuing problem, he said, is the “lack of a systemic, overall view. We have many universities with high research standards and excellent results,” he said, “but the research results don’t flow into a systemic ‘big picture.’ I want to compare this to the financial crisis. If we hadn’t had, during those times, institutions such the Federal Bank and EZB to monitor financial trends with a systemic overall view, the financial system would have collapsed altogether.” Currently, he said, Germany is trying to resolve “the great world question of climate change and energy by saying ‘Yes’ to this type of energy— yes to wind energy, no to nuclear energy, yes to biodiesel, and so on. But only by having a systemic approach will we move forward.” He concluded that, on the whole, “Germany is very well positioned in the areas of research and innovation.” ERNST DIETER ROSSMAN Mr. Stuchtey then called on Mr. Rossman, saying that while driving in Mr. Rossman’s state, he had seen signs that read, “Stop CCS” [carbon capture and sequestration]. He asked whether CCS will be necessary, along with more coal-fired power plants, now that nuclear energy will be phased out. Mr. Rossman noted Mrs. Kotting-Uhl’s insistence that Germany “completely switch over to renewable energy—and that this is the first, second, and third priority.” He said that the country does have multiple approaches to this goal, including research and innovation; market incentives, from the eco-tax to the promotion of renewable energy; and regulatory measures. “I believe that we need to make a greater effort” that will work only “when we have an energy policy consensus because this will make our research strategy more reliable over a longer period.”

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PROCEEDINGS 169 He raised the “critical question” of CCS, which is an EU-wide issue. Unlike America, he said, “with a quasi-half-continent of its own,” Europe is very diverse, with the expectation that research facilities and equipment will be shared among countries. While there is currently nothing in legislation, he said, the SPD “is of the opinion that we should not exclude the possibility of conducting controlled research in the CCS area, but only research.” This policy would reflect the perspective that “we shouldn’t be moving toward making this energy conversion” because research could reveal that this is not a reliable way to move forward. What we do know very well, he said, is that in terms of savings and efficiency, “renewable energy can help us achieve the main objectives that we are setting for ourselves politically.” In terms of research, he addressed Mrs. Kotting-Uhl’s assertion that Germany should only conduct applied research specifically related to renewables. There is an extensive system in place for fundamental research, he said, in the Max Planck Institutes and research universities. He questioned whether it is sensible to “completely step away” from fundamental research, including nuclear energy research. While the Greens desire and predict an energy system based solely on renewables in 2050, and would like to focus research on that system alone, “we don’t want to eliminate all the options until we have come to a conclusive point with our energy research, both in regards to nuclear fusion and CCS. The Social Democratic Party, he said, preferred to support a broad portfolio of fundamental research “because we believe we should not exclude insights that can become important in a more distant future.” Mr. Stuchtey asked the speakers whether Germany should continue to do nuclear research in order to improve the safety of nuclear waste repositories, and whether such work would provide careers for young people in nuclear science. Mrs. Kotting-Uhl said this was a dilemma, because a nuclear phase-out would require additional research on safety, and the reactors in operation would still run for another decade or more. She did agree that a nuclear career was no longer an attractive option for the long term, but hoped that young nuclear engineers would be able to transition to related fields. Mr. Rupprecht basically agreed, while Mr. Rossman emphasized the opportunity for Germany to gain expertise in matters of long-term waste management and safety. Mr. Stuchtey asked whether research reactors, too, would be closed, and whether this would impair many related branches of research, such as nuclear medicine. Mr. Rupprecht agreed that this work is necessary, and worried that too few scientists would pursue it. ARATI PRABHAKAR Mr. Stuchtey turned to Dr. Prabhakar and asked her, as a venture capitalist, whether she would now look more closely at Germany for new

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170 MEETING GLOBAL CHALLENGES investment ideas, or whether she would favor China or India, “where discussions are sometimes a little shorter than in this country.” Dr. Prabhakar said that China and India would certainly have to be included in a systems view of energy and environment. From the point of view of a VC and investor, she said, “the key question is always about the markets and where capital is being deployed. For that reason, Germany is a very important market for the VC sector to understand. “The work that’s been done here to drive photovoltaics through FIT,” she said, “has been a dramatic step forward. The vibrant activities from the research stage through deployment are very promising. But of course China is moving even more aggressively, creating the most rapidly developing market for clean energy technologies in the world. If you look today at venture investments, they are very cognizant of where those end markets are.” DISCUSSION Mr. Stuchtey opened the floor for questions. Dr. Wessner noted several issues around Germany’s decision to forego nuclear power, including whether Germany would (1) need to rely on the willingness of Russia to provide more natural gas, (2) need to buy electricity from France and other nuclear neighbors, and (3) be prevented from totally closing down nuclear power by the need to address continuing issues of waste and safety. The Nuclear Phase-out Mrs. Kotting-Uhl said that “these are not new arguments being used against us.” Do we need nuclear power eight or fourteen years longer than the old nuclear phase-out, or can we do without it? she said. Should we use gas from Russia, or nuclear power from France? Germany currently had nine nuclear power plants, she said, along with orders and international contracts. “The bottom line is we are a full-time exporter of electricity, and from time to time, electricity importer. But the goal remains, she said, to switch to renewable energies as soon as possible.” The nuclear phase-out, she said, will depend both on how long society thinks is reasonable, and how quickly society learns to trust the alternatives. “My personal opinion is that the policy goals we set for ourselves, the ones we are very serious about, must sit just a tad above that which we consider realistic at the moment. That way it will exert a bit of pressure; otherwise there will be no innovation.” One kind of pressure, she said, was the Renewable Energies Act (EEG), an instrument that allowed renewable energy to enter the market by guaranteeing that producers of renewable electricity can sell their power at a profit. This triggered a boom, and generated “a great learning curve” for the public, introducing many new concepts, such as “photovoltaic.”

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PROCEEDINGS 171 “This really gave people a chance to enter the market,” she said, “even though the technologies were not marketable initially because of the price. The technologies quickly became cheaper, and wind energy, for example, became marketable. A similar pressure exerted by a nuclear phase-out will bring about alternatives that much faster.” Imported Gas or Electricity? Mr. Stuchtey followed up on Dr. Wessner’s question about the reliability of imported gas, and “whether our freedom is curtailed when it comes to foreign policy or other strategic decisions.” Mr. Rupprecht agreed that it was crucial to weigh different objectives and risk factors; to understand dependencies and how to avoid them. He cited the example of a solar energy generator in North Africa distributing power to European networks. “Who would have thought, a year ago, that there would be so much instability in North Africa? And so I would advise everyone to apply the idea of risk diversification to energy.” Mr. Rossman agreed, citing the uncertainties generated in the United States by its dependency on the oil from the Gulf of Mexico, from Saudi Arabia, and elsewhere. “This is why the economic connection to Russia and its gas isn’t reassuring, and why we are trying to steer Germany toward renewable, decentralized energies by 2050 in the most economical and efficient way. We social democrats are not specifically advocating for a ‘shutting off’ of the coal plants, but rather for a combination of coal and gas in the transition to 2050. If you fear such dependencies, the answer lies in renewable energy and decentralized, preferably regional energy production and supply.” Mr. Winnick commented that when a field is seen as “closed, in decline, or otherwise off limits, people don’t go into it.” He said that despite Germany’s great technical capabilities in the nuclear sector, “it’s hard to imagine a student who starts university next year deciding to go into nuclear engineering.” In the same way, he said, the United States has had the benefit of European researchers in agricultural biotech moving abroad as the field gradually weakens in Europe. The Problem of Disposing with Nuclear Reactors Mrs. Kotting-Uhl agreed that those issues were indeed difficult. “We do have to face the problem of what to do with these nuclear reactors. We have not developed a strategy for breaking them down, dismantling them, and disposing of them. We have to take into account the costs and consequences of doing this, and subsequent problems, and the nuclear waste we will have to dispose of, without knowing how.” Mr. Rossman confessed that while the Green Party had been aware of such problems for some time, many in his own party were still learning of the need to dispose of nuclear reactors, and the desire to continue using radioactive

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172 MEETING GLOBAL CHALLENGES materials in medicine and many other fields. “The political direction and priority is to phase out the nuclear power energy supply, not to step out of the surrounding field of radioactivity, which is somewhat different. We should be reassured that Germany exercises strict control over the use of radioactive materials, and that its use is limited to a few fields, including travel, research, and healthcare.” Mr. Winnick said that the United States and Germany would have to deal with such problems in their own local ways, and that the partnership in trade would continue. “Products made in Germany that work will still be bought in the United States, and things made in the United States that work will probably continue to end up in Germany. I don’t expect a sudden planting of biomass diesel fuel crops here in Europe, and even if we move to a FIT system, you probably won’t see a lot of solar panels going up in the far North of the United States; that doesn’t mean we won’t do it in Arizona. This is not a competition. We’re all going to win in this together. That’s what a partnership in innovation means.” Dr. Ebinger said he wanted to “add some reality” to the discussion. First, he said, German is part of the EU, which has broad energy goals. The International Energy Agency projects that the world is still going to derive about 85 percent of its energy from fossil fuels in 2050, even if Germany meets its targets for renewables. He said that Germany, as a great technological nation, could make valuable contributions to the science of CCS from coal and natural gas, the dominant fuels. “If we don’t solve those problems,” he said, “it doesn’t matter what else we do about climate change, we’ll all burn together.” Germany as a Model and Exemplar Mrs. Kotting-Uhl replied that Germany’s best contribution to the global effort to lower carbon emission is as a model and exemplar. “I think that there has to be a country, among the highly-industrialized, which shows, first, economic standards and exports and success; secondly, a high quality of life; third, climate protection; and, fourth, a nuclear phase-out. Germany is on track to model all these features. If we ask ourselves, where should the world be in 2050, we should care not so much about countries like Germany, France, and the Scandinavian countries, which are all relatively small, but the developing and emerging nations, which are still developing their energy systems, standard of living, and economic power. If they reach for coal and nuclear, the risk is too high. If a high-tech country like Japan is not in a position to protect their nuclear power from the forces of nature, then I don’t think that any nation can disregard this. The only way to guarantee safety—and a long, extremely cheap, economical energy supply that can also create many jobs—is renewable energy combined with efficiency technology. Some country must follow this path, and I will be happy if this is Germany.” Mr. Rossman said he wanted to make three additional points. First, he recalled as a young socialist protesting against nuclear power and reading a book

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PROCEEDINGS 173 by an adviser of U.S. President Jimmy Carter favoring energy conservation, especially in nations that thought energy was always in surplus. “I was very impressed,” he said, “because I thought that there was, finally, in this big, admirable country, a world perspective that included responsibility for all.” Later, he said, Al Gore also thought in terms of common responsibility. Second, he said that Germany was very much in the tradition of the Carter doctrine and the practice of Al Gore, a path toward renewable energy and energy efficiencies. That is a true international perspective, he said, enabling all countries to share the most modern technological options to develop what they need. The alternative is to advise them to take the path of large coal and nuclear plants. “This cannot be a development perspective,” he said, “and is why, from the German and European viewpoint, renewable energy should be the priority. We should serve as a model for these countries that renewables represent a secure, tradable energy supply, providing for mobility, health, and education in every country.” 100 Percent Renewables: ‘For Now, It is Just an Idea’ Third, he recalled being severely shaken by the nuclear accident at Three Mile Island, near Harrisburg, Pennsylvania in 1979. And since the disaster in Japan, he said, he thinks often about California, and the likelihood of a large earthquake catastrophe there. “Wind energy, photovoltaics, and biogas just don’t pose these catastrophic questions of nuclear meltdowns and radioactive clouds. So I see myself there, aligned with America’s earliest ideas for reform.” Mr. Rupprecht said that nuclear energy is evaluated in Germany differently than it is in neighboring countries. He said his constituency lives near the border of the Czech Republic and its nuclear plants, and if Germany switches off its power plants, his people will still live closer to the Czech plants than to the plants in Bavaria. “On what grounds can I can argue for this phase- out in terms of safety?” he asked. Given the many uncertainties, he said it would be 10 or 15 years before the German model could be judged a success. “Right now,” he said, “we argue self-consciously and offensively. Nothing guarantees that this route will be successful.” While the phase-out has been delayed to 2020 or beyond, he worried about “whether the burden will fall on the population: the construction of pipeline networks, support of wind turbines, etc. It will take about fifteen years until we can see whether Germany’s path is really attractive and whether it can be a model for other countries. For now, it is just an idea.”