How the U.S. Government Can Support the Development of Domestic Production Capacity for the Battery Supply Chain

Access to critical minerals supply chains will be crucial to the clean energy transition in the United States. Batteries for electric vehicles, in particular, will require the U.S. to consume an order of magnitude more lithium, nickel, cobalt, and graphite than it currently consumes. Currently, these materials are sourced from around the world. Mining of critical minerals is concentrated in just a few countries for each material, but is becoming increasingly geographically diverse as global demand incentivizes new exploration and development. Processing of critical minerals, however, is heavily concentrated in a single country—China—raising the risk of supply chain disruption. 

To address this, the U.S. government has signaled its desire to onshore and diversify critical minerals supply chains through key legislation, such as the Bipartisan Infrastructure Law and the Inflation Reduction Act, and trade policies. The development of new mining and processing projects entails significant costs, however, and project financiers require developers to demonstrate certainty that projects will generate profit through securing long-term offtake agreements with buyers. This is made difficult by two factors: critical minerals markets are volatile, and, without subsidies or trade protections, domestically-produced critical minerals have trouble competing against low-priced imports, making it difficult for producers and potential buyers to negotiate a mutually agreeable price (or price floor). As a result, progress in expanding the domestic critical minerals supply may not occur fast enough to catch up to the growing consumption of critical minerals.

To accelerate project financing and development, the Department of Energy (DOE) should help generate demand certainty through backstopping the offtake of processed, battery-grade critical minerals at a minimum price floor. Ideally, this would be accomplished by paying producers the difference between the market price and the price floor, allowing them to sign offtake agreements and sell their products at a competitive market price. Offtake agreements, in turn, allow developers to secure project financing and proceed at full speed with development.

While demand-side support can help address the challenges faced by individual developers, market-wide issues with price volatility and transparency require additional solutions. Currently, the pricing mechanisms available for battery-grade critical minerals are limited to either third-party price assessments with opaque sources or the market exchange traded price of imperfect proxies. Concerns have been raised about the reliability of these existing mechanisms, hindering market participation and complicating discussions on pricing. 

As the North American critical minerals industry and market develops, DOE should support the parallel development of more transparent, North American based pricing mechanisms to improve price discovery and reduce uncertainty. In the short- and medium-term, this could be accomplished through government-backed auctions, which could be combined with offtake backstop agreements. Auctions are great mechanisms for price discovery, and data from them can help improve market price assessments. In the long-term, DOE could support the creation of new market exchanges for trading critical minerals in North America. Exchange trading enables greater price transparency and provides opportunities for hedging against price volatility. 

Through this two-pronged approach, DOE would simultaneously accelerate the development of the domestic critical minerals supply chain through addressing short-term market needs, while building a more transparent and reliable marketplace for the future.

Introduction

The global transportation system is currently undergoing a transition to electric vehicles (EVs) that will fundamentally transform not only our transportation system, but also domestic manufacturing and supply chains. Demand for lithium ion batteries, the most important and expensive component of EVs, is expected to grow 600% by 2030 compared to 2023, and the U.S. currently imports a majority of its lithium batteries. To ensure a stable and successful transition to EVs, the U.S. needs to reduce its import-dependence and build out its domestic supply chain for critical minerals and battery manufacturing. 

Crucial to that will be securing access to battery-grade critical minerals. Lithium, nickel, cobalt, and graphite are the primary critical minerals used in EV batteries. All four were included in the 2023 Department of Energy (DOE) Critical Minerals List. Cobalt and graphite are considered at risk of shortage in the short-term (2020-2025), while all four materials are at risk in the medium-term (2025-2030).

As shown in Figure 1, the domestic supply chain for batteries and critical minerals consists primarily of downstream buyers like automakers and battery assemblers, though there are a growing number of battery cell manufacturers thanks to domestic sourcing requirements in the Inflation Reduction Act (IRA) incentives. The U.S. has major gaps in upstream and midstream activities—mining of critical minerals, refining/processing, and the production of active materials and battery components. These industries are concentrated globally in a small number of countries, presenting supply chain risks. By developing new domestic industries within these gaps, the federal government can help build out new, resilient clean energy supply chains. 

This report is organized into three main sections. The first section provides an overview of current global supply chains and the process of converting different raw materials into battery-grade critical minerals. The second section delves into the pricing and offtake challenges that projects face and proposes demand-side support solutions to provide the price and volume certainty necessary to obtain project financing. The final section takes a look at existing pricing mechanisms and proposes two approaches that the government can take to facilitate price discovery and transparency, with an eye towards mitigating market volatility in the long term. Given DOE’s central role in supporting the development of domestic clean energy industries, the policies proposed in this report were designed with DOE in mind as the main implementer.

Figure 1. Lithium-ion battery supply chain

Adapted from Li-BRIDGE

Segments highlighting in light blue indicated gaps in U.S. supply chains. See original graphic from Li-BRIDGE for more information.

Section 1. Understanding Critical Minerals Supply Chains

Global Critical Minerals Sources

Globally, 65% or more of processed lithium, cobalt, and graphite originates from a single country: China (Figure 2). This concentration is particularly acute for graphite, 91% of which was processed by China in 2023. This market concentration has made downstream buyers in the U.S. overly dependent on sourcing from a single country. The concentration of supply chains in any one country makes them vulnerable to disruptions within that country—whether they be natural disasters, pandemics, geopolitical conflict, or macroeconomic changes. Moreover, lithium, nickel, cobalt, and graphite are all expected to experience shortages over the next decade. In the case of future shortages, concentration in other countries puts U.S. access to critical minerals at risk. Rocky foreign relations and competition between the U.S. and China over the past few years have put further strain on this dependence. In October 2023, China announced new export controls on graphite, though it has not yet restricted supply, in response to the U.S.’s export restrictions on semiconductor chips to China and other “foreign entities of concern” (FEOC).

Expanding domestic processing of critical minerals and manufacturing of battery components can help reduce dependence on Chinese sources and ensure access to critical minerals in future shortages. However, these efforts will hurt Chinese businesses, so the U.S. will also need to anticipate additional protectionist measures from China.

On the other hand, mining of critical minerals—with the exception of graphite and rare earth elements—occurs primarily outside of China. These operations are also concentrated in a small handful of countries, shown in Figure 3. Consequently, geopolitical disruptions affecting any of those primary countries can significantly affect the price and supply of the material globally. For example, Russia is the third largest producer of nickel. In the aftermath of Russia’s invasion of Ukraine at the beginning of 2022, expectations of shortages triggered a historic short squeeze of nickel on the London Metal Exchange (LME), the primary global trading platform, significantly disrupting the global market. 
To address global supply chain concentration, new incentives and grant programs were passed in the IRA and the Bipartisan Infrastructure Law. These include the 30D clean vehicle tax credit, the 45X advanced manufacturing production credit, and the Battery Materials Processing Grants Program (see Domestic Price Premium section for further discussion). Thanks to these policies, there are now on the order of a hundred North American projects in mining, processing, and active¹ material manufacturing in development. The success of these and future projects will help create new domestic sources of critical minerals and batteries to feed the EV transition in the U.S. However, success is not guaranteed. A number of challenges to investment in the critical minerals supply chain will need to be addressed first.

Battery Materials Supply Chain

Critical minerals are used to make battery electrodes. These electrodes require specific forms of critical minerals for their production processes: typically lithium hydroxide or carbonate, nickel sulfate, cobalt sulfate, and a blend of coated spherical graphite and synthetic graphite.²

Lithium Hydroxide and Lithium Carbonate

Lithium hydroxide/carbonate typically comes from two sources: spodumene, a hard rock ore that is mined primarily in Australia, and lithium brine, which is primarily found in South America (Figure 3). Traditionally, lithium brine must be evaporated in large open-air pools before the lithium can be extracted, but new technologies are emerging for direct lithium extraction that significantly reduces the need for evaporation. Whereas spodumene mining and refining are typically conducted by separate entities, lithium brine operations are typically fully integrated. A third source of lithium that has yet to be put into commercial production is lithium clay. The U.S. is leading the development of projects to extract and refine lithium from clay deposits.

Nickel Sulfate

Nickel sulfate can be made from either nickel metal, which was historically the preferred feedstock, or directly from nickel intermediate products, such as mixed hydroxide precipitate and nickel matte, which are the feedstocks that most Chinese producers have switched to in the past few years (Figure 4). Though demand from batteries is driving much of the nickel project development in the U.S., since nickel metal has a much larger market than nickel sulfate, developers are designing their projects with the flexibility to produce either nickel metal or nickel sulfate.

Cobalt Sulfate

Cobalt is primarily produced in the Democratic Republic of the Congo from cobalt-copper ore. Cobalt can also be found in lesser amounts in nickel and other metallic ores. Cobalt concentrate is extracted from cobalt-bearing ore and then processed into cobalt hydroxide. At this point, the cobalt hydroxide can be further processed into either cobalt sulfate for batteries or cobalt metal and other chemicals for other purposes.

Cathode Active Materials

Battery cathodes come in a variety of chemistries: lithium nickel manganese cobalt (NMC) is the most common in lithium-ion batteries thanks to its higher energy density, while lithium iron phosphate is growing in popularity for its affordability and use of more abundantly available materials, but is not as energy dense. Cathode active material (CAM) manufacturers purchase lithium hydroxide/carbonate, nickel sulfate, and cobalt sulfate and then convert them into CAM powders. These powders are then sold to battery cell manufacturers, who coat them onto copper electrodes to produce cathodes.

Natural and Synthetic Graphite

Graphite can be synthesized from petroleum needle coke, a fossil fuel waste material, or mined from natural deposits. Natural graphite typically comes in the form of flakes and is reshaped into spherical graphite to reduce its particle size and improve its material properties. Spherical graphite is then coated with a protective layer to prevent unwanted chemical reactions when charging and discharging the battery.

Anode Active Material

The majority of battery anodes on the market are made using just graphite, so there is no intermediate step between processors and battery cell manufacturers. Producers of battery-grade synthetic graphite and coated spherical graphite sell these materials directly to cell manufacturers, who coat them onto electrodes to make anodes. These battery-grade forms of graphite are also referred to as graphite anode powder or, more generally, as anode active materials. Thus, the terms graphite processor and graphite anode manufacturer are interchangeable.

Section 2. Building Out Domestic Production Capacity

Challenges Facing Project Developers

Offtake Agreements

Offtake agreements (a.k.a. supply agreements or contracts) are an agreement between a producer and a buyer to purchase a future product. They are a key requirement for project financing because they provide lenders and investors with the certainty that if a project is built, there will be revenue generated from sales to pay back the loan and justify the valuation of the business. The vast majority of feedstocks and battery-grade materials are sold under offtake agreements, though small amounts are also sold on the spot market in one-off transactions. Offtake agreements are made at every step of the supply chain: between miners and processors (if they’re not vertically integrated), between processors and component manufacturers; and between component manufacturers and cell manufacturers. Due to domestic automakers’ concerns about potential material shortages upstream and the desire to secure IRA incentives, many of them have also been entering into offtake agreements directly with North American miners and processors. Tesla has started constructing their own domestic lithium processing plant.

Historically, these offtake agreements were structured as fixed-price deals. However, when prices on the spot market go too high, sellers often find a way to rip up the contract, and vice versa, when spot prices go too low, buyers often find a way to get out of the contract. As a result, more and more offtake agreements for battery-grade lithium, nickel, and cobalt have become indexed to spot prices, with price floors and/or ceilings set as guardrails and adjustments for premiums and discounts based on other factors (e.g. IRA compliance, risk from a greenfield producer, etc.). 

Graphite is the one exception where buyers and suppliers have mostly stuck to fixed-price agreements. There are two main reasons for this: graphite pricing is opaque and products exhibit much more variation, complicating attempts to index the price. As a result, cell manufacturers don’t consider the available price indexes to accurately reflect the value of the specific products they are buying.

Offtake agreements for battery cells are also typically partially indexed on the price of the critical minerals used to manufacture them. In other words, a certain amount of the price per unit of battery cell is fixed in the agreement, while the rest is variable based on the index price of critical minerals at the time of transaction.

Domestic critical minerals projects face two key challenges to securing investment and offtake agreements: market volatility and a lack of price competitiveness. The price difference between materials produced domestically and those produced internationally stems from two underlying causes: the current oversupply from Chinese-owned companies and the domestic price premium. 

Market Volatility

Lithium, cobalt, and graphite have relatively low-volume markets with a small customer base compared to traditional commodities. Low-volume products experience low liquidity, meaning it can be difficult to buy or sell quickly, so slight changes in supply and demand can result in sharp price swings, creating a volatile market. Because of the higher risk and smaller market, companies and investors tend to prefer mining and processing of base metals, such as copper, which have much larger markets, resulting in underinvestment in production capacity. 

In comparison, nickel is a base metal commodity, primarily used for stainless steel production. However, due to its rapidly growing use in battery production, its price has become increasingly linked to other battery materials, resulting in greater volatility than other base metals. Moreover, the short squeeze in 2022 forced LME to suspend trading and cancel transactions for the first time in three decades. As a result, trust in the price of nickel on LME faltered, many market participants dropped out, and volatility grew due to low trading volumes.

For all four of these materials, prices reached record highs in 2022 and subsequently crashed in 2023 (Figure 4). Nickel, cobalt, and graphite experienced price declines of 30-45%, while lithium prices dropped by an enormous 75%. As discussed above, market volatility discourages investment into critical minerals production capacity. The current low prices have caused some domestic projects to be paused or canceled. For example, Jervois halted operation of its Idaho cobalt mine in March 2023 due to cobalt prices dropping below its operating costs. In January 2024, lithium giant Albemarle announced that it was delaying plans to begin construction on a new South Carolina lithium hydroxide processing plant.

Retrospective analysis suggests that mining companies, battery investors, and automakers had all made overly optimistic demand projections and ramped up their production a bit too fast. These projections assumed that EV demand would keep growing as fast as it did immediately after the pandemic and that China’s lifting of pandemic restrictions would unlock even faster growth in the largest EV market. Instead, China, which makes up over 60% of the EV market, emerged into an economic downturn, and global demand elsewhere didn’t grow quite as fast as projected, as backlogs built up during the pandemic were cleared. (It is important to note that the EV market is still growing at significant rates—global EV sales increased by 35% from 2022 to 2023—just not as fast as companies had wished.) Consequently, supply has temporarily outpaced demand. Midstream and upstream companies stopped receiving new purchase orders while automakers worked through their stock build-up. Prices fell rapidly as a result and are now bottoming out. Some companies are waiting for prices to recover before they restart construction and operation of existing projects or invest in expanding production further. 

While companies are responding to short-term market signals, the U.S. government needs to act in anticipation of long-term demand growth outpacing current planned capacity. Price volatility in critical minerals markets will need to be addressed to ensure that companies and financiers continue investing in expanding production capacity. Otherwise, demand projections suggest that the supply chain will experience new shortages later this decade. 

Oversupply

The current oversupply of critical minerals has been exacerbated by below market-rate financing and subsidies from the Chinese government. Many of these policies began in 2009, incentivizing a wave of investment not just in China, but also in mineral-rich countries. These subsidies played a large role in the 2010s in building out nascent battery critical minerals supply chains. Now, however, they are causing overproduction from Chinese-owned companies, which threatens to push out competitors from other countries.

Overproduction begins with mining. Chinese companies are the primary financial backers for 80% of both the Democratic Republic of the Congo’s cobalt mines and Indonesia’s nickel mines. Chinese companies have also expanded their reach in lithium, buying half of all the lithium mines offered for sale since 2018, in addition to domestically mining 18% of global lithium.  For graphite, 82% of natural graphite was mined directly in China in 2023, and nearly all natural and synthetic graphite is processed in China.

After the price crash in 2023, while other companies pulled back their production volume significantly, Chinese-owned companies pulled back much less and in some cases continued to expand their production, generating an oversupply of lithium, cobalt, nickel, and natural and synthetic graphite. Government policies enabled these decisions by making it financially viable for Chinese companies to sell materials at low prices that would otherwise be unsustainable. 

Domestic Price Premium (and Current Policies Addressing It) 

Domestically-produced critical minerals and battery electrode active materials come with a higher cost of production over imported materials due to higher wages and stricter environmental regulations in the U.S. The IRA’s new 30D and 45X tax credit and upcoming section 301 tariffs help address this problem by creating financial incentives for using domestically produced materials, allowing them to compete on a more even playing field with imported materials. 

The 30D New Clean Vehicle Tax Credit provides up to $7,500 per EV purchased, but it requires eligible EVs to be manufactured from critical minerals and battery components that are FEOC-compliant, meaning they cannot be sourced from companies with relationships to China, North Korea, Russia, and Iran. It also requires that an increasing percentage of critical minerals used to make the EV batteries be extracted or processed in the U.S. or a Free Trade Agreement country. These two requirements apply to lithium, nickel, cobalt, and graphite. For graphite, however, since nearly all processing occurs in China and there is currently no domestic supply, the US Treasury has chosen to exempt it from the 30D tax credit’s FEOC and domestic sourcing requirements until 2027 to give automakers time to develop alternate supply chains.

The 45X Advanced Manufacturing Production Tax Credit subsidizes 10% of the production cost for each unit of critical minerals processed. The Internal Revenue Service’s proposed regulations for this tax credit interprets the legislation for 45X as applying only to the value-added production cost, meaning that the cost of purchasing raw materials and processing chemicals is not included in the covered production costs. This limits the amount of subsidy that will be provided to processors. The strength of 45X, though, is that unlike the 30D tax credit, there is no sunset clause for critical minerals, providing a long term guarantee of support. 

In terms of tariffs, the Biden administration announced in May 2024, a new set of section 301 tariffs on Chinese products, including EVs, batteries, battery components, and critical minerals. The critical minerals tariffs include a 25% tariff on cobalt ores and concentrates that will go into effect in 2024 and a 25% tariff on natural flake graphite that will go into effect in 2026. In addition, there are preexisting 25% tariffs in section 301 for natural and synthetic graphite anode powder. These tariffs were previously waived to give automakers time to diversify their supply chains, but the U.S. Trade Representative (USTR) announced in May 2024 that the exemptions would expire for good on June 14th, 2024, citing the lack of progress from automakers as a reason for not extending them.

Current State of Supply Chain Development

For lithium, despite market volatility, offtake demand for existing domestic projects has remained strong thanks to IRA incentives. Based on industry conversations, many of the projects that are developed enough to make offtake agreements have either signed away their full output capacity or are actively in the process of negotiating agreements. Strong demand combined with tax incentives has enabled producers to negotiate offtake agreements that guarantee a price floor at or above their capital and operating costs. Lithium is the only material for which the current planned mining and processing capacity for North America is expected to meet demand from planned U.S. gigafactories.

Graphite project developers report that the 25% tariff coming into force will be sufficient to close the price gap between domestically produced materials and imported materials, enabling them to secure offtake agreements at a sustainable price. Furthermore, the Internal Revenue Service will require 30D tax credit recipients to submit period reports on progress that they are making on sourcing graphite outside of China. If automakers take these reports and the 2027 exemption deadline seriously, there will be even more motivation to work with domestic graphite producers. However, the current planned production capacity for North America still falls significantly short of demand from planned U.S. battery gigafactories. Processing capacity is the bottleneck for production output, so there is room for additional investment in processing capacity.

Pricing has been a challenge for cobalt though. Jervois briefly opened the only primary cobalt mine in the U.S. before shutting down a few months later due to the price crash. Jervois has said that as soon as prices for standard-grade cobalt rise above $20/pound, they will be able to reopen the mine, but that has yet to happen. Moreover, the real bottleneck is in cobalt processing, which has attracted less attention and investment than other critical minerals in the U.S. There are currently no cobalt sulfate refineries in North America; only one or two are in development in the U.S. and a few more in Canada.³

Nickel sulfate is also facing pricing challenges, and, similar to cobalt, there is an insufficient amount of nickel sulfate processing capacity being developed domestically. There is one processing plant being developed in the U.S. that will be able to produce either nickel metal or nickel sulfate and a few more nickel sulfate refineries being developed in Canada.

Policy Solutions to Support the Development of Processing Capacity

The U.S. government should prioritize the expansion of processing capacity for lithium, graphite, cobalt, and nickel. Demand from domestic battery manufacturing is expected to outpace the current planned capacity for all of these materials, and processing capacity is the key bottleneck in the supply chain. Tariffs and tax incentives have resulted in favorable pricing for lithium and graphite project developers, but cobalt and nickel processing has gotten less support and attention. 

DOE should provide demand-side support for processed, battery-grade critical minerals to accelerate the development of processing capacity and address cobalt and nickel pricing needs. The Office of Manufacturing and Energy Supply Chains (MESC) within DOE would be the ideal entity to administer such a program, given its mandate to address vulnerabilities in U.S. energy supply chains. In the immediate term, funding could come from MESC’s Battery Materials Processing Grants program, which has roughly $1.9B in remaining, uncommitted funds. Below we propose a few demand-support mechanisms that MESC could consider.

Long term, the Bipartisan Policy Center proposes that Congress establish and appropriate funding for a new government corporation that would take on the responsibility of administering demand-support mechanisms as necessary to mitigate volume and price uncertainty and ensure that domestic processing capacity grows to sufficiently meet critical minerals needs.

Offtake Backstops

Offtake backstops would commit MESC to guaranteeing the purchase of a specific amount of materials at a minimum negotiated price if producers are unable to find buyers at that price. This essentially creates a price floor for specific producers while also providing a volume guarantee. Offtake backstops help derisk project development and enable developers to access project financing. Backstop agreements should be made for at least the first five years of a plant’s operations, similar to a regular offtake agreement. Ideally, MESC should prioritize funding for critical minerals with the largest expected shortages based on current planned capacity—i.e., nickel, cobalt, and graphite.

There are two primary ways that DOE could implement offtake backstops:

First. The simplest approach would be for DOE to pay processors the difference between the spot price index (adjusted for premiums and discounts) and the pre-negotiated price floor for each unit of material, similar to how a pay-for-difference or one-sided contract-for-difference would work.⁴ This would enable processors to sign offtake agreements with no price floor, accelerating negotiations and thus the pace of project development. Processors could also choose to keep some of their output capacity uncommitted so that they can sell their products on the spot market without worrying about prices collapsing in the future.

A more limited form of this could look like DOE subsidizing the price floor for specific offtake agreements between a processor and a buyer. This type of intervention requires a bit more preliminary work from processors, since they would have to identify and bring a buyer to the table before applying for support.

Second. Purchasing the actual materials would be a more complex route for DOE to take, since the agency would have to be ready to receive delivery of the materials. The agency could do this by either setting up a system of warehouses suitable for storing battery-grade critical minerals or using “virtual warehousing,” as proposed by the Bipartisan Policy Center. An actual warehousing system could be set up by contracting with existing U.S. warehouses, such as those in LME and CME’s networks, to expand or upgrade their facilities to store critical minerals. These warehouses could also be made available for companies’ to store their private stockpiles, increasing the utility of the warehousing system and justifying the cost of setting it up. Virtual warehousing would entail DOE paying producers to store materials on-site at their processing plants. 

The physical reserve provides an additional opportunity for DOE to address market volatility by choosing when it sells materials from the reserve. For example, DOE could pause sales of a material when there is an oversupply on the market and prices dip or ramp up sales when there is a shortage and prices spike. However, this can only be used to address short-term fluctuations in supply and demand (e.g. a few months to a few years at most), since these chemicals have limited shelf lives. 

A third way to implement offtake backstops that would also support price discovery and transparency is discussed in Section 3. 

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Section 3. Creating Stable and Transparent Markets

Concerns about Pricing Mechanisms

Market volatility in critical minerals markets has raised concerns about just how reliable the current pricing mechanisms for these markets are. There are two main ways that prices in a market are determined: third-party price assessments and market exchanges. A third approach that has attracted renewed attention this year is auctions. Below, we walk through these three approaches and propose potential solutions for addressing challenges in price discovery and transparency. 

Index Pricing

Price reporting agencies like Fastmarkets and Benchmark Mineral Intelligence offer subscription services to help market participants assess the price of commodities in a region. These agencies develop rosters of companies for each commodity, who regularly contribute information on transaction prices. That intel is then used to generate price indexes. Fastmarkets and Benchmark’s indexes are primarily based on prices provided by large, high-volume sellers and buyers. Smaller buyers may pay higher than index prices. 

It can be hard to establish reliable price indexes in immature markets if there is an insufficient volume of transactions or if the majority of transactions are made by a small set of companies. For example, lithium processing is concentrated among a small number of companies in China and spot transactions are a minority share of the market. New entrants and smaller producers have raised concern that these companies have significant control over Asian spot prices reported by Fastmarkets and Benchmark, which are used to set offtake agreement prices, and that the price indexes are not sufficiently transparent.

Exchange Trading

Market exchanges are a key feature of mature markets that helps reduce market volatility. Market exchanges allow for a wider range of participants, improving market liquidity, and enables price discovery and transparency. Companies up and down the supply chain can use physically-delivered futures and options contracts to hedge against price volatility and gain visibility into expectations for the market’s general direction to help inform decision-making. This can help derisk the effect of market volatility on investments in new production capacity.

Of the materials we’ve discussed, nickel and cobalt metal are the only two that are physically traded on a market exchange, specifically LME. Metals make good exchange commodities due to their fungibility. Other forms of nickel and cobalt are typically priced as a percentage of the payable price for nickel and cobalt metal. LME’s nickel price is used as the global benchmark for many nickel products, while the in-warehouse price of cobalt metal in Rotterdam, Europe’s largest seaport, is used as the global benchmark for many cobalt products. These pricing relationships enable companies to use nickel and cobalt metal as proxies for hedging related materials.

After nickel trading volumes plummeted on LME in the wake of the short squeeze, doubts were raised about LME’s ability to accurately benchmark its price, sparking interest in alternative exchanges. In April 2024, UK-based Global Commodities Holdings Ltd (GCHL) launched a new trading platform for nickel metal that is only available to producers, consumers, and merchants directly involved in the physical market, excluding speculative traders. The trading platform will deliver globally “from Baltimore to Yokohama.” GCHL is using the prices on the platform to publish its own price index and is also working with Intercontinental Exchange to create cash-settled derivatives contracts. This new platform could potentially expand to other metals and critical minerals. 

In addition to LME’s troubles though, changes in the battery supply chain have led to a growing divergence between the nickel and cobalt metal traded on exchanges and the actual chemicals used to make batteries. Chinese processors who produce most of the global supply of nickel sulfate have mostly switched from nickel metal to cheaper nickel intermediate products as their primary feedstock. Consequently, market participants say that the LME exchange price for nickel metal, which is mostly driven by stainless steel, no longer reflects market conditions for the battery sector, raising the need for new tradeable contracts and pricing mechanisms. For the cobalt industry, 75% of demand comes from batteries, which use cobalt sulfate. Cobalt metal makes up only 18% of the market, of which only 10-15% is traded on the spot market. As a result, cobalt chemicals producers have transitioned away from using the metal reference price towards fixed-prices or cobalt sulfate payables. 

These trends motivate the development of new exchange contracts for physically trading nickel and cobalt chemicals that can enable price discovery separate from the metals markets. There is also a need to develop exchange contracts for materials like lithium and graphite with immature markets that exhibit significant volatility. 

However, exchange trading of these materials is complicated by their nature as specialty chemicals: they have limited shelf lives and more complex storage requirements, unlike metal commodities. Lithium and graphite products also exhibit significant variations that affect how buyers can use them. For example, depending on the types and level of impurities in lithium hydroxide/carbonate, manufacturers of cathode active materials may need to conduct different chemical processes to remove them. Offtakers may also require that products meet additional specifications based on the characteristics they need for their CAM and battery chemistries.

For these reasons, major exchanges like LME, the Chicago Mercantile Exchange (CME), and the Singapore Exchange (SGX) have instead chosen to launch cash-settled contracts for lithium hydroxide/carbonate and cobalt hydroxide that allow for financial trading, but require buyers and sellers to arrange physical delivery separately from the exchange. Large firms have begun to participate increasingly in these derivatives markets to hedge against market volatility, but the lack of physical settlement limits their utility to producers who still need to physically deliver their products in order to make a profit. Nevertheless, CME’s contracts for lithium and cobalt have seen significant growth in transaction volume. LME, CME, and SGX all use Fastmarkets’ price indexes as the basis for their cash-settled contracts. 

As regional industries mature and products become more standardized, these exchanges may begin to add physically settled contracts for battery-grade critical minerals. For example, the Guangzhou Futures Exchange (GFEX) in China, where the vast majority of lithium refining currently occurs, began offering physically settled contracts for lithium carbonate in August 2023. Though the exchange exhibited significant volatility in its first few months, raising concerns, the first round of physical deliveries in January 2024 occurred successfully, and trading volumes have been substantial this year. Access to GFEX is currently limited to Chinese entities and their affiliates, but another trading platform could come to do the same for North America over the next few decades as lithium production volume grows and a spot market emerges. Abaxx Exchange, a Singapore-based startup, has also launched a physically settled futures contract for nickel sulfate with delivery points in Singapore and Rotterdam. A North American delivery point could be added as the North American supply chain matures. 

No market exchange for graphite currently exists, since products in the industry vary even greater than other materials. Even the currently available price indexes are not seen as sufficiently robust for offtake pricing. 

Auctions

In the absence of a globally accessible market exchange for lithium and concerns about the transparency of index pricing, Albemarle, the top producer of lithium worldwide, has turned to auctions of spodumene concentrate and lithium carbonate as a means to improve market transparency and an “approach to price discovery that can lead to fair product valuation.” Albemarle’s first auction in March of spodumene concentrate in China closed at a price of $1200/ton, which was in line with spot prices reported by Asian Metal, but about 10% greater than prices provided by other price reporting agencies like Fastmarkets. Plans are in place to continue conducting regular auctions at the rate of about one per week in China and other locations like Australia. Lithium hydroxide will be auctioned as well. Auction data will be provided to Fastmarkets and other price reporting agencies to be formulated into publicly available price indexes.

Auctions are not a new concept: in 2021 and 2022, Pilbara Minerals regularly conducted auctions of spodumene on its own platform Battery Metals Exchange, helping to improve market sentiment. Now, though, the company says that most of its material is now committed to offtakers, so auctions have mostly stopped, though it did hold an auction for spodumene concentrate in March. If other lithium producers join Albemarle in conducting auctions, the data could help improve the accuracy and transparency of price indexes. Auctions could also be used to inform the pricing of other battery-grade critical minerals. 

Policy Solutions to Support Price Discovery and Transparency Across the Market

Right now, the only pricing mechanisms available to domestic project developers are spot price indexes for battery-grade critical minerals in Asia or global benchmarks for proxies like nickel and cobalt metal. Long-term, the development of new pricing mechanisms for North America will be crucial to price discovery and transparency in this new market. There are two ways that DOE could help facilitate this: one that could be implemented immediately for some materials and one that will require domestic production volume to scale up first.

First. Government-Backed Auctions: Auctions require project developers to keep a portion of their expected output uncommitted to any offtakers. However, there is a risk that future auctions won’t generate a price sufficient to offset capital and operating expenses, so processors are unlikely to do this on their own, especially for their first domestic project. MESC could address this by providing a backstop guarantee for the portion of a producer’s output that they commit to regularly auctioning for a set timespan. If, in the future, auctions are unable to generate a price above a pre-negotiated price floor, then DOE would pay sellers the difference between the highest auction price and the price floor for each unit sold. Such an agreement could be made using DOE’s Other Transaction Authority. DOE could separately contract with a platform such as MetalsHub to conduct the auction. 

Government-backed auctions would enable the discovery of a true North American price for different battery-grade critical minerals and the raw materials used to make them, generating a useful comparison point with Asian spot prices. Such a scheme would also help address developers’ price and demand needs for project financing. These backstop-auction agreements could be complementary to the other types of backstop agreements proposed earlier and potentially more appealing than physically offtaking materials since the government would not have to receive delivery of the materials and there would be a built-in mechanism to sell the materials to an appropriate buyer. If successful, companies could continue to conduct auctions independently after the agreements expire.

Second. New Benchmark Contracts: Employ America has proposed that the Loan Programs Office (LPO) could use Section 1703 to guarantee lending to a market exchange to develop new, physically settled benchmark contracts for battery-grade critical minerals. The development of new contracts should include producers in the entire North American region. Canada also has a significant number of mines and processing plants in development. Including those projects would increase the number of participants, market volume, and liquidity of new benchmark contracts.

In order for auctions or new benchmark contracts to operate successfully, three prerequisites must be met:

1. There must be a sufficient volume of materials available for sale (i.e. production output that is not committed to an offtaker).
2. There must be sufficient product standardization in the industry such that materials produced by different companies can be used interchangeably by a significant number of buyers.
3. There must be a sufficient volume of demand from buyers, brokers, and traders.

Market exchanges typically conduct research into stakeholders to understand whether or not the market is mature enough to meet these requirements before they launch a new contract. Interest from buyers and sellers must indicate that there would be sufficient trading volume for the exchange to make a profit greater than the cost of setting up the new contract. A loan from LPO under Section 1703 can help offset some of those upfront costs and potentially make it worthwhile for an exchange to launch a new contract in a less mature market than they typically would. 

Government-backed auctions, on the other hand, solve the first prerequisite by offering guarantees to producers for keeping a portion of their production output uncommitted. Product standardization can also be less stringent, since each producer can hold separate auctions, with varying material specifications, unlike market exchanges where there must be a single set of product standards.

Given current market conditions, no battery-grade critical minerals can meet the above prerequisites for new benchmark contracts, primarily due to a lack of available volume, though there are also issues with product standardization for certain materials. However, nickel, cobalt, lithium, and graphite could be good candidates for government-backed auctions. DOE should start engaging with project developers that have yet to fully commit their output to offtakers and gauge their interest in backstop-auction agreements. 

Nickel and Cobalt

As discussed prior, there are only a handful of nickel and cobalt sulfate refineries currently being developed in North America, making it difficult to establish a benchmark contract for North America. None of the project developers have yet signed offtake agreements covering their full production capacity, so backstop-auction agreements could be appealing to project developers and their investors. Given that more than half of the projects in development are located in Canada, MESC and DOE’s Office of International Affairs should collaborate with the Canadian government in designing and implementing government-backed auctions. 

Lithium

Domestic companies have expressed interest in establishing North American-based spot markets and price indexes for lithium hydroxide and carbonate, but say that it will take quite a few years before production volume is large enough to warrant that. Product variation has also been a concern from lithium processors when the idea of a market exchange or public auction has been raised. Lessons could be learned from the GFEX battery-grade lithium carbonate contracts. GFEX set standards on the purity, moisture, loss on ignition, and maximum content of different impurities. Some Chinese companies were able to meet these standards, while others were not, preventing them from participating in the futures market or requiring them to trade their materials as lower-purity industrial-grade lithium carbonate, which sells for a discounted price. Other companies producing lithium of much higher quality than the GFEX standards, opted to continue selling on the spot market because they could charge a premium on the standard price. Despite some companies choosing not to participate, trading volumes on GFEX have been substantial, and the exchange was able to weather through initial concerns of a short squeeze, suggesting that challenges with product variation can be overcome through standardization.

Analysts have proposed that spodumene could be a better candidate for exchange trading, since it is fungible and does not have the limited shelf-life or storage requirements of lithium salts. 60% of global lithium comes from spodumene, and the U.S. has some of the largest spodumene deposits in the world, so spodumene would be a good proxy for lithium salts in North America. However, the two domestic developers of spodumene mines are planning to construct processing plants to convert the spodumene into battery-grade lithium on-site. Similarly, the two Canadian mines that currently produce spodumene are also planning to build their own processing plants. These vertical integration plans mean that there is unlikely to be large amounts of spodumene available for sale on a market exchange in the near future.

DOE could, however, work with miners and processors to sign backstop-auction agreements for smaller amounts of lithium hydroxide/carbonate and spodumene that they have yet to commit to offtakers. This may be especially appealing to companies that have announced delays to project development due to current low market prices and help derisk bringing timelines forward. Interest in these future auctions could also help gauge the potential for developing new benchmark contracts for lithium hydroxide/carbonate further down the line.

Graphite

Natural and synthetic graphite anode material products currently exhibit a great range of variation and insufficient product standardization, so a market exchange would not be viable at the moment. As the domestic graphite industry develops, DOE should work with graphite anode material producers and battery manufacturers to understand the types and degree of variations that exist across products and discuss avenues towards product standardization. Government-backed auctions could be a smaller-scale way to test the viability of product standards developed from that process, perhaps using several tiers or categories to group products. Natural and synthetic graphite would have to be treated separately, of course. 

Conclusion

The current global critical minerals supply chain partially reflects the results of over a decade of focused, industrial policies implemented by the Chinese government. If the U.S. wants to lead the clean energy transition, critical minerals will also need to become a cornerstone of U.S. industrial policy. Developing a robust North American critical minerals industry would bolster U.S. energy security and independence and ensure a smooth energy transition. 

Promising progress has already been made in lithium, with planned processing capacity expected to meet demand from future battery manufacturing. However, market and pricing challenges remain for battery-grade nickel, cobalt, and graphite, which will fall far short of future demand without additional intervention. This report proposes that DOE take a two-pronged approach to supporting the critical minerals industry through offtake backstops, which address project developers’ current pricing dilemmas, and the development of more reliable and transparent pricing mechanisms such as government-backed auctions, which will set up markets for the future.

While the solutions proposed in this report focus on DOE as the primary implementer, Congress also has a role to play in authorizing and appropriating new funding necessary to execute a cohesive industrial strategy on critical minerals . The policies proposed in this report can also be applied to other critical minerals crucial for the energy transition and our national security. Similar analysis of other critical minerals markets and end uses should be conducted to understand how these solutions can be tailored to those industry needs. 

It may sound dramatic, but “Valleys of Death” are delaying the United States’ technology development progress needed to achieve the energy security and innovation goals of this decade. As emerging clean energy technologies move along the innovation pipeline from first concept to commercialization, they encounter hurdles that can prove to be a death knell for young startups. These “Valleys of Death” are gaps in funding and support that the Department of Energy (DOE) hasn’t quite figured out how to fill – especially for projects that require less than $25 million.

The International Energy Agency (IEA) estimates that to reach net-zero emissions by 2050, almost 35% of CO2 emissions to avoid require technologies that are not yet past the demonstration stage. It’s important to note that this share is even higher in harder-to-decarbonize sectors like long-haul transportation and heavy industry. To reach this metric, a massive effort within the next ten years is needed for these technologies to reach readiness for deployment in a timely manner.

Although programs exist within DOE to address different barriers to innovation, they are largely constrained to specific types of technologies and limited in the type of support they can provide. This has led to a discontinuous support system with gaps that leave technologies stranded as they wait in the “valleys of death” limbo. A “Fast Track” program at DOE – supported by the CHIPS and Science-authorized Foundation for Energy Security and Innovation (FESI) – would remove obstacles for rapidly-growing startups that are hindered by traditional government processes. FESI is uniquely positioned to be a valuable tool for DOE and its allies as they seek to fill the gaps in the technology innovation pipeline.

Where does FAS come in?

The Department of Energy follows the lead of other agencies that have established agency-affiliated foundations to help achieve their missions, like the Foundation for the National Institutes of Health (FNIH) and the Foundation for Food & Agriculture Research (FFAR). These models have proven successful at facilitating easier collaboration between agencies and philanthropy, industry, and communities while guarding against conflicts of interest that might arise from such collaboration. Notably, in 2020, the FNIH coordinated a public-private working group, ACTIV, between eight U.S. government agencies and 20 companies and nonprofits to speed up the development of the most promising COVID-19 vaccines. 

As part of our efforts to support DOE in standing up its new foundation with the Friends of FESI Initiative, FAS is identifying potential use cases for FESI – structured projects that the foundation could take on as it begins work. The projects must forward DOE’s mission in some way, with a particular focus on accelerating clean energy technology commercialization.

In early April, we convened leaders from DOE, philanthropy, industry, finance, the startup community, and fellow NGOs to workshop a few of the existing ideas for how to implement a Fast Track program at DOE. We kicked things off with some remarks from DOE leaders and then split off into four breakout groups for three discussion sessions.

In these sessions, participants brainstormed potential challenges, refinements, likely supporters, and specific opportunities that each idea could support. Each discussion was focused around what FESI’s unique value-add was for each concept and how best FESI and DOE could complement each other’s work to operationalize the idea. The four main ideas are explored in more detail below.

Support Pilot-scale Technologies on the Path to Commercialization 

The technology readiness level (TRL) framework has been used to determine an emerging technology’s maturity since NASA first started using it in the 1970s. The TRL scale begins at “1” when a technology is in the basic research phase and ends at “9” when the technology has proven itself in an operating environment and is deemed ready for full commercial deployment. 

However, getting to TRL 9 alone is insufficient for a technology to actually get to demonstration and deployment. For an emerging clean technology to be successfully commercialized, it must be completely de-risked for adoption and have an established economic ecosystem that is prepped to welcome it. To better assess true readiness for commercial adoption, the Office of Technology Transitions (OTT) at the Department of Energy (DOE) uses a joint “TRL/Adoption Readiness Level (ARL)” framework. As depicted by the adoption readiness level scale below, a technology’s path to demonstration and deployment is less linear in reality than the TRL scale alone suggests.

Source: The Office of Technology Transitions at the Department of Energy

There remains a significant gap in federal support for technologies trying to progress through the mid-stages of the TRL/ARL scales. Projects that fall within this gap require additional testing and validation of their prototype, and private investment is often inaccessible until questions are answered about the market relevance and competitiveness of the technology.

FESI could contribute to a pilot-scale demonstration program to help small- and medium-scale technologies move from mid-TRLs to high-TRLs and low to medium ARLs by making flexible funding available to innovators that DOE cannot provide within its own authorities and programs. Because of its unique relationship as a public-private convener, FESI could reach the technologies that are not mature enough, or don’t qualify, for DOE support, and those that are not quite to the point where there is interest from private investors. It could use its convening ability to help identify and incubate these projects. As it becomes more capable over time, FESI might also play a role in project management, following the lead of the Foundation for the NIH.

Leverage the National Labs for Tech Maturation 

The National Laboratories have long worked to facilitate collaboration with private industry to apply Lab expertise and translate scientific developments to commercial application. However, there remains a need to improve the speed and effectiveness of collaboration with the private sector.

A Laboratory-directed Technology Maturation (LDTM) program, first ideated by the EFI Foundation, would enable the National Labs to allocate funding for technology maturation projects. This program would be modeled after the highly successful DOE Office of Science Laboratory-directed Research and Development (LDRD) program and it would focus on taking ideas at the earliest Technology Readiness Levels (TRLs) and translating them to proof of concept—from TRL 1 and 2 to TRL 3. This program would translate scientific discoveries coming out of the Labs into technology applications that have great potential for demonstration and deployment. FESI could assist in increasing the effectiveness of this effort by lowering the transaction costs of working with the private sector. It could also be a clearinghouse for LDTM-funded scientists who need partners for their projects to be successful, or could support an Entrepreneur-in-Residence or entrepreneurial postdoc program that could house such partners.

While FESI would be a practical convener of non-federal funding for this program, the magnitude of the funding needed to establish this program may not be well-suited for an initial project for the foundation to take on. It is estimated that each project would be in the ballpark of $5-20 million, and funding a full portfolio, which private sponsors are more likely to be interested in, is a nine-figure venture. Supporting a LDTM program is a promising idea for further down the line as FESI grows and matures. 

Align Later-stage R&D Market Needs with Corporate Interest via a Commercialization Consortium

Industry and investors often struggle to connect with government-sponsored technologies that fit their plans and priorities. At the same time, government-sponsored researchers often struggle to navigate the path to commercialization for new technologies.

Based on a model widely-used by the Department of Defense (DOD), an open consortium is a mechanism and means to convene industry and highlight relevant opportunities coming out of DOE-funded work. The model creates an accessible and flexible pathway to get U.S.-funded inventions to commercial outcomes.

FESI could function as the Consortium Management Organization (CMO), pictured below, to help structure interactions and facilitate communications between DOE sponsors and award recipients while freeing government staff from “picking winners.” As the CMO, FESI would issue task orders and handle contracting per the consortium agreement, which would be organized under DOE’s other transactions authority (OTA). In this model, FESI could work with DOE staff in applied R&D offices and OCED to identify opportunities and needs in the development pipeline, and in parallel work with consortium members (including holders of DOE subject inventions, industry partners, and investors) to build teams and scope projects to advance targeted technology development efforts. 

This consortium could help work out the kinks in the pipeline to ensure that successful technologies in the applied offices have sufficient “runway” to reach TRL 7, and that OCED has a healthy pipeline of candidate technologies for scaled demonstrations. FESI could mitigate the offtake risk that is known to stall first-of-a-kind projects, like financing a lithium extraction project, for example. Partners in industry and the investment community will be aligned, and potentially provide cost share, in order to gain access to technologies emerging from DOE subject inventions.

GAO analysis of Department of Defense information 

The Time is Right

This workshop comes at a prime time for FESI. The Secretary of Energy appointed the inaugural FESI board—composed of 13 leaders in innovation, national security, philanthropy, business, science, and other sectors—in mid-May. In the coming months, the board will formally set up the organization, hire staff, adopt an agenda, and begin to pursue projects that will make a real impact to advance DOE’s mission. As Friends of FESI, we want to see the foundation position itself for the grand impact it is designed to have. 

The above proposals are actionable and affordable projects that a young FESI is uniquely-positioned to achieve. That said, supporting pilot-stage demonstrations is only one area where FESI can make an impact. If you have additional ideas for how FESI could leverage its unique flexibility to accelerate the clean energy transition, please reach out to our team at fesifriends@fas.org. You can also keep up with the Friends of FESI Initiative by signing up for our email newsletter. Email us!

The U.S. Department of Energy (DOE) has a vital mission: “to ensure America’s security and prosperity by addressing its energy, environmental and nuclear challenges through transformative science and technology solutions.” In 2022’s CHIPS and Science Act, Congress gave DOE a new partner to accelerate its pursuit of this mission: the Foundation for Energy Security and Innovation (FESI). As ‘Friends of FESI’ we want to see this new foundation set up from day one to successfully fulfill the promise of its large impact. 

Once fully established, FESI will be an independent 501(c)3 non-profit organization with a complementary relationship to DOE. It will raise money from non-governmental sources to support activities of joint interest to the Department and its constituents, such as accelerating commercialization of next-generation geothermal power and bridging gaps in the clean energy technology innovation pipeline. 

Judging by the success of other agency-affiliated foundations that served as a template for FESI, the potential for the Foundation’s impact is hefty. The National Fish and Wildlife Foundation, chartered by Congress to work with the Fish and Wildlife Service, for instance, is the nation’s largest non-governmental conservation grant-maker. In fiscal year 2023 alone, the NFWF awarded $1.3 billion to 797 projects that will generate a total conservation impact of $1.7 billion.

FESI’s creation is timely. As the U.S. races to net-zero, the International Energy Agency estimates that at least $90 billion of public funding needs to be raised by 2026 for an efficient portfolio of demonstration projects. For perspective, the most recent yearly budget for the entire DOE is just slightly more than half of that number. Non-DOE funding to support innovation is essential to ensure that energy remains affordable and reliable. DOE’s mission is a vital national interest, and the Department needs all the help it can get. The stronger FESI is, the more it will be able to help.

This week, Secretary of Energy Granholm took the first official step to create FESI by appointing its inaugural board. The board consists of 13 accomplished members whose backgrounds span the nation’s regions and communities and who have deep experience in innovation, national security, philanthropy, business, science, and other sectors. 

A strong founding board is an essential ingredient in FESI’s success, and we are pleased to see that its members reflect the bipartisan support that FESI has had since legislation to form it was first introduced. While non-partisan technical and market expertise is vital to make objective judgments about hiring and investments, bipartisan relationships will ensure that FESI is sustained through changes of partisan control of Congress and the presidency. 

Another key to FESI’s success will be stringent conflict of interest rules. Public-private partnerships, like those that FESI will foster, are always at risk of being subverted to pursue only private ends. It is equally important for FESI to also prioritize transparency and oversight of compliance with these rules to avoid the appearance of any conflict of interest that would undermine its progress. 

What Happens Next? 

In the coming weeks and months, the FESI board will hire a CEO and other leaders. This board will set FESI’s agenda and initial priorities, and later down the line, it will also eventually appoint its own successors. Its imprint will be long-lasting. The organizational culture the board creates will strongly influence whether FESI will make a real difference for energy, climate, science, national security, and the economy. As ‘Friends of FESI’ we are eager to see what the FESI board decides to take on first.  

To learn more about the Inaugural FESI Board nominees, check out the DOE press release here.

FAS eager to see the Board set an ambitious agenda that aligns with the potential scale of FESI’s impact

Washington, D.C. – May 9, 2024 – Earlier today Secretary of Energy Granholm took the first official step to stand up the Department of Energy-affiliated non-profit Foundation for Energy Security and Innovation (FESI) by appointing its inaugural board. Today the “Friends of FESI” Initiative of the nonpartisan, non-profit Federation of American Scientists (FAS) steps forward to applaud the Secretary, congratulate the new board members, and wish FESI well as it officially begins its first year. The Inaugural FESI Board consists of 13 accomplished members whose backgrounds span the nation’s regions and communities and who have deep experience in innovation, national security, philanthropy, business, science, and other sectors. It includes:

• Jason Walsh, BlueGreen Alliance
• Nancy Pfund, DBL Partners
• Rita Baranwal, Westinghouse Electric
• Vicky Bailey, Anderson Stratton
• Mike Boots, Breakthrough Energy
• Miranda Ballentine, Clean Energy
• Stephen Pearse, Yucatan Rock
• Noel Bakhtian, Bezos Earth Fund
• Mung Chiang, President of Purdue University 
• Noelle Laing, Builder’s Initiative Foundation
• Katie McGinty, Johnson Controls
• Tomeka McLeod, Hydrogen VP at bp
• Rudy Wynter, National Grid NY
  

Since the CHIPS and Science Act authorized FESI in 2022, FAS, along with many allies and supporters who collectively comprise the “Friends of FESI,” have been working to enable FESI to achieve its full potential as a major contributor to the achievement of DOE’s vital goals. “Friends of FESI” has been seeking projects and activities that the foundation could take on that would advance the DOE mission through collaboration with private sector and philanthropic partners.

“FAS enthusiastically celebrates this FESI milestone because, as one of the country’s oldest science and technology-focused public interest organizations, we recognize the scale of the energy transition challenge and the urgency to broker new collaborations and models to move new energy technology from lab to market,” says Dan Correa, CEO of FAS. “As a ‘Friend of FESI’ FAS continues our outreach amongst our diverse network of experts to surface the best ideas for FESI to consider implementing.” The federation is soliciting ideas at fas.org/fesi, underway since FESI’s authorization.

FESI has great potential to foster the public-private partnerships necessary to accelerate the innovation and commercialization of technologies that will power the transition to clean energy. Gathering this diverse group of accomplished board members is the first step. The next is for the FESI Board to pursue projects set to make real impact. Given FESI’s bipartisan support in the CHIPS & Science Act, FAS hopes the board is joined by Congress, industry leaders and others to continue to support FESI in its initial years. 

“FESI’s establishment is a vital initial step, but its value will depend on what happens next,” says David M. Hart, a professor at George Mason University’s Schar School of Policy and Government and leader of the “Friends of FESI” initiative at FAS. “FESI’s new Board of Directors should take immediate actions that have immediate impact, but more importantly, put the foundation on a path to expand that impact exponentially in the coming years. That means thinking big from the start, identifying unique high-leverage opportunities, and systematically building the capacity to realize them.”

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ABOUT FAS

The Federation of American Scientists (FAS) works to advance progress on a broad suite of contemporary issues where science, technology, and innovation policy can deliver dramatic progress, and seeks to ensure that scientific and technical expertise have a seat at the policymaking table. Established in 1945 by scientists in response to the atomic bomb, FAS continues to work on behalf of a safer, more equitable, and more peaceful world. More information at fas.org.

Resources

Building a Firm Foundation for the DOE Foundation: It All Starts with a Solid Board
https://fas.org/publication/fesi-board-launch/

FAS use case criteria:
https://fas.org/publication/fesi-priority-use-cases/

FAS open call for FESI ideas:
https://fas.org/publication/share-an-idea-for-what-fesi-can-do-to-advance-does-mission/

DOE announcing FESI board:
https://www.energy.gov/articles/doe-appoints-inaugural-board-directors-groundbreaking-new-foundation

DOE release announcing FESI:
https://www.energy.gov/articles/doe-launches-foundation-energy-security-and-innovation

The Biden Administration has prioritized the clean energy transition as a core element of its governing agenda, via massive legislative victories like the Inflation Reduction Act (IRA) and Bipartisan Infrastructure Law (BIL), and through its ongoing whole-of-government focus on clean innovation. The Administration has continued to push for further investments, but faces a difficult fiscal environment in Congress – which has meant shortfalls for many priority areas like funding for CHIPS and Science. In March, the Administration released the FY 2025 budget request for the Department of Energy (DOE), and with it seeks to extend the gains of the past few years. This blog post highlights a selection of priority proposals in the FY 2025 request.

Scaling Clean Energy Technologies

BIL and IRA gave DOE a new mandate to support the demonstration, deployment, and commercialization of clean energy technologies, and established the Office of Clean Energy Demonstrations (OCED) to achieve this. OCED is tasked with managing a range of large-scale commercial demonstration programs, which provide cost-share funding on the order of $50 to $500 million. OCED’s $30 billion portfolio of BIL- and IRA-funded programs include the Industrial Demonstrations Program, which recently announced selections for award negotiations; the Regional Clean Hydrogen Hubs; the Advanced Reactor Demonstration Projects; and others.

Now that the majority of its BIL and IRA funding has been awarded, OCED is looking to continue building on this momentum, but annual appropriations have not been easy. OCED last year sought to significantly ramp up its annual appropriations to $215 million, but appropriators ended up providing only $50 million in new funding to OCED – nearly 50% less than FY23. Such an outcome hinders OCED’s ability to launch first-of-a-kind demonstration programs in new areas or expand existing programs, particularly since several OCED programs (like most IIJA and IRA initiatives) are vastly oversubscribed. For instance, OCED’s Industrial Demonstrations program provided awards of $6.3 billion, but received 411 concept papers requesting over $60 billion in federal funding with $100 billion in matching private dollars. Other programs at OCED, including the Energy Improvements in Rural and Remote Areas and the Clean Hydrogen Hubs, were similarly oversubscribed. 

For FY 2025, OCED is again proposing a funding ramp-up to $180 million. This includes a new extreme heat demonstration program in collaboration with DOE’s Office of State and Community Energy Programs (SCEP). SCEP has requested $35 million to lead the planning and design phases, while OCED’s request of $70 million will fund the federal cost-share for three to six community-scale demonstration projects. The new program will provide much needed funding for solutions to address extreme heat, which is the top weather-related cause of death for Americans and is only expected to worsen with global temperatures increasing each year.

In addition to OCED’s portfolio, BIL funded a $5 billion Grid Innovation Program (GRIP) managed by the Grid Deployment Office (GDO). GRIP focuses on central grid infrastructure, but GDO also has a portfolio of work on microgrids, which improve resiliency by enabling communities to maintain electricity access even when the larger grid goes down. BIL established some programs that can be used to fund certain components of microgrids or to purchase microgrid capacity, but these programs are unable to fund full scale microgrid demonstration projects. For FY 2025, GDO is requesting $30 million for a new Microgrid Generation and Design Deployment Program that will fill that gap. 

Complementary to these large-scale demonstration programs are a suite of small-scale pilot demonstration programs managed by offices under the Under Secretary for Science and Innovation (S4), which provide grants that are typically less than $20 million. 

Within the Office of Energy Efficiency and Renewable Energy (EERE), the Geothermal Technologies Office (GTO) has been running a rolling funding opportunity for enhanced geothermal systems (EGS) pilot demonstrations, authorized by BIL and funded by annual appropriations. For FY 2025, GTO is requesting continued funding for this program so that they can support additional greenfield demonstration projects.

EGS is important as a future source of clean, firm energy, but it’s not the only promising next-generation geothermal technology, as closed-loop geothermal has also demonstrated the  potential to be cost-competitive with EGS. Currently, only EGS projects are eligible in GTO’s program, despite the fact that BIL and prior legislation intended a more inclusive approach. As such, the Federation of American Scientists has joined with the next-generation geothermal community—including organizations representing both EGS and closed-loop geothermal companies—to call on DOE to take a tech agnostic approach and expand the scope of the program to include all next-generation technologies. We also call on Congress to adopt report language directing DOE to include demonstration projects using closed-loop and other next-generation geothermal technologies, and to appropriate at least GTO’s full budget request of $156 million.

Other proposed demonstration activities across the DOE enterprise include:

• Demonstration programs for reservoir thermal energy storage and thermal energy networks within GTO’s low temperature and coproduced resources portfolio ($24 million);
• Demonstration of wind hybrid systems, which use wind energy to produce hydrogen for energy storage or direct industrial usage, by the Wind Energy Technologies Office ($23.5 million);
• Expansion of in-water demonstrations of grid-scale wave energy devices at the Water Power Technologies Office’s testing facility PacWave ($50 million);
• Validation and demonstration of heat pumps and energy efficiency retrofits in commercial and residential buildings by the Building Technologies Office ($27 million and $32.5 million, respectively);
• Demonstration and validation of a new grid technology by the Office of Electricity ($7 million); and
• Support from the Office of Nuclear Energy to help address the technical, operational, and regulatory challenges facing five potential future demonstration projects, as a part of the Advanced Reactor Demonstration Program ($142.5 million).

Tech Transitions and FESI

The Office of Technology Transitions (OTT) was established in 2015 to get the most out of DOE’s RD&D portfolio by better aligning the Department’s science research enterprise with industry and public needs. A core part of OTT’s mission is to expand the commercial impact of DOE’s research investments by developing viable market pathways for technologies coming out of the National Labs. Despite having a relatively small budget, OTT’s mission is crucial for the rapid acceleration of the energy transition.  

In FY 2024, however, OTT’s budget was cut by 10% which put a damper on the Office’s ability to carry out its mission. In response, in FY25, OTT is seeking $7.1 million more than its $20 million budget from the previous fiscal year in an attempt to ramp up funding for its programs. This increase also includes a separate funding line item of $3 million for the Foundation of Energy Security and Innovation (FESI), the DOE-affiliated 501(c)3 nonprofit organization established in the CHIPS and Science Act. FESI has significant potential to complement DOE’s mission by being a flexible tool to accelerate clean energy innovation and commercialization. Since the Foundation is a non-federal entity, it can catalyze public-private collaboration and raise private and philanthropic capital to put towards specific projects like funding pilot wells for next-generation geothermal power or filling funding gaps for pilot-scale technologies along the innovation pipeline, for example.

In addition to overseeing the standing up of FESI, OTT facilitates five main programs including the Technology Commercialization Fund, the Energy I-Corps Program, the Lab Partnering Service, the EnergyTech University Prize, and the Technology Commercialization Internship Program. Each of these programs is designed to increase industry and innovator access to the Labs while also bolstering the commercial pathway for emerging energy technologies, and together they’re vital to the success of clean energy technology commercialization.

Opportunities for Support Through Congressional Control Points 

The FY 2025 DOE request also looks to support the vital work of several new offices by establishing Congressional control points – meaning they’d be treated as standalone entities in appropriations, rather than subaccounts of other offices. Last year’s request sought new control points for the Office of State and Community Energy Programs, Federal Energy Management Program, and Manufacturing and Energy Supply Chains, but Congress has yet to act.

It’s an incredibly wonky topic, but it’s actually pretty important: establishing control points for these offices can help create a baseline for future funding and maintain institutional consistency. Becoming standalone offices can also help them carry out their missions, by giving them the authority to engage with other partners including federal agencies, creating more pathways for collaboration with energy-intensive agencies like the Defense Department.

This series of interviews spotlights scientists working across the country to implement the U.S. Department of Energy’s massive efforts to transition the country to clean energy, and improve equity and address climate injustice along the way. The Federation’s clean energy workforce report discusses the challenges and opportunities associated with ramping up this dynamic, in-demand workforce. These interviews have been edited for length and do not necessarily reflect the views of the DOE.

An aerospace engineer and educator by trade, Stephanie Bostwick has spent her career building connections between clean energy, the communities that need it, and the future clean energy experts of the world. Now at the Office of Indian Energy Policy and Programs, she supports Tribal Colleges and Universities (TCUs) as they develop the future workforce and  build out clean energy projects.

Teaching Clean Energy

After years of working in the aerospace industry, Stephanie switched over to teaching – first at Lake Washington Institute of Technology and later at Northwest Indian College. At these community colleges, Stephanie helped build engineering curricula that focused explicitly on clean energy – introducing solar and other technologies to “try and get students moving in a direction that would support the future that this country is moving in.” “Now that we’re focused on [clean energy], we’re trying to train people and encourage them to go down that path so they could do something that supports their communities.”

The transition made sense for other reasons too. Stephanie is a member of Blackfeet Nation and continues to work with Tribal communities like the Lummi Nation. She saw communities around her moving towards clean energy. Her students were more interested in jobs where they would not only make a good living, but make a difference in their communities as well. At the time, the Lummi Nation was exploring solar energy projects and looking to build up a solar workforce. Having educational resources that aligned with these needs helped prepare students for a changing world. 

The National Renewable Energy Lab and DOE 

As Stephanie grew these programs as a faculty member, she also participated in several fellowships that strengthened her subject matter expertise in clean energy: solar power systems, microgrids, and more. These opportunities gave her the tools and knowledge to champion clean energy at her institutions and in her community. “It’s been exciting to learn a whole new field and be able to explain it to folks at a level that helps them engage with it as well.”

One of these fellowships, the Visiting Faculty Program, brought her to the National Renewable Energy Laboratory, where after the fellowship she stayed permanently to support Tribes with technical assistance on clean energy projects.

Now on detail to the DOE’s Office of Indian Energy Policy and Programs, she supports TCUs. “My role involves doing outreach to all the TCUs, letting them know that we have funding, and then figuring out what technical assistance they might need and connecting them with our engineers.” In addition, she provides support with curriculum development for clean energy programs, as well as for energy resilient infrastructure on physical campuses. 

The Tribal communities she works with face many barriers to a renewable energy transition. “One of the larger issues is transmission and distribution lines that aren’t suitable for adding a significant amount of renewable energy to. [Tribes] need transmission infrastructure – we need to back up and figure out this issue.” There’s also some hesitation about clean energy solutions that might not work in more rural areas with extreme weather – heavy snowpack in the winter, and very hot summers. There are concerns about how useful electric vehicles could be in areas where the closest hospital is hours away, for example. 

But despite these concerns, Stephanie says, there’s a lot of interest in and enthusiasm for renewable energy solutions. That’s part of why she loves her job: “The awesome thing is that folks are really interested in a conversion to clean energy and what they can do to support the Tribe. It’s really fun to go out there and see that people want to move in that direction.” 

One of the most rewarding parts of her role so far has been to see progress on her old projects. When she was a faculty member at Northwest Indian College, the Lummi Nation was focused on conducting solar microgrid feasibility studies and starting to look for people to fill out a local solar workforce. In her current role, she has been able to support the Lummi Nation and the TCUs she works with in applying for and receiving funding for building out those microgrids. In just a few years, what seemed like an uphill battle is already underway to becoming a reality. 

“While it’s felt slow, it’s only been a few years and it’s been really exciting to watch how we have been able to incorporate the training and make these big things happen that seemed so distant back when we received our first grant.”

Stephanie wants to look beyond supporting Tribes on specific projects and funding opportunities and help them build capacity long-term. Her office is currently working on initiatives to do just that – in order to hand the reins of energy planning and development over to the communities themselves. “The goal is to make sure that Tribes have that internal knowledge so that in the future, they’re able to do all that on their own and not have to rely on others. Sovereignty implies that, but there are still complications. It’s exciting to move in that direction.”

Ultimately, the goal for many Tribal communities is to be able to generate their own power and distribute it to other communities – to sell the energy they generate. There are still hurdles, but Stephanie’s office helps supply Tribes with tools to get there. 

One of the special things about her position is that she’s able to work and live in the communities she serves – the remote flexibilities of DOE offer more than just personal benefits. “For me, staying in the community that I’m in and integrated into and being able to continue to do my work at the college is really important to me.”

In addition to her role at DOE, Stephanie supports students in more personal ways as well – taking Zoom calls with mentees to offer advice on aerospace careers or just help with their calculus homework. The ability to merge personal and professional pursuits in support of the clean energy transition is gratifying, even if there is still so much more to do.

“It’s exciting to have the resources and knowledge and be able to share that with the TCUs and hopefully get them on the cutting edge. It’s still an uphill battle, but it’s a very worthy battle.”

State, local, and Tribal governments still face major capacity issues when it comes to accessing federal funding opportunities – even with the sheer amount of programs started since the Bipartisan Infrastructure Law (BIL) and Inflation Reduction Act (IRA) were passed. Communities need more technical assistance if implementation of those bills is going to reach its full potential, but federal agencies charged with distributing funding can’t offer the amount needed to get resources to where they need to go quickly, effectively, and equitably. 

Community navigator programs offer a potential solution. Navigators are local and regional experts with a deep understanding of the climate and clean energy challenges and opportunities in their area. These navigators can be trained in federal funding requirements, clean energy technologies, permitting processes, and more – allowing them to share that knowledge with their communities and boost capacity. 

Federal agencies like the Department of Energy (DOE) should invest in standing up these programs by collecting feedback on specific capacity needs from regional partners and attaching them to existing technical assistance funding. These programs can look different, but agencies should consider specific goals and desired outcomes, identify appropriate regional and local partners, and explore additional flexible funding opportunities to get them off the ground. 

Community navigator programs can provide much-needed capacity combined with deep place-based knowledge to create local champions with expertise in accessing federal funding – relieving agencies of technical assistance burdens and smoothing grant-writing processes for local and state partners. Agencies should quickly take advantage of these programs to implement funding more effectively. 

Challenge

BIL/IRA implementation is well under way, with countless programs being stood up at record speed by federal agencies. Of course, the sheer size of the packages means that there is still quite a bit of funding on the table at DOE that risks not being distributed effectively or equitably in the allotted time frame. While the agency is making huge strides to roll out its resources—which include state-level block grants, loan guarantee programs, and tax rebates—it has limited capacity to fully understand the unique needs of individual cities and communities and to support each location effectively in accessing funding opportunities and implementing related programs. 

Subnational actors own the burden of distributing and applying for funding. States, cities, and communities want to support distribution, but they are not equally prepared to access federal funding quickly. They lack what officials call absorptive capacity, the ability to apply for, distribute, and implement funding packages. Agencies don’t have comprehensive knowledge of barriers to implementation across the hundreds of thousands of communities and can’t provide individualized technical assistance that is needed. 

Two recent research projects identified several keys ways that cities, state governments, and technical assistance organizations need support from federal agencies:

• Identifying appropriate federal funding opportunities and matching with projects and stakeholders
• Understanding complex federal requirements and processes for accessing those opportunities 
• Assistance with completing applications quickly and accurately 
• Assembling the necessary technical capacity during the pre-application period to develop a quality application with a higher likelihood of funding
• Guidance on allowable expenditures from federal funding that support the overall technical capacity or coordinating capability of a subnational entity to collect, analyze, and securely share data on project outcomes

While this research focuses on several BIL/IRA agencies, the Department of Energy in particular distributed hundreds of billions of dollars to communities over the past few years. DOE faces an additional challenge: up until 2020, the agency was mainly focused on conducting basic science research. With the advent of BIL, IRA, and the CHIPS and Science Act, it had to adjust quickly to conduct more deployment and loan guarantee activities. 

In order to meet community needs, DOE needs help – and at its core, this problem is one of talent and capacity. Since the passage of BIL, DOE has increased its hiring and bolstered its offices through the Clean Energy Corps. 

Yet even if DOE could hire faster and more effectively, the sheer scope of the problem outweighs any number of federal employees. Candidates need not only certain skills but also knowledge specific to each community. To fully meet the needs of the localities and individuals it aims to reach, DOE would need to develop thorough community competency for the entire country. With over 29,000 defined communities in the United States – with about half being classified as ‘low capacity’ – it’s simply impossible to hire enough people or identify and overcome the barriers each one faces in the short amount of time allotted to implementation of BIL/IRA. Government needs outside support in order to distribute funds quickly and equitably.

Opportunity

DOE, the rest of the federal government, and the national labs are keen to provide significant technical assistance for their programs. DOE’s Office of State and Community Energy Programs has put considerable time and energy into expanding its community support efforts, including the recently stood up Office of Community Engagement and the Community Energy Fellows program. 

National labs have been engaging communities for a long time – the National Renewable Energy Laboratory (NREL) conducts trainings and information sessions, answers questions, and connects communities with regional and federal resources. Colorado and Alaska, for example, were well-positioned to take advantage of federal funding when BIL/IRA were released as a result of federal training opportunities from the NREL, DOE, and other institutions, as well as local and regional coordinated approaches to preparing. Their absorptive capacity has helped them successfully access opportunities – but only because communities, cities, and Tribal governments in those regions have spent the last decade preparing for clean energy opportunities. 

While this type of long-term technical assistance and training is necessary, there are resources available right now that are at risk of not being used if states, cities, and communities can’t develop capacity quickly. As DOE continues to flex its deployment and demonstration muscles, the agency needs to invest in community engagement and regional capacity to ensure long-term success across the country. 

A key way that DOE can help meet the needs of states and cities that are implementing funding is by standing up community navigator programs. These programs take many forms, but broadly, they leverage the expertise of individuals or organizations within a state or community that can act as guides to the barriers and opportunities within that place. 

Community navigators themselves have several benefits. They can act as a catalytic resource by delivering quality technical assistance where federal agencies may not have capacity. In DOE’s case, this could help communities understand funding opportunities and requirements, identify appropriate funding opportunities, explore new clean energy technologies that might meet the needs of the community, and actually complete applications for funding quickly and accurately. They understand regional assets and available capital and have strong existing relationships. Further, community navigators can help build networks – connecting community-based organizations, start-ups, and subnational government agencies based on focus areas. 

The DOE and other agencies with BIL/IRA mandates should design programs to leverage these navigators in order to better support state and local organizations with implementation. Programs that leverage community navigators will increase the efficiency of federal technical assistance resources, stretching them further, and will help build capacity within subnational organizations to sustain climate and clean energy initiatives longer term.

These programs can target a range of issues. In the past, they have been used to support access to individual benefits, but expanding their scope could lead to broader results for communities. Training community organizations, and by extension individuals, on how to engage with federal funding and assess capital, development, and infrastructure improvement opportunities in their own regions can help federal agencies take a more holistic approach to implementation and supporting communities. Applying for funding takes work, and navigators can help – but they can also support the rollout of proposed programs once funding is awarded and ensure the projects are seen through their life cycles. For example, understanding broader federal guidance on funding opportunities like the Office of Management and Budget’s proposed revisions to the Uniform Grants Guidance can give navigators and communities additional tools for monitoring and evaluation and administrative capacity. 

Benefits of these programs aren’t limited to funding opportunities and program implementation – they can help smooth permitting processes as well. Navigators can act as ready-made champions for and experts on clean energy technologies and potential community concerns. In some communities, distrust of clean energy sources, companies, and government officials can slow permitting, especially for emerging technologies that are subject to misinformation or lack of wider recognition. Supporting community champions that understand the technologies, can advocate on their behalf, and can facilitate relationship building between developers and community members can reduce opposition to clean energy projects. 

Further, community navigator programs could help alleviate cost-recovery concerns from permitting teams. Permitting staff within agencies understand that communities need support, especially in the pre-application period, but in the interest of being good stewards of taxpayer dollars they are often reluctant to invest in applications that may not turn into projects. 

Overall, these programs have major potential for expanding the technical assistance resources of federal agencies and the capacity of state and local governments and community-based organizations. Federal agencies with a BIL/IRA mandate should design and stand up these programs alongside the rollout of funding opportunities.

Plan of Action

With the Biden Administration’s focus on community engagement and climate and energy justice, agencies have a window of opportunity in which to expand these programs. In order to effectively expand community navigator programs, offices should: 

Build community navigator programs into existing technical assistance budgets.

Offices at agencies and subcomponents with BIL/IRA funding like the Department of Energy, the Bureau of Ocean Energy Management, the Bureau of Land Management (BLM), and the Environmental Protection Agency (EPA) have expanded their technical assistance programs alongside introducing new initiatives from that same funding. Community navigator programs are primarily models for providing technical assistance – and can use programmatic funding. Offices should assess funding capabilities and explore flexible funding mechanisms like the ones below. 

Some existing programs are attached to large block grant funding, like DOE’s Community Energy Programs attached to the Energy Efficiency and Conservation Block Grant Program. This is a useful practice as the funding source has broad goals and is relatively large and regionally nonspecific.

Collect feedback from regional partners on specific challenges and capacity needs to appropriately tailor community navigator programs. 

Before setting up a program, offices should convene local and regional partners to assess major challenges in communities and better design a program. Feedback collection can take the form of journey mapping, listening sessions, convenings, or other structures. These meetings should rely on partners’ expertise and understanding of the opportunities specific to their communities.

For example, if there’s sufficient capacity for grant-writing but a lack of expertise in specific clean energy technologies that a region is interested in, that would inform the goals, curricula, and partners of a particular program. It also would help determine where the program should sit: if it’s targeted at developing clean energy expertise in order to overcome permitting hurdles, it might fit better at the BLM or be a good candidate for a partnership between a DOE office and BLM. 

Partner with other federal agencies to develop more holistic programs. 

The goals of these programs often speak to the mission of several agencies – for example, the goal of just and equitable technical assistance has already led to the Environmental Justice Thriving Communities Technical Assistance Centers program, a collaboration between EPA and DOE. By combining resources, agencies and offices can even further expand the capacity of a region and increase accessibility to more federal funding opportunities. 

A good example of offices collaborating on these programs is below, with the Arctic Energy Ambassadors, funded by the Office of State and Community Energy Programs (SCEP) and the Arctic Energy Office. 

Roadmap for Success

There are several initial considerations for building out a program, including solidifying the program’s goals, ensuring available funding sources and mechanisms, and identifying regional and local partners to ensure it is sustainable and effective. Community navigator programs should: 

Identify a need and outline clear goals for the program. 

Offices should clearly understand the goals of a program. This should go without saying, but given the inconsistency in needs, capacity, and readiness across different communities, it’s key to develop a program that has defined what success looks like for the participants and region. For example, community navigator programs could specifically work to help a region navigate permitting processes; develop several projects of a singular clean energy technology; or understand how to apply for federal grants effectively. Just one of those goals could underpin an entire program. 

Ideally, community navigator programs would offer a more holistic approach – working with regional organizations or training participants who understand the challenges and opportunities within their region to identify and assess federal funding opportunities and work together to develop projects from start to finish. But agencies just setting up programs should start with a more directed approach and seek to understand what would be most helpful for an area. 

Source and secure available funding, including considerations for flexible mechanisms.

There are a number of available models using different funding and structural mechanisms. Part of the benefit of these programs is that they don’t rely solely on hiring new technical assistance staff, and offices can use programmatic funds more flexibly to work with partners. Rather than hiring staff to work directly for an agency, offices can work with local and regional organizations to administer programs, train other individuals and organizations, and augment local and community capacity. 

Further, offices should aim to work across the agency and identify opportunities to pool resources. The IRA provided a significant amount of funding for technical assistance across the agency – for example, the State Energy Program funding at SCEP, the Energy Improvements in Rural and Remote Areas funding at the Office of Clean Energy Demonstrations (OCED), and the Environmental Justice Thriving Communities Technical Assistance Centers program from a Department of Transportation/Department of Energy partnership could all be used to fund these programs or award funding to organizations that could administer programs. 

Community navigator programs could also be good candidates for entities like FESI, the DOE’s newly authorized Foundation for Energy Security and Innovation. Although FESI must be set up by DOE, once formally established it becomes a 501(c)(3) organization and can combine congressionally appropriated funding with philanthropic or private investments, making it a more flexible tool for collaborative projects. FESI is a good tool for the partnerships described above – it could hold funding from various sources and support partners overseeing programs while convening with their federal counterparts. 

Finally, DOE is also exploring the expanded use of Partnership Intermediary Agreements (PIAs), public-private partnership tools that are explicitly targeted at nontraditional partners. As the DOE continues to announce and distribute BIL/IRA funds, these agreements could be used to administer community navigator programs.

Build relationships and partner with appropriate local and regional stakeholders.

Funding shouldn’t be the only consideration. Agency offices need to ensure they identify appropriate local and regional partners, both for administration and funding. Partners should be their own form of community navigators – they should understand the region’s clean energy ecosystem and the unique needs of the communities within. In different places, the reach and existence of these partners may vary – not every locality will have a dedicated nonprofit or institution supporting clean energy development, environmental justice, or workforce, for example. In those cases, there could be regional or county-level partners that have broader scope and more capacity and would be more effective federal partners. Partner organizations should not only understand community needs but have a baseline level of experience in working with the federal government in order to effectively function as the link between the two entities. Finding the right balance of community understanding and experience with federal funding is key. 

This is not foolproof. NREL’s ‘Community to Clean Energy (C2C) Peer Learning Cohorts’ can help local champions share challenges and best practices across states and communities and are useful tools for enhancing local capacity. But this program faces similar challenges as other technical assistance programs: participants engage with federal institutions that provide training and technical expertise that may not directly speak to local experience. It may be more effective to train a local or regional organization with a deeper understanding of the specific challenges and opportunities of a place and greater immediate buy-in from the community. It’s challenging for NREL as well to identify the best candidates in communities across the country without that in-depth knowledge of a region. 

Additional federal technical assistance support is sorely needed if BIL/IRA funds are to be distributed equitably and quickly. Federal agencies are moving faster than ever before but don’t have the capacity to assess state and local needs. Developing models for state and local partners can help agencies get funding out the door and where it needs to go to support communities moving towards a clean energy transition.

Case Study: DOE’s Arctic Energy Ambassadors 

Via @ArcticEnergyDOE on Twitter

DOE’s Arctic Energy Office (AEO) has been training state level champions for years but recently introduced the Arctic Energy Ambassadors program, using community navigators to expand clean energy project development. 

The program, announced in late October 2023, will support regional champions of clean energy with training and resources to help expand their impact in their communities and across Alaska. The ambassadors’ ultimate goal is clean energy project development: helping local practitioners access federal resources, identify appropriate funding opportunities, and address their communities’ specific clean energy challenges. 

The Arctic Energy Office is leading the program with help from several federal and subnational organizations. DOE’s Office of State and Community Engagement and Office of Energy Efficiency and Renewable Energy are also providing funding. 

On the ground, the Denali Commission will oversee distribution of funding, and the Alaska Municipal League will administer the program. The combination of comparative advantages is what will hopefully make this program successful. The Denali Commission, in addition to receiving congressionally appropriated funding, can receive funds from other nonfederal sources in service of its mission. This could help the Commission sustain the ambassadors over the longer term and use funds more flexibly. The Commission also has closer relationships with state-level and Tribal governments and can provide insight into regional clean energy needs. 

The Alaska Municipal League (AML) brings additional value as a partner; its role in supporting local governments across Alaska gives it a strong sense of community strengths and needs. AML will recruit, assess, and identify the 12 ambassadors and coordinate program logistics and travel for programming. Identifying the right candidates for the program requires in-depth knowledge of Alaskan communities, including more rural and remote ones. 

For its own part, the AEO will provide the content and technical expertise for the program. DOE continues to host an incredible wealth of subject matter knowledge on cutting-edge clean energy technologies, and its leadership in this area combined with the local understanding and administration by AML and Denali Commission will help the Arctic Energy Ambassadors succeed in the years to come. 

In all, strong local and regional partners, diverse funding sources and flexible mechanisms for delivering it, and clear goals for community navigator programs are key for successful administration. The Arctic Energy Ambassadors represents one model that other agencies can look to for success. 

Case study: SCEP’s Community Energy Fellows Program

NREL interns and staff participate in the 2019 Summer Intern Poster Session at the Research Support Facility (RSF) via Energy.gov

DOE’s State and Community Energy Programs office has been working tirelessly to implement BIL and IRA, and last year as part of those efforts it introduced the Community Energy Fellows Program (CEFP). 

This program aims to support local and Tribal governments with their projects funded by the Energy Efficiency and Conservation Block Grants. CEFP matches midcareer energy professionals with host organizations to provide support and technical assistance on projects as well as learn more about how clean energy development happens. 

Because the program has a much broader scope than the Arctic Energy Fellows, it solicits and assesses host institutions as well as Fellows. This allows SCEP to more effectively match the two based on issue areas, expertise, and specific skillsets. This structure allows for multiple community navigators – the host institution understands the needs of its community and the Fellow brings expertise in federal programs and clean energy development. Both parties gain from the fellowship. 

In addition, SCEP has added another resource: Clean Energy Coaches, who provide another layer of expertise to the host institution and the Fellow. These coaches will help develop the Fellows’ skills as they work to support the host institution and community. 

Some of the awards are already being rolled out, with a second call for host institutions and Fellows out now. Communities in southern Maine participating in the program are optimistic about the support that navigators will provide – and their project leads have a keen sense of the challenges in their communities. 

As the program continues to grow, it can provide a great opportunity for other agencies and offices to learn from its success.

This report is part of a series on underinvested clean energy technologies, the challenges they face, and how the Department of Energy can use its Other Transaction Authority to implement programs custom tailored to those challenges.

Cement and concrete production is one of the hardest industries to decarbonize. Solutions for low-emissions cement and concrete are much less mature than those for other green technologies like solar and wind energy and electric vehicles. Nevertheless, over the past few years, young companies have achieved significant milestones in piloting their technologies and certifying their performance and emissions reductions. In order to finance new manufacturing facilities and scale promising solutions, companies will need to demonstrate consistent demand for their products at a financially sustainable price. Demand support from the Department of Energy (DOE) can help companies meet this requirement and unlock private financing for commercial-scale projects. Using its Other Transactions Authority, DOE could design a demand-support program involving double-sided auctions, contracts for difference, or price and volume guarantees. To fund such a program using existing funds, the DOE could incorporate it into the Industrial Demonstrations Program. However, additional funding from Congress would allow the DOE to implement a more robust program. Through such an initiative, the government would accelerate the adoption of low-emissions cement and concrete, providing emissions reductions benefits across the country while setting the United States up for success in the future clean industrial economy.

Introduction

Besides water, concrete is the most consumed material in the world. It is the material of choice for construction thanks to its durability, versatility, and affordability. As of 2022, the cement and concrete sector accounted for nine percent of global carbon emissions. The vast majority of the embodied emissions of concrete come from the production of Portland cement. Cement production emits carbon through the burning of fossil fuels to heat kilns (40% of emissions) and the chemical process of turning limestone and clay into cement using that heat (60% of emissions). Electrifying production facilities and making them more energy efficient can help decarbonize the former but not the latter, which requires deeper innovation.

Current solutions on the market substitute a portion of the cement used in concrete mixtures with Supplementary Cementitious Materials (SCMs) like fly ash, slag, or unprocessed limestone, reducing the embodied emissions of the resulting concrete. But these SCMs cannot replace all of the cement in concrete, and currently there is an insufficient supply of readily usable fly ash and slag for wider adoption across the industry.

The next generation of ultra-low-carbon, carbon-neutral, and even carbon-negative solutions seeks to develop alternative feedstocks and processes for producing cement or cementitious materials that can replace cement entirely and to capture carbon in aggregates and wet concrete. The DOE reports that testing and scaling these new technologies is crucial to fully eliminate emissions from concrete by 2050. Bringing these new technologies to the market will not only help the United States meet its climate goals but also promote U.S. leadership in manufacturing. 

A number of companies have established pilot facilities or are in the process of constructing them. These companies have successfully produced near-carbon-neutral and even carbon-negative concrete. Building off of these milestones, companies will need to secure financing to build full-scale commercial facilities and increase their manufacturing capacity. 

Challenges Facing Low-Carbon Cement and Concrete

A key requirement for accessing both private-sector and government financing for new facilities is that companies obtain long-term offtake agreements, which assure financiers that there will be a steady source of revenue once the facility is built. But the boom-and-bust nature of the construction industry discourages construction companies and intermediaries from entering into long-term financial commitments in case there won’t be a project to use the materials for. Cement, aggregates, and other concrete inputs also take up significant volume, so it would be difficult and costly for potential offtakers to store excess amounts during construction lulls. For these reasons, construction contractors procure concrete on an as-needed, project-specific basis. 

Adding to the complexity, structural features of the cement and concrete market increase the difficulty of securing long-term offtake agreements:

• Long, fragmented supply chain: While the supply chain is highly concentrated at either end, there are multiple intermediaries between the actual producers of cement, aggregates, and other inputs and the final construction customers. These include the thousands of ready-mix concrete producers, along with materials dealers, construction contractors, and subcontractors. As a result, construction customers usually aren’t buying materials themselves, and their contractors or subcontractors often aren’t buying materials directly from cement producers. 
• Regional fragmentation: Cement, aggregates, and other concrete inputs are heavy products, which entail high freight costs and embodied emissions from transportation, so producers have a limited range in which they are willing to ship their product. After these products are shipped to a ready-mix concrete facility, the fresh concrete must then be delivered to the construction site within 60 to 90 minutes or the concrete will harden. As a result, the localization of supply chains limits the potential customers for a new manufacturing plant.
• Low margins: The cement and concrete markets operate with very low margins, so buyers are highly sensitive to price. Consequently, low-carbon cement and concrete may struggle to compete against conventional options due to their green premiums. 

Luckily, private construction is not the only customer for concrete. The U.S. government (federal, state, and local combined) accounts for roughly 50% of all concrete procurement in the country. Used correctly, the government’s purchasing power can be a powerful lever for spurring the adoption of decarbonized cement and concrete. However, the government faces similar barriers as the private sector against entering into long-term offtake agreements. Government procurement of concrete goes through multiple intermediaries and operates on an as-needed, project-specific basis: government agencies like the General Services Administration (GSA) enter into agreements with construction contractors for specific projects, and then the contractors or their subcontractors make the ultimate purchasing decisions for concrete.

Federal Support

The Federal Buy Clean Initiative, enacted in 2021 by the Biden Administration, is starting to address the procurement challenge for low-carbon cement and concrete. Among the initiative’s programs is the allocation of $4.5 billion from the Inflation Reduction Act (IRA) for the GSA and the Department of Transportation (DOT) to use lower-carbon construction materials. Under the initiative, the GSA is piloting directly procuring low-embodied-carbon materials for federal construction projects. To qualify as low-embodied-carbon concrete under the GSA’s interim requirements, concrete mixtures only have to achieve a roughly 25–50% reduction in carbon content,¹ depending on the compressive strength. The requirement may be even less if no concrete meeting this standard is available near the project site. Since the bar is only slightly below traditional concrete, young companies developing the solutions to fully decarbonize concrete will have trouble competing in terms of price against companies producing more well-established but higher-emission solutions like fly ash, slag, and limestone concrete mixtures to secure procurement contracts. Moreover, the just-in-time and project-specific nature of these procurement contracts means they still don’t address juvenile companies’ need for long-term price and customer security in order to scale up.

The ideal solution for this is a demand-support program. The DOE Office of Clean Energy Demonstrations (OCED) is developing a demand-support program for the Hydrogen Hubs initiative, setting aside $1 billion for demand-support to accompany the $7 billion in direct funding to regional Hydrogen Hubs. In its request for proposals, OCED says that the hydrogen demand-support program will address the “fundamental mismatch in [the market] between producers, who need long-term certainty of high-volume demand in order to secure financing to build a project, and buyers, who often prefer to buy on a short-term basis at more modest volumes, especially for products that have yet to be produced at scale and [are] expected to see cost decreases.” 

A demand-support program could do the same for low-carbon cement and concrete, addressing the market challenges that grants alone cannot. OCED is reviewing applications for the $6.3 billion Industrial Demonstrations Program. Similar to the Hydrogen Hubs, OCED could consider setting aside $500 million to $1 billion of the program funds to implement demand-support programs for the two highest-emitting heavy industries, low-carbon cement/concrete and steel, at $250 million to $500 million each.

Additional funding from Congress would allow DOE to implement a more robust demand-support program. Federal investment in industrial decarbonization grew from $1.5 billion in FY21 to over $10 billion in FY23, thanks largely to new funding from BIL and IRA. However, the sector remains underfunded relative to its emissions, contributing 23% of the country’s emissions while receiving less than 12% of Federal climate innovation funding. A promising piece of legislation that was recently introduced is The Concrete and Asphalt Innovation Act of 2023, which would, among other things, direct the DOE to establish a program of research, development, demonstration, and commercial application of low-emissions cement, concrete, asphalt binder, and asphalt mixture. This would include a demonstration initiative authorized at $200 million and the production of a five-year strategic plan to identify new programs and resources needed to carry out the mission. If the legislation is passed, the DOE could propose a demand-support program in its strategic plan and request funding from Congress to set it up, though the faster route would be for Congress to add a section to the Act directly establishing a demand-support program within DOE and authorizing funding for it before passing the Act.

Other Transactions Authority

BIL and IRA gave DOE an expanded mandate to support innovative technologies from early-stage research through commercialization. In order to do so, DOE must be just as innovative in its use of its available authorities and resources. Tackling the challenge of bringing technologies from pilot to commercialization requires DOE to look beyond traditional grant, loan, and procurement mechanisms. Previously, we have identified the DOE’s Other Transaction Authority (OTA) as an underleveraged tool for accelerating clean energy technologies. 

OTA is defined in legislation as the authority to enter into transactions that are not government grants or contracts in order to advance an agency’s mission. This negative definition provides DOE with significant freedom to design and implement flexible financial agreements that can be tailored to address the unique challenges that different technologies face. DOE plans to use OTA to implement the hydrogen demand-support program, and it could also be used for a demand-support program for low-carbon cement and concrete. The DOE’s new Guide to Other Transactions provides official guidance on how DOE personnel can use the flexibilities provided by OTA. 

Defining Products for Demand Support

Before setting up a demand-support program, DOE first needs to define what a low-carbon cement or concrete product is and the value it provides in emissions avoided. This is not straightforward due to (1) the heterogeneity of solutions, which prevents apples-to-apples comparisons in price, and (2) variations in the amount of avoided emissions that different solutions can provide. To address the first issue, for products that are not ready-mix concrete, the DOE should calculate the cost of a unit of concrete made using the product, based on a standardized mix ratio of a specific compressive strength and market prices for the other components of the concrete mix. To address the second issue, the DOE should then divide the calculated price per unit of concrete (e.g., $/m³) by the amount of CO₂ emissions avoided per unit of concrete compared to the NRCMA’s industry average (e.g., kg/m³) to determine the effective price per unit of CO₂ emissions avoided. The DOE can then fairly compare bids from different projects using this metric. Such an approach would result in the government providing demand support for the products that are most cost-effective at reducing carbon emissions, rather than solely the cheapest.

Furthermore, the DOE should put an upper limit on the amount of embodied carbon that the concrete product or concrete made with the product must meet in order to qualify as “low carbon.” We suggest that the DOE use the limits established by the First Movers Coalition, an international corporate advanced market commitment for concrete and other hard-to-abate industries organized by the World Economic Forum. The limits were developed through conversations with incumbent suppliers, start-ups, nonprofits, and intergovernmental organizations on what would be achievable by 2030. The limits were designed to help move the needle towards commercializing solutions that enable full decarbonization.

Companies that participate in a DOE demand-support program should be required after one or two years of operations to confirm that their product meets these limits through an Environmental Product Declaration.² Using carbon offsets to reach that limit should not be allowed, since the goal is to spur the innovation and scaling of technologies that can eventually fully decarbonize the cement and concrete industry.

Below are some ideas for how DOE can set up a demand-support program for low-carbon cement and concrete.

Program Proposals

Double-Sided Auction 

Double-sided auctions are designed to support the development of production capacity for green technologies and products and the creation of a market by providing long-term price certainty to suppliers and facilitating the sale of their products to buyers. As the name suggests, a double-sided auction consists of two phases: First, the government or an intermediary organization holds a reverse auction for long-term purchase agreements (e.g., 10 years) for the product from suppliers, who are incentivized to bid the lowest possible price in order to win. Next, the government conducts annual auctions of short-term sales agreements to buyers of the product. Once sales agreements are finalized, the product is delivered directly from the supplier to the buyer, with the government acting as a transparent intermediary. The government thus serves as a market maker by coordinating the purchase and sale of the product from producers to buyers. Government funding covers the difference between the original purchase price and the final sale price, reducing the impact of the green premium for buyers and sellers. 

While the federal government has not yet implemented a double-sided auction program, OCED is considering setting up the hydrogen demand-support measure as a “market maker” that provides a “ready purchaser/seller for clean hydrogen.” Such a market maker program could be implemented most efficiently through double-sided auctions.

Germany was the first to conceive of and develop the double-sided auction scheme. The H2Global initiative was established in 2021 to support the development of production capacity for green hydrogen and its derivative products. The program is implemented by Hintco, an intermediary company, which is currently evaluating bids for its first auction for the purchase of green ammonia, methanol, and e-fuels, with final contracts expected to be announced as soon as this month. Products will start to be delivered by the end of 2024.

(Source: H2Global)

A double-sided auction scheme for low-carbon cement and concrete would address producers’ need for long-term offtake agreements while matching buyers’ short-term procurement needs. The auctions would also help develop transparent market prices for low-carbon cement and concrete products. 

All bids for purchase agreements should include detailed technical specifications and/or certifications for the product, the desired price per unit, and a robust, third-party life-cycle assessment of the amount of embodied carbon per unit of concrete made with the product, at different compressive strengths. Additionally, bids of ready-mix concrete should include the location(s) of their production facility or facilities, and bids of cement and other concrete inputs should include information on the locations of ready-mix concrete facilities capable of producing concrete using their products. The DOE should then select bids through a pure reverse auction using the calculated effective price per unit of CO₂ emissions avoided. To account for regional fragmentation, the DOE could conduct separate auctions for each region of the country.

A double-sided auction presents similar benefits to the low-carbon cement and concrete industry as an advance market commitment would. However, the addition of an efficient, built-in system for the government to then sell that cement or concrete allotment to a buyer means that the government is not obligated to use the cement or concrete itself. This is important because the logistics of matching cement or concrete production to a suitable government construction project can be difficult due to regional fragmentation, and the DOE is not a major procurer of cement and concrete.³ Instead, under this scheme, federal, state, or local agencies working on a construction project or their contractors could check the double-sided auction program each year to see if there is a product offering in their region that matches their project needs and sustainability goals for that year, and if so, submit a bid to procure it. In fact, this should be encouraged as a part of the Federal Buy Clean Initiative, since the government is such an important consumer of cement and concrete products.

Contracts for Difference

Contracts for difference (CfD, or sometimes called two-way CfD) programs aim to provide price certainty for green technology projects and close the gap between the price that producers need and the price that buyers are willing to offer. CfD have been used by the United Kingdom and France primarily to support the development of large-scale renewable energy projects. However, CfD can also be used to support the development of production capacity for other green technologies. OCED is considering CfD (also known as pay-for-difference contracts) for its hydrogen demand-support program. 

CfD are long-term contracts signed between the government or a government-sponsored entity and companies looking to expand production capacity for a green product.⁴ The contract guarantees that once the production facility comes online, the government will ensure a steady price by paying suppliers the difference between the market price for which they are able to sell their product and a predetermined “strike price.” On the other hand, if the market price rises above the strike price, the supplier will pay the difference back to the government. This prevents the public from funding any potential windfall profits.

(Source: Canadian Climate Institute)

A CfD program could provide a source of demand certainty for low-carbon cement and concrete companies looking to finance the construction of pilot- and commercial-scale manufacturing plants or the retrofitting of existing plants. The selection of recipients and strike prices should be determined through annual reverse auctions. In a typical reverse auction for CfD, the government sets a cap on the maximum number of units of product and the max strike price they’re willing to accept. Each project candidate then places a sealed bid for a unit price and the amount of product they plan to produce. The bids are ranked by unit price, and projects are accepted from low to high unit price until either the max total capacity or max strike price is reached. The last project accepted sets the strike price for all accepted projects. The strike price is adjusted annually for inflation but otherwise fixed over the course of the contract. Compared to traditional subsidy programs, a CfD program can be much more cost-efficient thanks to the reverse auction process. The UK’s CfD program has seen the strike price fall with each successive round of auctions.

Applying this to the low-carbon cement and concrete industry requires some adjustments, since there are a variety of products for decarbonizing cement and concrete. As discussed prior, the DOE should compare project bids according to the effective price per unit CO₂ abated when the product is used to make concrete. The DOE should also set a cap on the maximum volume of CO₂ it wishes to abate and the maximum effective price per unit of CO₂ abated that it is willing to pay. Bids can then be accepted from low to high price until one of those caps is hit. Instead of establishing a single strike price, the DOE should use the accepted project’s bid price as the strike price to account for the variation in types of products.

Backstop Price Guarantee 

A CfD program could be designed as a backstop price guarantee if one removes the requirement that suppliers pay the government back when market prices rise above the strike price. In this case, the DOE would set a lower maximum strike price for CO₂ abatement, knowing that suppliers will be willing to bid lower strike prices, since there is now the opportunity for unrestricted profits above the strike price. The DOE would then only pay in the worst-case scenario when the market price falls below the strike price, which would operate as an effective price floor.

Backstop Volume Guarantee

Alternatively, the DOE could address demand uncertainty by providing a volume guarantee. In this case, the DOE could conduct a reverse auction for volume guarantee agreements with manufacturers, wherein the DOE would commit to purchasing any units of product short of the volume guarantee that the company is unable to sell each year for a certain price, and the company would commit to a ceiling on the price they will charge buyers.⁵ Using OTA, the DOE could implement such a program in collaboration with DOT or GSA, wherein DOE would purchase the materials and DOT or GSA would use the materials for their construction needs.

Other Considerations for Implementation

Rather than directly managing a demand-support program, the DOE should enter into an OT agreement with an external nonprofit entity to administer the contracts.⁶ The nonprofit entity would then hold auctions and select, manage, and fulfill the contracts. DOE is currently in the process of doing this for the hydrogen demand-support program. 

A nonprofit entity could provide two main benefits. First, the logistics of implementing such a program would not be trivial, given the number of different suppliers, intermediaries, and offtakers involved. An external entity would have an easier and faster time hiring staff with the necessary expertise compared to the federal hiring process and limited budget for program direction that the DOE has to contend with. Second, the entity’s independent nature would make it easier to gain lasting bipartisan support for the demand-support program, since the entity would not be directly associated with any one administration.

Coordination with Other DOE Programs

The green premium for near-zero-carbon cement and concrete products is steep, and demand-support programs like the ones proposed in this report should not be considered a cure-all for the industry, since it may be difficult to secure a large enough budget for any one such program to fully address the green premium across the industry. Rather, demand-support programs can complement the multiple existing funding authorities within the DOE by closing the residual gap between emerging technologies and conventional alternatives after other programs have helped to lower the green premium. 

The DOE’s Loan Programs Office (LPO) received a significant increase in their lending authorities from the IRA and has the ability to provide loans or loan guarantees to innovative clean cement facilities, resulting in cheaper capital financing and providing an effective subsidy. In addition, the IRA and the Bipartisan Infrastructure Law provided substantial new funding for the demonstration of industrial decarbonization technologies through OCED. 

Policies like these can be chained together. For example, a clean cement start-up could simultaneously apply to OCED for funding to demonstrate their technology at scale and a loan or loan guarantee from LPO after due diligence on their business plan. Together, these two programs drive down the cost of the green premium and derisk the companies that successfully receive their support, leaving a much more modest price premium that a mechanism like a double-sided auction could affordably cover with less risk. 

Successfully chaining policies like this requires deep coordination across DOE offices. OCED and LPO would need to work in lockstep in conducting technical evaluations and due diligence of projects that apply to both and prioritize funding of projects that meet both offices’ criteria for success. The best projects should be offered both demonstration funding from OCED and conditional commitments from LPO, which would provide companies with the confidence that they will receive follow-on funding if the demonstration is successful and other conditions are met, while posing no added risk to LPO since companies will need to meet their conditions first before receiving funds. The assessments should also consider whether the project would be a strong candidate for receiving demand support through a double-sided auction, CfD program, or price/volume guarantee, which would help further derisk the loan/loan guarantee and justify the demonstration funding. 

Candidates for receiving support from all three public funding instruments would of course need to be especially rigorously evaluated, since the fiscal risk and potential political backlash of such a project failing is also much greater. If successful, such coordination would ensure that the combination of these programs substantially moves the needle on bringing emerging technologies in green cement and concrete to commercial scale. 

Conclusion

Demand support can help address the key barrier that low-carbon cement and concrete companies face in scaling their technologies and financing commercial-scale manufacturing facilities. Whichever approach the DOE chooses to take, the agency should keep in mind (1) the importance of setting an ambitious standard for what qualifies as low-carbon cement and concrete and comparing proposals using a metric that accounts for the range of different product types and embodied emissions, (2) the complex implementation logistics, and (3) the benefits of coordinating a demand-support program with the agency’s demonstration and loan programs. Implemented successfully, such a program would crowd in private investment, accelerate commercialization, and lay the foundation for the clean industrial economy in the United States.

This report is part one of a series on underinvested clean energy technologies, the challenges they face, and how the Department of Energy can use its Other Transaction Authority to implement programs custom tailored to those challenges.

The United States has been gifted with an abundance of clean, firm geothermal energy lying below our feet – tens of thousands of times more than the country has in untapped fossil fuels. Geothermal technology is entering a new era, with innovative approaches on their way to commercialization that will unlock access to more types of geothermal resources. However, the development of commercial-scale geothermal projects is an expensive affair, and the U.S. government has severely underinvested in this technology. The Inflation Reduction Act and the Bipartisan Infrastructure Law concentrated clean energy investments in solar and wind, which are great near-term solutions for decarbonization, but neglected to invest sufficiently in solutions like geothermal energy, which are necessary to reach full decarbonization in the long term. With new funding from Congress or potentially the creative (re)allocation of existing funding, the Department of Energy (DOE) could take a number of different approaches to accelerating progress in next-generation geothermal energy, from leasing agency land for project development to providing milestone payments for the costly drilling phases of development.

Introduction

As the United States power grid transitions towards clean energy, the increasing mix of intermittent renewable energy sources like solar and wind must be balanced by sources of clean firm power that are available around the clock in order to ensure grid reliability and reduce the need to overbuild solar, wind, and battery capacity. Geothermal power is a leading contender for addressing this issue. 

Conventional geothermal (also known as hydrothermal) power plants tap into existing hot underground aquifers and circulate the hot water to the surface to generate electricity. Thanks to an abundance of geothermal resources close to the earth’s surface in the western part of the country, the United States currently leads the world in geothermal power generation. Conventional geothermal power plants are typically located near geysers and steam vents, which indicate the presence of hydrothermal resources belowground. However, these hydrothermal sites represent just a small fraction of the total untapped geothermal potential beneath our feet — more than the potential of fossil fuel and nuclear fuel reserves combined.

Next-generation geothermal technologies, such as enhanced geothermal systems (EGS), closed-loop or advanced geothermal systems (AGS), and other novel designs, promise to allow access to a wider range of geothermal resources. Some designs can potentially also serve double duty as long-duration energy storage. Rather than tapping into existing hydrothermal reservoirs underground, these technologies drill into hot dry rock, engineer independent reservoirs using either hydraulic stimulation or extensive horizontal drilling, and then introduce new fluids to bring geothermal energy to the surface. These new technologies have benefited from advances in the oil and gas industry, resulting in lower drilling costs and higher success rates. Furthermore, some companies have been developing designs for retrofitting abandoned oil and gas wells to convert them into geothermal power plants. The commonalities between these two sectors present an opportunity not only to leverage the existing workforce, engineering expertise, and supply chain from the oil and gas industry to grow the geothermal industry but also to support a just transition such that current workers employed by the oil and gas industry have an opportunity to help build our clean energy future. 

Over the past few years, a number of next-generation geothermal companies have had successful pilot demonstrations, and some are now developing commercial-scale projects. As a result of these successes and the growing demand for clean firm power, power purchase agreements (PPAs) for an unprecedented 1GW of geothermal power have been signed with utilities, community choice aggregators (CCAs), and commercial customers in the United States in 2022 and 2023 combined. In 2023, PPAs for next-generation geothermal projects surpassed those for conventional geothermal projects in terms of capacity. While this is promising, barriers remain to the development of commercial-scale geothermal projects. To meet its goal of net-zero emissions by 2050, the United States will need to invest in overcoming these barriers for next-generation geothermal energy now, lest the technology fail to scale to the level necessary for a fully decarbonized grid. 

Meanwhile, conventional hydrothermal still has a role to play in the clean energy transition. The United States needs all the clean firm power that it can get, whether that comes from conventional or next-generation geothermal, in order to retire baseload coal and natural gas plants. The construction of conventional hydrothermal power plants is less expensive and cheaper to finance, since it’s a tried and tested technology, and there are still plenty of untapped hydrothermal resources in the western part of the country.

Challenges Facing Geothermal Projects

Funding is the biggest barrier to commercial development of next-generation geothermal projects. There are two types of private financing: equity financing or debt financing. Equity financing is more risk tolerant and is typically the source of funding for start-ups as they move from the R&D to demonstration phases of their technology. But because equity financing has a dilutive effect on the company, when it comes to the construction of commercial-scale projects, debt financing is preferred. However, first-of-a-kind commercial projects are almost always precluded from accessing debt financing. It is commonly understood within industry that private lenders will not take on technology risk, meaning that technologies must be at a Technology Readiness Level (TRL) of 9, where they have been proven to operate at commercial scale, and government lenders like the DOE Loan Programs Office (LPO) generally will not take on any risk that private lenders won’t. Manifestations of technology risk in next-generation geothermal include the possibility of underproduction, which would impact the plant’s profitability, or that capacity will decline faster than expected, reducing the plant’s operating lifetime. Moving next-generation technologies from the current TRL-7 level to TRL-9 will be key to establishing the reliability of these emerging technologies and unlocking debt financing for future commercial-scale projects. 

Underproduction will likely remain a risk, though to a lesser extent, for next-generation projects even after technologies reach TRL-9. This is because uncertainty in the exploration and subsurface characterization process makes it possible for developers to overestimate the temperature gradient and thus the production capacity of a project. Hydrothermal projects also share this risk: the factors determining the production capacity for hydrothermal projects include not only the temperature gradient but also the flow rate and enthalpy of the natural reservoir. In the worst-case scenario, drilling can result in a dry hole that produces no hot fluids at all. This becomes a financial issue if the project is unable to generate as much revenue as expected due to underproduction or additional wells must be drilled to compensate, driving up the total project cost. Thus, underproduction is a risk shared by both next-generation and conventional geothermal projects. Research into improvements to the accuracy and cost of geothermal exploration and subsurface characterization can help mitigate this risk but may not eliminate it entirely, since there is a risk-cost trade-off in how much time is spent on exploration and subsurface characterization.

Another challenge for both next-generation and conventional geothermal projects is that they are more expensive to develop than solar or wind projects. Drilling requires significant upfront capital expenditures, making up about half of the total capital costs of developing a geothermal project, if not more. For example, in EGS projects, the first few wells can cost around $10 million each, while conventional hydrothermal wells, which are shallower, can cost around $3–7 million each. While conventional hydrothermal plants only consist of two to six wells on average, designs for commercial EGS projects can require several times that amount of wells. Luckily, EGS projects benefit from the fact that wells can be drilled identically, so projects expect to move down the learning curve as they drill more wells, resulting in faster and cheaper drilling. Initial data from commercial-scale projects currently being developed suggest that the learning curves may be even steeper than expected. Nevertheless, this will need to be proven at scale across different locations. Some companies have managed to forgo expensive drilling costs by focusing on developing technologies that can be installed within idle hydrothermal wells or abandoned oil and gas wells to convert them into productive geothermal wells.

Beyond funding, geothermal projects need to obtain land where there are suitable geothermal resources and permits for each stage of project development. The best geothermal resources in the United States are concentrated in the West, where the federal government owns most of the land. The Bureau of Land Management (BLM) manages a lot of that land, in addition to all subsurface resources on federal land. However, there is inconsistency in how the BLM leases its land, depending on the state. While Nevada BLM has been very consistent about holding regular lease sales each year, California BLM has not held a lease sale since 2016. Adding to the complexity is the fact that although BLM manages all subsurface resources on federal land, surface land may sometimes be managed by a different agency, in which case both agencies will need to be involved in the leasing and permitting process.

Last, next-generation geothermal companies face a green premium on electricity produced using their technology, though the green premium does not appear to be as significant of a challenge for next-generation geothermal as it is for other green technologies. In states with high renewables penetration, utilities and their regulators are beginning to recognize the extra value that clean firm power provides in terms of grid reliability. For example, the California Public Utility Commission has issued an order for utilities to procure 1 GW of clean, firm power by 2026, motivating a wave of new demand from utilities and community choice aggregators. As a result of this demand and California’s high electricity prices in general, geothermal projects have successfully signed a flurry of PPAs over the past year. These have included projects located in Nevada and Utah that can transmit electricity to California customers. In most other western states, however, electricity prices are much lower, so utility companies can be reluctant to sign PPAs for next-generation geothermal projects if they aren’t required to, due to the high cost and technology risk. As a result, next-generation geothermal projects in those states have turned to commercial customers, like those operating data centers, who are willing to pay more to meet their sustainability goals. 

Federal Support

The federal government is beginning to recognize the important role of next-generation geothermal power for the clean energy transition. For the first time in 2023, geothermal energy became eligible for the renewable energy investment and production tax credits, thanks to technology-neutral language introduced in the Inflation Reduction Act (IRA). Within the DOE, the agency launched the Enhanced Geothermal Shot in 2022, led by the Geothermal Technologies Office (GTO), to reduce the cost of EGS by 90% to $45/MWh by 2035 and make geothermal widely available. In 2020, the Frontier Observatory for Research in Geothermal Energy (FORGE), a dedicated underground field laboratory for EGS research, drilling, and technology testing established by GTO in 2014, drilled their first well using new approaches and tools the lab had developed. This year, GTO announced funding for seven EGS pilot demonstrations from the Bipartisan Infrastructure Law (BIL), for which GTO is currently reviewing the first round of applications. GTO also awarded the Geothermal Energy from Oil and gas Demonstrated Engineering (GEODE) grant to a consortium formed by Project Innerspace, the Society of Petroleum Engineering International, and Geothermal Rising, with over 100 partner entities, to transfer best practices from the oil and gas industry to geothermal, support demonstrations and deployments, identify barriers to growth in the industry, and encourage workforce adoption. 

While these initiatives are a good start, significantly more funding from Congress is necessary to support the development of pilot demonstrations and commercial-scale projects and enable wider adoption of geothermal energy. The BIL notably expanded the DOE’s mission area in supporting the deployment of clean energy technologies, including establishing the Office of Clean Energy Demonstrations (OCED) and funding demonstration programs from the Energy Division of BIL and the Energy Act of 2020. However, the $84 million in funding authorized for geothermal pilot demonstrations was only a fraction of the funding that other programs received from BIL and not commensurate to the actual cost of next-generation geothermal projects. Congress should be investing an order of magnitude more into next-generation geothermal projects, in order to maintain U.S. leadership in geothermal energy and reap the many benefits to the grid, the climate, and the economy.

Another key issue is that DOE has currently and in the past limited all of its funding for next-generation geothermal to EGS technologies only. As a result, companies pursuing closed-loop/AGS and other next-generation technologies cannot qualify, leading some projects to be moved abroad. Given GTO’s historically limited budget, it’s possible that this was the result of a strategic decision to focus their funding on one technology rather than diluting it across multiple technologies. However, given that none of these technologies have been successfully commercialized at a wide scale yet, DOE may be missing the opportunity to invest in the full range of viable approaches. DOE appears to be aware of this, as the agency currently has a working group on AGS. New funding from Congress would allow DOE to diversify its investments to support the demonstration and commercial application of other next-generation geothermal technologies. 

Alternatively, there are a number of OCED programs with funding from BIL that have not yet been fully spent (Table 1). Congress could reallocate some of that funding towards a new program supporting next-generation geothermal projects within OCED. Though not ideal, this may be a more palatable near-term solution for the current Congress than appropriating new funding.

Table 1. OCED programs that have remaining unspent funding from BIL as of publication in January 2024.

OCED Program	Total Funding	Committed Funding	Unspent Funding
Carbon Capture Demonstration Projects	$2.547 billion	$1.889 billion	$658 million
Carbon Capture Large Scale Pilot Projects	$937 million	$820 million	$117 million
Energy Improvements in Rural and Remote Areas	$1 billion	$365 million	$635 million
Clean Energy Demonstration Program on Current and Former Mine Land	$500 million	$450 million	$50 million
Energy Storage Demonstration Projects and Pilot Grant Program	$355 million	$349 million	$6 million
Long-Duration Demonstration Program and Joint Initiative	$150 million	$30 million	$120 million

A third option is that DOE could use some of the funding for the Energy Improvements in Rural and Remote Areas program, of which $635 million remains unallocated, to support geothermal projects. Though the program’s authorization does not explicitly mention geothermal energy, geothermal is a good candidate given the abundance of geothermal production potential in rural and remote areas in the West. Moreover, as a clean firm power source, geothermal has a comparative advantage over other renewable energy sources in improving energy reliability. 

Other Transactions Authority

BIL and IRA gave DOE an expanded mandate to support innovative technologies from early stage research through commercialization. To do so, DOE will need to be just as innovative in its use of its available authorities and resources. Tackling the challenge of scaling technologies from pilot to commercialization will require DOE to look beyond traditional grant, loan, and procurement mechanisms. Previously, we identified the DOE’s Other Transaction Authority (OTA) as an underleveraged tool for accelerating clean energy technologies. 

OTA is defined in legislation as the authority to enter into any transaction that is not a government grant or contract. This negative definition provides DOE with significant freedom to design and implement flexible financial agreements that can be tailored to the unique challenges that different technologies face. OT agreements allow DOE to be more creative, and potentially more cost-effective, in how it supports the commercialization of new technologies, such as facilitating the development of new markets, mitigating risks and market failures, and providing innovative new types of demand-side “pull” funding and supply-side “push” funding. The DOE’s new Guide to Other Transactions provides official guidance on how DOE personnel can use the flexibilities provided by OTA. 

With additional funding from Congress, the DOE could use OT agreements to address the unique barriers that geothermal projects face in ways that may not be possible through other mechanisms. Below are four proposals for how the DOE can do so. We chose to focus on supporting next-generation geothermal projects, since the young industry currently requires more governmental support to grow, but we included ideas that would benefit conventional hydrothermal projects as well.

Program Proposals

Geothermal Development on Agency Land

This year, the Defense Innovation Unit issued its first funding opportunity specifically for geothermal energy. The four winning projects will aim to develop innovative geothermal power projects on Department of Defense (DoD) bases for both direct consumption by the base and sale to the local grid. OT agreements were used for this program to develop mutually beneficial custom terms. For project developers, DoD provided funding for surveying, design, and proposal development in addition to land for the actual project development. The agreement terms also gave companies permission to use the technology and information gained from the project for other commercial use. For DoD, these projects are an opportunity to improve the energy resilience and independence of its bases while also reducing emissions. By implementing the prototype agreement using OTA, DoD will have the option to enter into a follow-on OT agreement with project developers without further competition, expediting future processes.

DOE could implement a similar program for its 2.4 million acres of land. In particular, the DOE’s land in Idaho and other western states has favorable geothermal resources, which the DOE has considered leasing. By providing some funding for surveying and proposal development like the DoD, the DOE can increase the odds of successful project development, compared to simply leasing the land without funding support. The DOE could also offer technical support to projects from its national labs. 

With such a program, a lot of the value that the DOE would be providing is the land itself, which the DOE currently has more of than actual funding for geothermal energy. The funding needed for surveying and proposal development is much less than would be needed to support the actual construction of demonstration projects, so GTO could feasibly request funding for such a program through the annual appropriations process. Depending on the program outcomes and the resulting proposals, the DOE could then go back to Congress to request follow-on funding to support actual project construction. 

Drilling Cost-Share Program

To help defray the high cost of drilling, the DOE could implement a milestone-based cost-share program. There is precedent for government cost-share programs for geothermal: in 1973, before the DOE was even established, Congress passed the Geothermal Loan Guarantee Program to provide “investment security to the public and private sectors to exploit geothermal resources” in the early days of the industry. Later, the DOE funded the Cascades I and II Cost Shared Programs. Then, from 2000 to 2007, the DOE ran the Geothermal Resource Exploration and Definitions (GRED) I, II, and III Cost-Share Programs. This year, the DOE launched its EGS Pilot Demonstrations program.

A milestone payment structure could be favorable for supporting expensive, next-generation geothermal projects because the government takes on less risk compared to providing all of the funding upfront. Initial funding could be provided for drilling the first few wells. Successful and on-time completion of drilling could then unlock additional funding to drill more wells, and so on. In the past, both the DoD and the National Aeronautics and Space Administration (NASA) have structured their OT agreements using milestone payments, most famously between NASA and SpaceX for the development of the Falcon9 space launch vehicle. The NASA and SpaceX agreement included not just technical but also financial milestones for the investment of additional private capital into the project. The DOE could do the same and include both technical and financial milestones in a geothermal cost-share program. 

Risk Insurance Program

Longer term, the DOE could implement a risk insurance program for conventional hydrothermal and next-generation geothermal projects. Insuring against underproduction could make it easier and cheaper for projects to be financed, since the potential downside for investors would be capped. The DOE could initially offer insurance just for conventional hydrothermal, since there is already extensive data on past commercial projects that can inform how the insurance is designed. In order to design insurance for next-generation technologies, more commercial-scale projects will first need to be built to collect the data necessary to assess the underproduction risk of different approaches.

France has administered a successful Geothermal Public Risk Insurance Fund for conventional hydrothermal projects since 1982. The insurance originally consisted of two parts: a Short-Term Fund to cover the risk of underproduction and a Long-Term Fund to cover uncertain long-term behavior over the operating lifetime of the geothermal plant. The Short-Term Fund asked project owners to pay a premium of 1.5% of the maximum guaranteed amount. In return, the Short-Term Fund provided a 20% subsidy for the cost of drilling the first well and, in the case of reduced output or a dry hole, a compensation between 20% and 90% of the maximum guaranteed amount (inclusive of the subsidy that has already been paid). The exact compensation is determined based on a formula for the amount necessary to restore the project’s profitability with its reduced output. The Short-Term Fund relied on a high success rate, especially in the Paris Basin where there is known to be good hydrothermal resources, to fund the costs of failures. Geothermal developers that chose to get coverage from the Short-Term Fund were required to also get coverage from the Long-Term Fund, which was designed to hedge against the possibility of unexpected geological or geothermal changes within the wells, such as if their output declined faster than expected or severe corrosion or scaling occurred, over the geothermal plant’s operating lifetime. The Long-Term Fund ended in 2015, but a new iteration of the Short-Term Fund was approved in 2023.

The Netherlands has successfully run a similar program to the Short-Term Fund since the 2000s. Private-sector attempts at setting up geothermal risk insurance packages in Europe and around the world have mostly failed, though. The premiums were often too high, costing up to 25–30% of the cost of drilling, and were established in developing markets where not enough projects were being developed to mutualize the risk. 

To implement such a program at the DOE, projects seeking coverage would first submit an application consisting of the technical plan, timeline, expected costs, and expected output. The DOE would then conduct rigorous due diligence to ensure that the project’s proposal is reasonable. Once accepted, projects would pay a small premium upfront; the DOE should keep in mind the failed attempts at private-sector insurance packages and ensure that the premium is affordable. In the case that either the installed capacity is much lower than expected or the output capacity declines significantly over the course of the first year of operations, the Fund would compensate the project based on the level of underproduction and the amount necessary to restore the project’s profitability with a reduced output. The French Short-Term Fund calculated compensation based on characteristics of the hydrothermal wells; the DOE would need to develop its own formulas reflective of the costs and characteristics of different next-generation geothermal technologies once commercial data actually exists. 

Before setting up a geothermal insurance fund, the DOE should investigate whether there are enough geothermal projects being developed across the country to ensure the mutualization of risk and whether there is enough commercial data to properly evaluate the risk. Another concern for next-generation geothermal is that a high failure rate could cause the fund to run out. To mitigate this, the DOE will need to analyze future commercial data for different next-generation technologies to assess whether each technology is mature enough for a sustainable insurance program. Last, poor state capacity could impede the feasibility of implementing such a program. The DOE will need personnel on staff that are sufficiently knowledgeable about the range of emerging technologies in order to properly evaluate technical plans, understand their risks, and design an appropriate insurance package. 

Production Subsidy

While the green premium for next-generation geothermal has not been an issue in California, it may be slowing down project development in other states with lower electricity prices. The Inflation Reduction Act introduced a new clean energy Production Tax Credit that included geothermal energy for the first time. However, due to the higher development costs of next-generation geothermal projects compared to other renewable energy projects, that subsidy is insufficient to fully bridge the green premium. DOE could use OTA to introduce a production subsidy for next-generation geothermal energy with varied rates depending on the state that the electricity is sold to and its average baseload electricity price (e.g., the production subsidy likely would not apply to California). This would help address variations in the green premium across different states and expand the number of states in which it is financially viable to develop next-generation geothermal projects. 

Conclusion

The United States is well-positioned to lead the next-generation geothermal industry, with its abundance of geothermal resources and opportunities to leverage the knowledge and workforce of the domestic oil and gas industry. The responsibility is on Congress to ensure that DOE has the necessary funding to support the full range of innovative technologies being pursued by this young industry. With more funding, DOE can take advantage of the flexibility offered by OTA to create agreements tailored to the unique challenges that the geothermal industry faces as it begins to scale. Successful commercialization would pave the way to unlocking access to 24/7 clean energy almost anywhere in the country and help future-proof the transition to a fully decarbonized power grid. 

There is a vast amount of wind and solar power ready to be harvested and moved to market across the United States, but it must be connected through long-distance transmission to protect against intermittency instability. Strategically placed long-distance transmission also ensures that rural and urban populations benefit economically from the transition to clean energy.

The Biden-Harris Administration should facilitate the transition to a clean grid by aggressively supporting utility-scale renewable energy resources in rural areas that are connected to urban centers through modernized high-voltage direct current (HVDC) transmission. To move toward total electrification and a decarbonized grid, the Department of the Interior (DOI) and the Bureau of Land Management (BLM) must encourage renewable energy production on federal land through the BLM’s multiple-use mandate. BLM must work in tandem with the Department of Energy (DOE), Department of Transportation (DOT), and the Federal Energy Regulatory Commission (FERC) to transport increased clean power generation through newly constructed HVDC lines that can handle this capacity.

This two-pronged approach will move loads from high-generation, low-demand rural areas to low-generation, high-demand (often coastal) urban hubs. As residents in the East arrive home from work and turn on their TVs, the sun is still up in the West and can provide for their energy needs. As residents in the Northwest wake up, grind coffee, and tune into the news, they can rely on power from the Midwest, where the wind is blowing.

Challenge and Opportunity

Utility-Scale Renewable Energy Development on Federal Land 

After taking office, the Biden-Harris Administration rejoined the Paris Climate Agreement and committed the United States to reduce greenhouse gas (GHG) emissions by 50–52% below 2005 levels by 2030. The Inflation Reduction Act (IRA) is a positive step toward meeting these GHG emissions goals. The IRA allocated $369 billion to climate and energy security investments, which should be used to bolster development of renewables on federal lands. Together with the Infrastructure Investment and Jobs Act, this funding affords an enormous opportunity.

Building utility-scale renewable energy infrastructure such as wind or solar requires a vast amount of space. A utility-scale solar power plant could require between 5 and 10 acres of land in order to generate enough energy to power approximately 173 homes. 

The federal government owns a vast amount of land, some of which is viable for wind and solar. To be exact, the federal government owns 640 million acres of land (nearly one-third of all U.S. land), which is managed through the Bureau of Land Management (BLM), the Fish and Wildlife Services (FWS), the National Park Service (NPS), the Forest Service (USFS), and the Department of Defense (DOD). 

Land owned by the BLM (245 million acres) and the USFS (193 million acres) falls under similar multiple-use, sustained-yield mandates. The majority of those combined 438 million acres under BLM jurisdiction are the concern of this memo. According to the Federal Land Policy and Management Act of 1976 (FLPMA), resources and uses on those federal lands must be used in a balanced combination that “best meets present and future needs of the American people.” This multiple-use mandate presents an enormous opportunity for deployment of utility-scale renewable energy resources. The BLM manages over 19 million acres of public lands with excellent solar potential across six states and 20.6 million acres of public lands with excellent wind potential. This land is ripe for utility-scale renewable energy generation and will be critical to achieving the nation’s decarbonization goals. Green energy generation on these lands should be privileged. 

Together, the 15 central U.S. states account for the majority of national wind and solar technical potential. However, these states are projected to comprise only a third of the nation’s electrical demand in 2050. Population-dense and predominantly coastal cities have higher energy demand, while the Midwest and Southwest are dominated by rural communities and public land. Transmission lines are needed to transport renewable energy from these central states to the urban centers with large energy markets.

Transmission Development on a Rural-Urban Grid

The U.S. grid is split into three regions: the Western Interconnection, the Eastern Interconnection, and ERCOT Interconnection (Texas). These three regions are only minimally connected nationally, regionally, or even through interstate connections due to intense localism on the part of utilities that are not financially incentivized to engage in regional transmission. There are three key utility ownership models in the United States: private investor-owned utilities (IOUs), public power utilities owned by states or municipalities, and nonprofit rural electric cooperatives (co-ops). 

The Federal Energy Regulatory Commission is an independent agency that regulates the interstate transmission of electricity. In this capacity, it ensures that regional goals are established and met. Two types of entities established by FERC, regional transmission organizations (RTOs) and independent system operators (ISOs), help to coordinate regional transmission across utilities. RTOs are voluntary bodies of utilities that streamline and coordinate regional transmission initiatives and objectives. ISOs are independent and federally regulated entities that coordinate regional transmission to ensure nondiscriminatory access and streamline regional goals. ISOs and RTOs are similar, but RTOs generally have jurisdiction over a larger geographic area. Two-thirds of the nation’s electricity load is served in ISO/RTO regions. The remainder of the energy market is dominated by vertically integrated utilities that manage both transmission and distribution.

Establishing more connections among the three regional grids will support renewable energy development, reduce GHG emissions, save consumers money, increase resilience, and create jobs. Connecting the power grid across states and time zones is also vital to peak load control. Greater connection mitigates the inherent instability of renewables: if clouds cover the sun in the East, winds will still blow in the Midwest. If those winds die, water will still flow in the Northwest’s rivers.

The best way to make connections between regional and local grids is through high-voltage direct current electrical transmission systems. HVDC transmission allows for the direct current (DC) transfer of power over long distances, which is more energetically efficient than alternating current (AC).

There is precedent and forward momentum on developing interstate transmission, including projects like SunZia in the Southwest, TransWest Express in the Mountain West, Grain Belt Express in the Midwest, and Champlain Hudson Power Express in the Northeast. The Midcontinent Independent System Operator (MISO) recently approved $10.3 billion in regional HVDC lines, a move that is projected to generate up to $52.2 billion in net benefits through mitigated blackouts and increased fuel savings. 

Though co-ops account for the smallest percentage of utilities (there are 812 total), they are found in the primarily rural Midwest, where there is high generation potential for solar and wind energy. Here, utility participation in RTOs is low. FERC has expressed disinterest in mandating RTO participation and in taking punitive action. However, it can incentivize regional planning through RTO membership or, where unappealing to local utilities, incentivize regional transmission investment through joint ownership structures. 

The Biden-Harris Administration has taken the first steps to address these issues, such as releasing an Action Plan in 2022 to encourage federal agencies to expedite the permitting process of renewable energy. The president should expand on the existing Action Plan to build a larger coalition of contributors and also encourage the following recommendations to facilitate maximum clean-energy transition efficiency. Achieving the Biden-Harris Administration decarbonization targets requires the tandem development of rural utility-scale renewable energy and regional HVDC transmission to carry this energy to urban centers, benefiting people and economies across the United States. 

Plan of Action

Recommendation 1. BLM should prioritize renewable energy permit awards near planned HVDC transmission lines and existing rights-of-way. 

Compared to FY20, BLM reported that it has increased renewable energy permitting activities by 35%, supporting the development of 2,898 MW of onshore solar, wind, and geothermal energy generation capacity. BLM received 130 proposals for renewable energy generation projects on public lands and six applications for interconnected transmission lines in 2021. The transmission line proposals would support 17 GW of energy, which would also support the transmission of renewable energy on non-federal land across the Southwest.

DOI can directly support renewable energy generation by instructing BLM to ensure that contracts are awarded through the multiple-use, sustained-yield mandate in a specific way. Though Section 50265 of the IRA mandates that oil and gas leases must continue, DOI can plan with an eye to the future. Renewables built on public lands should be constructed in areas closest to planned HVDC transmission, including but not limited to Kansas, Wyoming, and New Mexico. Renewables should always take precedence over coal, oil, and natural gas in areas where existing or future HVDC transmission lines are planned to begin construction or upgrades. Renewables should also always take precedence near railways and federal highways, where HVDC transmission is more easily implemented. Contracts for renewables near planned HVDC interstate transmission lines and existing rights-of-way like railways and highways should be given precedence in the awards process. This will prime the grid for the Biden-Harris Administration’s decarbonization goals and ensure that oil and gas generation is situated closer to legacy lines that are more likely to be retired sooner. DOI has unique considerations due to Section 50265 of the IRA, but it can still coordinate with other federal agencies to manage its constraints and judiciously prioritize transmission-adjacent renewable energy generation sites. 

Recommendation 2. FERC should incentivize regional transmission planning by encouraging federal-local partnerships, introducing joint-ownership structures, and amending Order 1000.

FERC should encourage RTOs to prioritize regional transmission planning in order to meet decarbonization goals and comply with an influx of cheaper, cleaner energy into its portfolio. The FERC-NARUC Task Force is a good starting point for this cooperation and should be expanded upon. This federal-state task force on electric transmission is a good blueprint for how federal objectives for regional planning can work hand-in-hand with local considerations. FERC can highlight positive cases like SB448 in Nevada, which incentivizes long-distance transmission and mandates the state’s participation in an RTO by 2030. FERC should encourage utility participation in RTOs but emphasize that long-distance transmission planning and implementation is the ultimate objective. Where RTO participation is not feasible, FERC can incentivize utility participation in regional transmission planning in other ways. 

FERC should incentivize utility participation in regional transmission by encouraging joint-ownership structures, as explored in a 2019 incentives docket. In March 2019, FERC released a Notice of Inquiry seeking comments on “the scope and implementation of its electric transmission incentives regulations and policy.” Commenters supported non-public utility joint-ownership promotion, including equity in transmission lines that can offset customer rates, depending on the financing structure. In February 2023, FERC approved incentives for two of Great River Energy’s interstate transmission projects, in which it will own a 52.3% stake of the Minnesota Iron Range project and 5% of the Big Stone project. In the Iron Range project, Great River can use a 50% equity and 50% debt capital structure, placing the construction expenses on its rate base. The cash flow generated by this capital structure is necessary for the completion of this interstate transmission line, and FERC should encourage similar projects and incentives.

FERC should amend Order 1000—Transmission Planning and Cost Allocation. As former Commissioner Glick has noted, Order 1000 in its current iteration unintentionally encourages the construction of smaller lines over larger-scale regional transmission lines because utilities prefer not to engage in potentially lengthy, expensive competition processes. In April 2022, FERC published a Notice of Proposed Rulemaking (NOPR), which, among other things, attempts to address this perverse incentive by amending the order “to permit the exercise of a federal rights of first refusal for transmission facilities selected in a regional transmission plan for purposes of cost allocation, conditioned on the incumbent transmission provider establishing joint ownership of those facilities.” Amending this rule and allowing federal ROFR for joint ownership structures will encourage partnerships, spread risks across more parties, and allow greater access to large investments that traditionally require an insurmountable capital investment for most investors new to this sector. The NOPR also encouraged long-term regional transmission planning and improved coordination between local and regional entities and implementation goals. The amendment was supported by both utilities and environmental groups. Public comments were closed for submission in summer 2022. Now, over a year later, FERC should act quickly to issue a final rule on amending Order 1000.

In addition to incentivizing more regionally focused transmission planning at the utility level, federal agencies should work together to ensure that HVDC lines are strategically placed to facilitate the delivery of renewable energy to large markets. 

Recommendation 3. The Biden-Harris Administration should encourage the Department of Transportation to work with the Grid Deployment Office (GDO) and approve state DOT plans for HVDC lines along existing highways and railroads. 

In 2021, the Federal Highway Administration (FHWA) released a memorandum providing guidance that state departments of transportation may leverage “alternative uses” of existing highway rights of way (ROW), including for renewable energy, charging stations, transmission lines, and broadband projects, and that the FHWA may approve alternative uses for ROWs so long as they benefit the public and do not impair traffic. The GDO, created by the Biden-Harris Administration, should work directly with state DOTs to plan for future interstate lines. As these departments coordinate, they should use a future highway framework characterized by increased electric vehicle (EV) usage, increased EV charging station needs, and improved mass transit. This will allow DOT to reinterpret impeding the “free and safe flow of traffic.” The FHWA should encourage state DOTs to use the SOO Green HVDC Link as a blueprint. The idea of reconciling siting issues by building transmission lines along existing rights-of-way such as highways or railroads is known to this administration, as evidenced by President Biden’s reference in a 2022 White House Statement and by FERC’s June 2020 report on barriers and opportunities for HVDC transmission. 

Recommendation 4. DOI, the Department of Agriculture (USDA), DOD, DOE, and the Environmental Protection Agency (EPA) should sign a new Memorandum of Understanding (MOU) that builds on their 2022 MOU but includes DOT.

In 2022, DOI, USDA, DOD, DOE, and the EPA signed an MOU that would expedite the review process of renewable energy projects on federal lands. DOT, specifically its FHWA and Federal Railroad Administration (FRA), should be included in this memorandum. The president should direct these agencies to sign a second MOU to work together to create a regional and national outline for future transmission lines and prioritize permit requests that align with that outline. This new MOU should add the DOT and illustrate the specific ways that FHWA and FRA can support its goals by repurposing existing transportation rights-of-ways. 

Recommendation 5. All future covered transmission planning should align with the MOU proposed in Recommendation 4. 

Under Section 50152 of the IRA, the DOE received $760 million to distribute federal grants for the development of covered transmission projects. Section 50153 appropriates an additional $100 million to DOE, which is specifically tailored to wind electricity planning and development, both offshore and interregional. The DOE should require that all transmission planning using this federal funding align with the long-term outline created under the MOU recommended above. Additionally, preference should be given to transmission lines (receiving federal funding) that link utility-scale renewable energy projects with large urban centers.

Recommendation 6. The EPA should fund technical and educational training to rural and disadvantaged communities that might benefit from an influx of high-demand green energy jobs. 

The federal government should leverage existing funding to ensure that rural and disadvantaged communities directly benefit from economic development opportunities facilitated by the clean energy transition. The EPA should use funds from Section 60107 of the IRA to provide technical and educational assistance to low-income and disadvantaged communities in the form of job training and planning. EPA funding can be used to ensure that local communities have the technical knowledge to take advantage of the jobs and opportunities created by projects like the SOO Green HVDC Link. Because this section of the IRA only funds up to $17 million in job training, this should be allocated to supplement community colleges and other technical training programs that have established curricula and expertise. 

To ensure that efforts are successful in the long term, federal agencies, utilities, and other stakeholders must have access to accurate and current information about transmission needs nationwide. 

Recommendation 7. Congress should fund regular updates to existing future transmission needs studies. 

Congress must continue to approve future research into both halves of the electrification equation: generation and transmission. Congress already approved funding for the NREL Electrification Futures Study and the NREL Interconnections SEAM Study, both published in 2021. These studies allow NREL to determine best-case scenario models and then communicate its research to the RTOs that are best positioned to help IOUs plan for future regional transmission. These studies also guide FERC and the GDO as they determine best-case scenarios for linking rural clean energy resources to urban energy markets. 

In addition, Congress must continue to fund the GDO National Transmission Needs Study, which was funded by the Bipartisan Infrastructure Law (BIL). This study researches capacity constraints and congestion on the transmission grid and will help FERC and RTOs determine where future transmission should be planned in order to relieve pressure and meet needs. The final Needs Study was issued in summer 2023, but it must be updated on a regular basis if the country is to actively move toward grid coordination. 

The Summer 2023 Needs Study included, for the first time, modeling and discussion of anticipated future capacity constraints and transmission congestion. As the grid continues to evolve and different types of renewable energy are integrated into the grid, future needs studies should continue to include forward-looking models under a variety of renewable energy scenarios.

Conclusion

The Biden-Harris Administration has rejoined the Paris Climate Agreement, affirming their commitment to significant decarbonization goals. To achieve this end, the administration must follow a two-pronged approach that facilitates the installation of utility-scale renewable energy on public lands in the Midwest and Southwest and expedites the implementation of HVDC transmission lines that will link these resources to urban energy markets. 

It is impossible to meet the Biden-Harris Administration climate goals without drastic action to encourage further electrification, renewable energy development, and transmission planning. Fortunately, these actions are ripe for bipartisan coordination and are already supported through existing laws like the IRA and BIL. These recommendations will help meet these goals and secure a brighter future for Americans across the rural-urban divide.

Frequently Asked Questions

What recent efforts has FERC taken to modernize transmission?

FERC has made recent strides toward encouraging transmission modernization through Order No. 2023. While this rule primarily addresses the “largest interconnection queue size in history” and takes steps to accelerate the interconnection process, it does not address the lack of transmission capacity and infrastructure nationally. Order No. 2023 is a vital step forward in interconnection process modernization, and it should be the first of many toward large-scale transmission planning.

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How many utility-scale solar and onshore wind plants are currently in use on public lands?

As of November 2021, BLM-managed lands produced 12 GW of power from renewable energy sources, through 36 wind, 37 solar, and 48 geothermal permitted projects. To put this number into perspective, 1 GW is enough to power approximately 750,000 homes. Helpfully, BLM maintains a list of planned and approved renewable energy projects on its lands. Additionally, the Wilderness Society maintains an interactive map of energy projects on public lands.

In contrast, BLM manages over 37,000 oil and gas leases, including over 96,000 wells.

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How will states benefit from renewable energy development on public lands?

Due to their high renewable-energy development potential, Midwest and Southwest states stand to disproportionately gain from a clean energy jobs boom in the fields of construction, management, and the technical trades. Given the West’s and Northeast’s desire for a decarbonized grid and their comparatively greater energy use, these states will benefit by receiving greater amounts of renewable energy to meet their energy needs and decarbonization goals.

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How many regional HVDC transmission lines are currently planned or approved?

The United States lags in the number of HVDC transmission lines, particularly compared to China and Europe. In 2022, only 552 miles of high voltage transmission were added to the United States. Currently, there are four regional transmission lines proposed, two of which expect to begin construction this year. Of these planned lines, three are in the Midwest and Southwest, and one is in the Northeast. While this is progress, China has recently invested $26 billion in a national network of ultra-high-voltage lines.

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Why does this memo focus on BLM multiple-use, sustained-yield mandates and not the other five purveyors of U.S. public lands?

Five agencies manage federal land, including BLM, USFS, FWS, NPS, USDA, and DOD. However, only BLM and USFS operate under the FLPMA’s multiple-use, sustained-yield mandates, and their land-use mandates are similar. The other agencies’ mandates require them to protect and conserve animals and plants, promote tourism and engagement with public lands, and manage military installations and bases. This said, BLM and USFS are the best candidates for developing utility-scale renewable energy resources through their specific mandates. This memo focuses on the larger of those entities, which has greater potential for substantial renewable energy development and an established permitting system. As discussed in this USFS and NREL study, the study of renewable-energy resource construction on national forest system lands is still in early stages, whereas BLM’s policies and systems are developed.

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Why is tribal land not included in this proposal? How can stakeholders on tribal lands take advantage of federal funding to build similar resources and connect their populations through HVDC transmission lines?

It is not within the scope of this memo to address issues specific to Tribal lands. However, various federal agencies offer clean energy funding specifically for Tribes, such as the Tribal Energy Loan Guarantee Program. If desired by Tribal communities, the U.S. government should prioritize funding for HVDC transmission lines that link Tribal power generation to Tribal urban centers and utility grids. For tribes seeking guidance on implementing utility-scale projects, Navajo Nation can serve as one model. Navajo Nation has the highest solar potential of any tribal land in the country. They have successfully constructed the Kayenta Solar Project (55 MW of energy), and have finalized leases for the Cameron Solar Plant (200 MW) and the Red Mesa Tapaha Solar Generation Plant (70 MW). The Cameron project alone will generate $109 million over the next 30 years for tribal coffers through tax revenue, lease payments, and energy transmission payments. Another example is the solar energy portfolio of Moapa Band of Paiute Indians. The Tribe manages a growing portfolio of utility-scale solar projects, including Moapa Southern Paiute Solar Project (250 MW), and the first utility-scale installation on tribal land. Currently under development are the Arrow Canyon Solar Project, the Southern Bighorn Solar Project, and the Chuckwalla Solar Projects, all of which feature joint ownership between tribal, federal, and private stakeholders.

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Geothermal energy is having a moment. The Department of Energy has made it a cornerstone of their post-BIL/IRA work – announcing an Enhanced Geothermal Earthshot last year and funding for a new consortium this year, along with additional funding for the Frontier Observatory for Research in Geothermal Energy (FORGE), Utah’s field lab. 

It’s not just government – companies hit major milestones in commercial applications of geothermal this year. Fervo Energy launched a first-of-its-kind next-generation geothermal plant, using technology it developed this year. Project Innerspace, a geothermal development organization, recently announced a partnership with Google to begin large-scale mapping and subsurface data collection, a project that would increase understanding of and access to geothermal resources. Geothermal Rising recently hosted their annual conference, which saw record numbers of attendees. 

But despite the excitement in these circles, the uptake of geothermal energy broadly is still relatively low, with only 0.4% of electricity generated in the U.S. coming from geothermal.

There are multiple reasons for this – that despite its appeal as a clean, firm, baseload energy source, geothermal has not exploded like its supporters believe it can and should. It has high upfront costs, is somewhat location dependent, and with the exception of former oil and gas professionals, lacks a dedicated workforce. But there are a range of actors in the public and private sector who are already trying to overcome these barriers and take geothermal to the next level with new and creative ideas.

One such idea is to use DOE’s newly authorized Foundation for Energy Security and Innovation (FESI) to convene philanthropy, industry, and government on these issues. At a recent FAS-hosted workshop, three major, viable use cases for how FESI can drive expansion of geothermal energy rose to the surface as the result of this cross-sector discussion. The foundation could potentially oversee: the development of an open-source database for data related to geothermal development; agreements for cost sharing geothermal pilot wells; or permitting support in the form of technical resource teams staffed with geothermal experts. 

Unlocking Geothermal Energy

DOE’s Foundation for Energy Security and Innovation (FESI) was authorized by the CHIPS and Science Act and is still in the process of being stood up. But once in action, FESI could provide an opportunity for collaboration between philanthropy, industry, and government that could accelerate geothermal. 

As part of our efforts to support DOE in standing up its new foundation with the Friends of FESI initiative, FAS is identifying potential use cases for FESI – structured projects that the foundation could take on as it begins work. The projects must forward DOE’s mission in some way, with particular focus on clean energy technology commercialization. We have already received a wide range of ideas for how FESI can act as a central hub for collaboration on specific clean energy technologies; how it can support innovative procurement and talent models for government; or how it can help ensure an equitable clean energy transition. 

In early October, FAS had the opportunity to host a workshop as part of the 2023 Geothermal Rising Conference. The workshop invited conference attendees from nonprofits, companies, and government agencies of all levels to come together to brainstorm potential projects that could forward geothermal development. The workshop centered on four major ideas, and then invited attendees to break out into small groups, rotating after a period of time to ensure attendees could discuss each idea. 

The workshop was successful, adding depth to existing ideas. The three main ideas that came out of the workshop – an open source geothermal database, cost sharing pilot wells, and permitting support – are explored in more detail below. 

Open-source database for subsurface characterization

One of the major barriers to expanded geothermal development is a lack of data for use in exploration. Given the high upfront costs of geothermal wells, developers need to have a detailed understanding of subsurface conditions of a particular area to assess the area’s suitability for development and reduce their risk of investing in a dead end. Useful data can include bottom hole temperatures, thermal gradient, rock type, and porosity, but can also include less obvious data – information on existing water wells or transmission capacity in a particular area. 

These data exist, but with caveats: they might be proprietary and available for a high cost, or they might be available at the state level and constrained by the available technical capacity in those offices. Data management standards and availability also vary by state. The Geothermal Data Repository and the US Geological Survey manage databases as well, but utility of and access to these data sources is limited. 

With backing from industry and philanthropic sources, and in collaboration with DOE, FESI could support collection, standardization, and management of these data sources. A great place to begin would be making accessible existing public datasets. Having access to this data would lower the barrier to entry for geothermal start-ups, expand the types of geothermal development that exist, and remove some of the pressure that state and federal agencies feel around data management. 

Cost sharing pilot wells

After exploration, the next stage in a geothermal energy source’s life is development of a well. This is a difficult stage to reach for companies: there’s high risk, high investment cost, and a lack of early equity financing. In short, it’s tough for companies to scale up, even if they have the expertise and technology. This is also true across different types of geothermal – just as much in traditional hydrothermal as in superhot or enhanced geothermal. 

One way FESI could decrease the upfront costs of pilot wells is by fostering and supporting cost-share agreements between DOE, companies, and philanthropy. There is a precedent for this at DOE – from loan programs in the 1970s to the Geothermal Resource Exploration and Definition (GRED) programs in the 2000s. Cost-share agreements are good candidates for any type of flexible financial mechanism, like the Other Transactions Authority, but FESI could provide a neutral arena for funding and operation of such an agreement. 

Cost share agreements could take different forms: FESI could oversee insurance schemes for drillers, offtake agreements, or centers of excellence for training workforces. The foundation would allow government and companies to pool resources in order to share the risk of increasing the number of active geothermal projects. 

Interagency talent support for permitting

Another barrier to geothermal development (as well as to other clean energy technologies) is the slow process of permitting, filled with pitfalls. While legislative permitting reform is desperately needed, there are barriers that can be addressed in other ways. One of these is by infusing new talent: clean energy permitting applications require staff to assess and adjudicate them. Those staff need encyclopedic knowledge of various state, local, tribal, and federal permitting laws and an understanding of the clean energy technology in question. The federal government doesn’t have enough people to process applications at the speed the clean energy transition needs. 

FESI could offer a solution. With philanthropic and private support, the foundation could enable fellowships or training programs to support increased geothermal (or other technological) expertise in government. This could take the form of ‘technical resource teams,’ or experts who can be deployed to agencies handling geothermal project permitting applications and use their subject matter knowledge to move applications more quickly through the pipeline. 

The Bottom Line

These ideas represent a sample in just one technology area of what’s possible for FESI. In the weeks to come, the Friends of FESI team will work to develop these ideas further and also start to gauge interest from philanthropies in supporting them in the future. If you’re interested in contributing to or potentially funding these ideas, please reach out to our team at fesifriends@fas.org. If you have other ideas for what FESI could work on or just want to keep up with FESI, sign up for our email newsletter here.

This blog post is the second piece in a periodic series by FAS on systems thinking. The first is on systems thinking in entrepreneurial ecosystems.

News was abuzz two weeks ago with a flurry of celebratory articles showcasing the first-year accomplishments of the Administration’s signature clean energy law, the Inflation Reduction Act (IRA), on its August 16-anniversary. The stats are impressive. Since the bill’s passage, some 270 new clean energy projects have been announced, with investments totaling some $132 billion, according to a Bank of America analyst report. President Biden, speaking at a White House anniversary event, reported that the legislation has already created 170,000 clean energy jobs and will create some 1.5 million jobs over the next decade, while significantly cutting the nation’s carbon emissions. 

The New York Times also headlined an article last week: “The Clean Energy Future Is Arriving Faster Than You Think,” citing that “globally, change is happening at a pace that is surprising even the experts who track it closely.” In addition, the International Energy Agency, which provides analysis to support energy security and the clean energy transition, made its largest ever upward revision  to its forecast on renewable capacity expansion. But should this accelerated pace of change that we are seeing really be such a surprise? Or, can rapid acceleration of transformation be predicted, sought after, and planned for?

FAS Senior Associate Alice Wu published a provocative policy memo last week entitled, “Leveraging Positive Tipping Points To Accelerate Decarbonization.” Wu asserts that we can anticipate and drive toward thresholds in decarbonization transitions. A new generation of economic models can enable the analysis of these tipping points and the evaluation of effective policy interventions. But to put this approach front and center will require an active research agenda and a commitment to use this framework to inform policy decisions. If done successfully, a tipping points framework can help forecast multiple different aspects of the decarbonization transition, such as food systems transformation and for ensuring that accelerated transitions happen in a just and equitable manner. 

Over the past year, FAS has centralized the concept of positive tipping points as an organizing principle in how we think about systems change in climate and beyond. We are part of a global community of scholars, policymakers, and nonprofit organizations that recognize the potential power in harnessing a positive tipping points framework for policy change. The Global Systems Institute at the University of Exeter, Systemiq, and the Food and Land Use Coalition are a few of the leading organizations working to apply this framework in a global context. FAS is diving deep into the U.S. policy landscape, unpacking opportunities with current policy levers (like the IRA) to identify positive tipping points in progress and, hopefully, to build capacity to anticipate and drive toward positive tipping points in the future.

Through a partnership between FAS and Metaculus, a crowd-forecasting platform, a Climate Tipping Points Tournament has provided an opportunity for experienced and novice forecasters alike to dive deep into climate policy questions related to Zero Emissions Vehicles (ZEVs). The goal is to anticipate some of these nonlinear transformation thresholds before they occur and explore the potential impacts of current and future policy levers.

While the tournament is still ongoing, it is already yielding keen insights on when accelerations in systems behavior is likely to occur, on topics that range from the growth of ZEV workforce to the supply chain dynamics for critical minerals needed for ZEV batteries. FAS is planning to publish a series of memos that will seek to turn insights from the tournament into actionable policy recommendations. Future topics planned include: 1) ZEV subsidies; 2) public vs. private charging stations; sodium ion battery research and development; and 4) ZEV battery recycling and the circular economy.

Going forward, FAS will continue to elevate the concept of positive tipping points in the climate space and beyond. We believe that if scientists and policymakers work together toward operationalizing this framework, positive tipping points can move quickly from the realm of the theoretical to become an instrument of policy design that enables decision makers to craft laws and executive action that promotes systems change toward the beneficial transformations we are seeking.