Systems Thinking in Climate: Positive Tipping Points Jumpstart Transformational Change

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.

Leveraging Positive Tipping Points to Accelerate Decarbonization

Summary

The Biden Administration has committed the United States to net-zero emissions by 2050. Meeting this commitment requires drastic decarbonization transitions across all sectors of society at a pace never seen before. This can be made possible by positive tipping points, which demarcate thresholds in decarbonization transitions that, once crossed, ensure rapid progress towards completion. A new generation of economic models enables the analysis of these tipping points and the evaluation of effective policy interventions. 

The Biden Administration should undertake a three-pronged strategy for leveraging the power of positive tipping points to create a larger-than-anticipated return on investment in the transition to a clean energy future. First, the President’s Council of Advisors on Science and Technology (PCAST) and the Council of Economic Advisors (CEA) should evaluate new economic models and make recommendations for how agencies can incorporate such models into their decision-making process. Second, federal agencies should integrate positive tipping points into the research agendas of existing research centers and programs to uncover additional decarbonization opportunities. Finally, federal agencies should develop decarbonization strategies and policies based on insights from this research.

Challenge and Opportunity

Climate change brings us closer each year to triggering negative tipping points, such as the collapse of the West Antarctic ice sheet or the Atlantic Meridional Overturning Circulation. These negative tipping points, driven by self-reinforcing environmental feedback loops, significantly accelerate the pace of climate change. 

Meeting the Biden Administration’s commitment to net-zero emissions by 2050 will reduce the risk of these negative tipping points but requires the United States to significantly accelerate the current pace of decarbonization. Traditional economic models used by the federal government and organizations such as the International Energy Agency consistently underestimate the progress of zero-emission technologies and the return on investment of policies that enable a faster transition, resulting in the agency’s “largest ever upwards revision” last year. A new school of thought presents “evidence-based hope” for rapidly accelerating the pace of decarbonization transitions. Researchers point out that our society consists of complex and interconnected social, economic, and technological systems that do not change linearly under a transition, as traditional models assume; rather, when a positive tipping point is crossed, changes made to the system can lead to disproportionately large effects. A new generation of economic models has emerged to support policymakers in understanding these complex systems in transition and identifying the best policies for driving cost-effective decarbonization.

At COP26 in 2021, leaders of countries responsible for 73% of world emissions, including the United States, committed to work together to reach positive tipping points under the Breakthrough Agenda. The United Kingdom and other European countries have led the movement thus far, but there is an opportunity for the United States to join as a leader in implementing policies that intentionally leverage positive tipping points and benefit from the shared learnings of other nations. 

Domestically, the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA) include some of the strongest climate policies that the country has ever seen. The implementation of these policies presents a natural experiment for studying the impact of different policy interventions on progress towards positive tipping points.

How do positive tipping points work?

Figure 1. Diagram of a system and its positive tipping point. The levers for change on the left push the system away from the current high-emission state and towards a new net-zero state. As the system moves away from the current state, the self-reinforcing feedback loops in the system become stronger and accelerate the transition. At the positive tipping point, the feedback loops become strong enough to drive the system towards the new state without further support from the levers for change. Thus, policy interventions for decarbonization transitions are most crucial in the lead up to a positive tipping point. (Adapted from the Green Futures Network.)

Just as negative tipping points in the environment accelerate the pace of climate change, positive tipping points in our social, economic, and technological systems hold the potential to rapidly accelerate the pace of decarbonization (Figure 1). These positive tipping points are driven by feedback loops that generate increasing returns to adoption and make new consumers more likely to adopt (Figure 2):

The right set of policies can harness this phenomenon to realize significantly greater returns on investment and trigger positive tipping points that give zero-emission technologies a serious boost over incumbent fossil-based technologies.

Figure 2. Examples of positive feedback loops: (a) learning by doing, (b) social contagion, and (c) complementary technology reinforcement.

One way of visualizing progress towards a positive tipping point is the S-curve, where the adoption of a new zero-emission technology grows exponentially and then saturates at full adoption. This S-curve behavior is characteristic of many historic energy and infrastructure technologies (Figure 3). From these historic examples, researchers have identified that the positive tipping point occurs between 10% and 40% adoption. Crossing this adoption threshold is difficult to reverse and typically guarantees that a technology will complete the S-curve.

Figure 3. The historic adoption of a sample of infrastructure and energy systems (top) and manufactured goods (bottom). Note that the sharpness of the S-curve can vary significantly. (Source: Systemiq)

For example, over the past two decades, the Norwegian government helped build electric vehicle (EV) charging infrastructure (complementary technology) and used taxes and subsidies to lower the price of EVs below that of gas vehicles. As a result, consumers began purchasing the cheaper EVs, and over time manufacturers introduced new models of EVs that were cheaper and more appealing than previous models (learning by doing and economies of scale). This led to EVs skyrocketing to 88% of new car sales in 2022. Norway has since announced that it would start easing its subsidies for EVs by introducing two new EV taxes for 2023, yet EV sales have continued to grow, taking up 90% of total sales so far in 2023, demonstrating the difficult-to-reverse nature of positive tipping points. Norway is now on track to reach a second tipping point that will occur when EVs reach price parity with gas vehicles without assistance from taxes or subsidies.

Due to the interconnected nature of social and technological systems, triggering one positive tipping point can potentially increase the odds of another tipping point at a greater scale, resulting in “upward-scaling tipping cascades.” Upward-scaling tipping cascades can occur in two ways: (1) from a smaller system to a larger system (e.g., as more states reach their tipping point for EV adoption, the nation as a whole gets closer to its tipping point) and (2) from one sector to another. For the latter, researchers have identified three super-leverage points that policymakers can use to trigger tipping cascades across multiple sectors:

  1. Light-duty EVs → heavy-duty EVs and renewable energy storage: The development of cheaper batteries for light-duty EVs will enable cheaper heavy-duty EVs and renewable energy storage thanks to shared underlying battery technology. The build-out of charging infrastructure for light-duty EVs will also facilitate the deployment of heavy-duty EVs.
  2. Green ammonia → heavy industries, shipping, and aviation: The production of green ammonia requires green hydrogen as an input, so the growth of the former will spur the growth of the latter. Greater production of green hydrogen and green ammonia will catalyze the decarbonization of the heavy industries, shipping, and aviation sectors, which use these chemicals as fuel inputs.
  3. Traditional and alternative plant proteins → land use: Widespread consumption of traditional and alternative plant proteins over animal protein will reduce pressure on land-use change for agriculture and potentially restore significant amounts of land for conservation and carbon sequestration.

The potential for this multiplier effect makes positive tipping points all the more promising and critical to understand.

Further research to identify positive tipping points and tipping cascades and to improve models for evaluating policy impacts holds great potential for uncovering additional decarbonization opportunities. Policymakers should take full advantage of this growing field of research by integrating its models and insights into the climate policy decision-making process and translating insights from researchers into evidence-based policies. 

Plan of Action

In order for the government to leverage positive tipping points, policymakers must be able to (1) identify positive tipping points and tipping cascades before they occur, (2) understand which policies or sequences of policies may be most cost-effective and impactful in enabling positive tipping points, and (3) integrate that insight into policy decision-making. The following recommendations would create the foundations of this process.

Recommendation 1. Evaluate and adopt new economic models

The President’s Council of Advisors on Science and Technology (PCAST) and the Council of Economic Advisors (CEA) should conduct a joint evaluation of new economic models and case studies to identify where new models have been proven to be more accurate for modeling decarbonization transitions and where there are remaining gaps. They should then issue a report with recommendations on opportunities for funding further research on positive tipping points and new economic models and advise sub agenciessubagencies responsible for modeling and projections, such as the Energy Information Administration within the Department of Energy (DOE), on how to adopt these new economic models.

Recommendation 2. Integrate positive tipping points into the research agenda of federally funded research centers and programs.

There is a growing body of research coming primarily from Europe, led by the Global Systems Institute and the Economics of Energy Innovation and Systems Transition at the University of Exeter and Systemiq, that is investigating global progress towards positive tipping points and different potential policy interventions. The federal government should foster the growth of this research area within the United States in order to study positive tipping points and develop models and forecasts for the U.S. context.

There are several existing government-funded research programs and centers that align well with positive tipping points and would benefit synergistically from adding this to their research agenda:

Recommendation 3. Use insights from positive tipping points research to develop and implement policies to accelerate progress towards positive tipping points

Researchers have already identified three super-leverage points around which the federal government should consider developing and implementing policies. As future research is published, the PCAST should make further recommendations on actions that the federal government can take in leveraging positive tipping points.

Super-Leverage Point #1: Mandating Zero-Emission Vehicles (ZEVs) 

ZEV mandates require car manufacturers to sell a rising proportion of ZEVs within their light duty vehicles sales. Ensuring a growing supply of ZEVs results in falling costs and rising demand. Evidence of the effect of such policies in U.S. states, Canadian provinces, and China and future projections suggest that ZEV mandates are a crucial policy lever for ensuring a full EV transition. Such policies rely on the reallocation of private capital rather than government spending, making it particularly cost-effective. Combined with the investments in EV manufacturing and public charging infrastructure in the IRA and IIJA, a national ZEV mandate could radically boost the EV transition. 

A national ZEV mandate is unlikely to pass Congress anytime soon. However, the recently proposed Environmental Protection Agency (EPA) greenhouse gas emissions standards for passenger cars and trucks would effectively require 67% of car sales to be ZEVs by 2032 in order for car manufacturers to comply with the regulations. The proposed standards would provide regulatory strength behind the Biden Administration’s goal of 50% of new cars sold by 2030 to be ZEVs. The EPA should finalize these standards as soon as possible at or above the currently proposed stringency. 

The proposed EPA standards are projected to result in a 50% reduction in the price of EV batteries by 2035. This will have knock-on effects on the cost of batteries for renewable energy storage and battery electric trucks and other heavy-duty vehicles, which would likely bring forward the cost parity tipping point for these technologies by a number of years.

Super-Leverage Point #2: Mandating Green Ammonia Use in Fertilizer Production 

Ammonia is the primary ingredient for producing nitrogen-based fertilizer and requires hydrogen as an input. Traditionally, this hydrogen is produced from natural gas, and the production of hydrogen for ammonia accounts for 1% of global CO2 emissions. Green hydrogen produced from water and powered by renewable energy would enable the production of green ammonia for nitrogen-based fertilizers.

Based on a DOE tipping point analysis, green ammonia production is one of the most promising areas for initial large-scale deployment of green hydrogen, thanks to its ability to use established ammonia supply chains and economies of scale. Green ammonia production also has one of the lowest green premia in the hydrogen economy. Green ammonia production will enable infrastructure development and cost reductions for green hydrogen to decarbonize other sectors, including shipping, aviation, and heavy industries like steel. 

The Biden Administration should set a target for green ammonia production for domestic fertilizer in the Federal Sustainability Plan similar to India’s draft hydrogen strategy requiring 20% green ammonia production by 2027–2028. The EPA should then propose Clean Air Act carbon emission limits and guidelines for nitrogen-based fertilizer production plants, similar to the recently proposed standards for coal and natural gas power plants, to provide regulatory strength behind that target. These limits would effectively require fertilizer plants to blend a growing percentage of green ammonia into their production line in order to meet emission limits. According to the DOE, the clean hydrogen production tax credit in the IRA has enabled cost parity between green ammonia and fossil-based ammonia, so the EPA should be able to set such limits without increasing food production costs.

Super-Leverage Point #3: Public Procurement to Promote Plant and Alternative Proteins

Shifting protein consumption from meat to plant and alternative proteins can reduce emissions from livestock farming and reduce land use change for meat production. Plant proteins refer to protein-rich plants, such as nuts and legumes, and traditional products made from those plants, such as tofu and tempeh. Alternative proteins currently on the market include plant- and fermentation-based protein products intended to mimic the taste and texture of meat. Studies show that if plant and alternative proteins are able to reach a tipping point of 20% market share, this would ease up 7–15% of land currently used for agriculture to conservation and the restoration of its ability to serve as a carbon sink. 

Public procurement of alternative proteins for federal food programs leverages government spending power to support this nascent market and introduce new consumers to alternative proteins, thus increasing its accessibility and social traction. Last year, the National Defense Authorization Act established a three-year pilot program for the U.S. Navy to offer alternative protein options. The California state legislature also invested $700 million to support schools in procuring more plant-based foods and training staff on how to prepare plant-based meals.

The United States Department of Agriculture (USDA) is a major procurer of food through collaboration between the Agricultural Marketing Service (AMS) and the Food and Nutrition Service (FNS) and distributes the majority of procured food through the Child Nutrition Programs (CNPs), especially the National School Lunch Program (NSLP). Currently, AMS does not procure any traditional or alternative protein products made from plant protein, but USDA guidelines do allow traditional and alternative protein products to fulfill meat/meat alternate requirements for CNPs. The AMS should develop product specifications and requirements for procuring these types of products and assist traditional and alternative protein companies to become USDA food vendors. The FNS should then launch a pilot program spending, for example, 1% of their procurement budget on traditional and alternative protein products. This should be supported by education and training of food service workers at schools that participate in the NSLP on how to prepare meals using traditional and alternative proteins.

Conclusion

The sooner that positive tipping points that accelerate desired transitions are triggered, the sooner that decarbonization transitions will be realized and net-zero goals will be met. Early intervention is crucial for supporting the growth and adoption of new zero-emission technologies. The recommendations above present the foundations of a strategy for leveraging positive tipping points and accelerating climate action.

Acknowledgements

I’d like to acknowledge Erica Goldman for her generous feedback and advice on this piece and for her thought leadership on this topic at FAS.

FAQs about Leveraging Positive Tipping Points to Accelerate Decarbonization
What are the necessary conditions for a positive tipping point?

The key conditions for triggering a positive tipping point are affordability, attractiveness, and accessibility of new zero-emission technologies compared to incumbents. Affordability is often the most crucial condition: achieving price parity with incumbent technologies (with and then without the support of taxes and subsidies) can unlock rapid growth and adoption. Attractiveness refers to consumer preferences about a new technology’s performance, complementary features, or ability to signal social values. Accessibility refers to whether supporting infrastructure or knowledge, such as charging stations for EVs or recipes for cooking alternative proteins, is commonly available to support adoption. Due to the relative nature of these conditions, policymakers can influence them either by making the new technology more affordable, attractive, and accessible or by making the incumbent technology less affordable, attractive, and accessible. Often, a combination of both approaches is required to achieve the optimal effect.

Are federal policymakers the only actors that can trigger positive tipping points? What about state policymakers?

States can cooperate to identify and coordinate policies that activate upward-scaling tipping cascades into other states and eventually the federal government. A promising example of this is the growing adoption of California’s Advanced Clean Cars II EV sales mandate by Vermont, New York, Washington, Oregon, Rhode Island, New Jersey, Maryland, and soon Colorado, Massachusetts, and Delaware.

What about individuals and social movements?

Social contagion, mentioned above, is a powerful type of feedback loop that can drive the spread of not just technology adoption but also new behaviors, opinions, knowledge, and social norms. Through social contagion, social movement can be formed, capable of wielding greater influence than the sum of individuals. That influence can then translate into demands for government and industry action to decarbonize. A prime example is Greta Thunberg and the Fridays for Future student movement. Another example is the Social Tipping Point Coalition that in 2021 rallied a coalition of over 100 scientists, universities, nongovernmental and grassroots organizations, and other individuals to petition the new Dutch parliament to implement new climate policies.

What about industry stakeholders?

Industry has a direct hand in creating the conditions for a positive tipping point through their business models, technological development, and production. Industries are more likely to invest in adopting and improving low- and zero-carbon technologies and practices if the government clearly signals that it will back the transition, resulting in positive, reinforcing “ambition loops” between government climate policy and industry climate action. Industry coordination is also key to ensuring that new technologies are complementary and that infrastructure supporting a technology is developed alongside the technology itself. For example, coordination between EV companies is necessary to develop compatible charging mechanisms across manufacturers. Coordination between charging companies and EV companies can help charging companies identify which geographies have greatest demand for chargers.

What about international coordination?

International coordination strengthens positive feedback loops and accelerates cost reductions for green technologies. For example, a recent study suggests that if the three largest car markets—the United States, Europe, and China—implement zero-emission vehicle (ZEV) sales mandates (i.e., requirements that an increasing percentage of each car manufacturer’s sales must be EVs), EVs will be able to reach cost parity with gas vehicles five years sooner than in the scenario without those ZEV mandates.

What has the federal government done to identify or accelerate positive tipping points so far?

The U.S. Global Change Research Program’s 2022–2031 Strategic Plan includes tipping points and nonlinear changes in complex systems as two of its research priorities. Specifically, the Strategic Plan highlights the need to investigate “the potential for beneficial tipping points” and incorporate research on nonlinearity in economics-based models to evaluate societal decisions in future National Climate Assessments. However, it will take another four to five years to produce the next National Climate Assessment under this strategic plan. (The fifth National Climate Assessment, which is expected to be published this fall, was drafted before the new strategic plan was published.) Thus, additional executive and agency action is necessary to operationalize positive tipping points in the federal government before the next National Climate Assessment is released.

How can we track progress towards positive tipping points?

The federal government currently collects some data on the sales and adoption rates of the relatively more mature clean energy technologies, such as electric vehicles. A 2022 Bloomberg report attempted to identify “early-stage tipping points” at around 5% adoption for 10 clean energy technologies that reflect when their adoption becomes measurably exponential and compare their adoption curves across countries globally. Beyond adoption rates, a number of additional factors indicate progress towards positive tipping points, such as the number of companies investing in a zero-emission technology or the number of states adopting regulations or incentives that support zero-emission technologies in a sector. Tracking these indicators can help policymakers sense when a system is approaching a positive tipping point. The nonprofit Systems Change Lab currently tracks the adoption of decarbonization technologies and factors that affect decarbonization transitions on a global scale. Philanthropic funding or a public-private partnership with the Systems Change Lab could leverage their existing infrastructure to track tipping point indicators on a national scale for the United States.

What are the risks or potential unintended consequences to consider when crossing a positive tipping point?

Approaching a positive tipping point first requires a system to become destabilized in order to make change possible. Once a positive tipping point is crossed, the system then accelerates towards a new state and begins to restabilize. However, the destabilization during the transition can have unintended consequences due to the rapid shift in how social, economic, and technological systems are organized and how resources are distributed within those systems. Potential risks include economic precarity for people employed in rapidly declining industries and resulting social instability and backlash. This can potentially exacerbate inequality and undesirable social division. As such, policies ensuring a just transition must be implemented alongside policies to accelerate positive tipping points. Research on the interaction between these policies is currently ongoing. It is essential that decisions to develop policies that accelerate movement towards positive tipping points always consider and evaluate the potential for unintended consequences.

Building the Talent Pipeline for the Energy Transition: Aligning U.S. Workforce Investment for Energy Security and Supply Chain Resilience

Summary

With the passage of the Infrastructure Investment and Jobs Act (IIJA), the CHIPS and Science Act, and the Inflation Reduction Act (IRA), the United States has outlined a de facto industrial policy to facilitate and accelerate the energy transition while seeking energy security and supply chain resilience. The rapid pace of industrial transformation driven by the energy transition will manifest as a human capital challenge, and the workforce will be realigned to the industrial policy that is rapidly transforming the labor market. The energy transition, combined with nearshoring, will rapidly retool the global economy and, with it, the skills and expertise necessary for workers to succeed in the labor market. A rapid, massive, and ongoing overhaul of workforce development systems will allow today’s and tomorrow’s workers to power the transition to energy security, resilient supply chains, and the new energy economy—but they require the right training opportunities scaled to match the needs of industry to do so.

Policymakers and legislators recognize this challenge, yet strategies and programs often sit in disparate parts of government agencies in labor, trade, commerce, and education. A single strategy that coordinates a diverse range of government policies and programs dedicated to training this emerging workforce can transform how young people prepare for and access the labor market and equip them with the tools to have a chance at economic security and well-being.

Modeled after the U.S. Department of Labor’s (DOL) Trade Adjustment Assistance Community College and Career Training (TAACCCT) program, we propose the Energy Security Workforce Training (ESWT) Initiative to align existing U.S. government support for education and training focused on the jobs powering the energy transition. The Biden-Harris Administration should name an ESWT Coordinator to manage and align domestic investments in training and workforce across the federal government. The coordinator will spearhead efforts to identify skills gaps with industry, host a ESWT White House Summit to galvanize private and social sector commitments, encourage data normalization and sharing between training programs to identify what works, and ensure funds from existing programs scale evidence-based sector-specific training programs. ESWT should also encompass an international component for nearshored supply chains to perform a similar function to the domestic coordinator in target countries like Mexico and promote two-way learning between domestic and international agencies on successful workforce training investments in clean energy and advanced manufacturing.

Challenge and Opportunity

With the passage of the Infrastructure Investment and Jobs Act and the Inflation Reduction Act, the United States has a de facto industrial policy to facilitate and accelerate the energy transition while seeking energy security and supply chain resilience. However, our current workforce investments are not focused on the growing green skills gap. We require workforce investment aligned to the industrial policy that is rapidly transforming the labor market, to support both domestic jobs and the foreign supply chains that domestic jobs depend on. 

Preparing Americans to Power the Energy Transition

The rapid pace of industrial transformation driven by the energy transition will manifest as a human capital challenge. The energy transition will transform and create new jobs—requiring a massive investment to skill up the workers who will power the energy transition. Driving this rapid transition are billions of dollars slated for incentives and tax credits for renewable energy and infrastructure, advanced manufacturing, and supply chain creation for goods like electric vehicle batteries over the coming years. The vast upheaval caused by the energy transition combined with nearshoring is transforming both current jobs as well as the labor market young people will enter over the coming decade. The jobs created by the energy transition have the potential to shift a whole generation into the middle class while providing meaningful, engaging work. 

Moving low-income students into the middle class over the next 10 years will require that education and training institutions meet the rapid pace of industrial transformation required by the energy transition. Education and training providers struggle to keep up with the rapid pace of industrial transformation, resulting in skills gaps. Skills gaps are the distance between the skills graduates leave education and training with and the skills required by industry. Skills gaps rob young people of opportunities and firms of productivity. And according to LinkedIn’s latest Green Economy report, we are facing a green skills gap—with the demand for green skills outpacing the supply in the labor force. Firms have cited skills gaps in diverse sectors related to the energy transition, including infrastructure, direct air capture, electromobility, and geothermal power. 

Graduates with market-relevant skills earn between two and six times what their peers earn, based on evaluations of International Youth Foundation’s (IYF) programming. In addition, effective workforce development lowers recruitment, selection, and training costs for firms—thereby lowering the transaction costs to scale moving people into the positions needed to power the energy transition. Industrial transformation for the energy transition involves automation, remote sensing, and networked processes changing the role of the technician—who is no longer required to execute tasks but instead to manage automated processes and robots that now execute tasks. This changes the fundamental skills required of technicians to include higher-order skills for managing processes and robots. 

We will not be able to transform industry or seize the opportunities of the new energy future without overhauling education and training systems to build the skills required by this transformation and the industries that will power it. Developing higher-order thinking skills means changing not only what is taught but how teaching happens. For example, students may be asked to evaluate and make actionable recommendations to improve energy efficiency at their school. Because many of these new jobs require higher-order thinking skills, policy investment can play a crucial role in supporting workers and those entering the workforce to be competitive for these jobs. 

Creating Resilient Supply Chains, Facilitating Energy Security, and Promoting Global Stability in Strategic Markets

Moving young people into good jobs during this dramatic economic transformation will be critical not only in the United States but also to promote our interests abroad by (1) creating resilient supply chains, 2) securing critical minerals, and (3) avoiding extreme labor market disruptions in the face of a global youth bulge. 

Supply chain resilience concerns are nearshoring industrial production—shifting the demand for industrial workers across geographies at a shocking scale and speed—as more manufacturing and heavy industries move back into the United States’ sphere of influence. The energy transition combined with nearshoring will rapidly retool the global economy. We need a rapid, massive, and ongoing overhaul of workforce development systems at home and abroad. The scale of this transition is massive and includes complex, multinational supply chains. Supply chains are being reworked before our eyes as we nearshore production. For example, the port of entry in Santa Teresa, New Mexico, is undergoing rapid expansion in anticipation of explosive growth of imports of spare parts for electric vehicles manufactured in Mexico. These shifting supply chains will require the strategic development of a new workforce.

The United States requires compelling models to increase its soft power to secure critical minerals for the energy transition. Securing crucial minerals for the energy transition will again reshape energy supply chains, as the mineral deposits needed for the energy transition are not necessarily located in the same countries with large oil, gas, or coal deposits. The minerals required for the energy transition are concentrated in China, Democratic Republic of Congo, Australia, Chile, Russia, and South Africa. We require additional levers to establish productive relationships to secure the minerals required for the energy transition. Workforce investments can be an important source of soft power. 

Today’s 1.2 billion young people today make up the largest and most educated generation the world has ever seen, or will ever see, yet they face unemployment rates at nearly triple that of adults. Globally the youth unemployment rate is 17.93% vs. 6.18% for adults. The youth unemployment rate refers to young people aged 15–24 who are available for or seeking employment but who are unemployed. While rich countries have already passed through their own baby booms, with accompanying “youth bulges,” and collected their demographic dividends to power economic growth and wealth, much of the developing world is going through its own demographic transition. While South Korea experienced sustained prosperity once its baby boomers entered the labor force in the early 2000s, Latin America’s youth bulge is just entering the labor force. In regions like Central America, this demographic change is fueling a wave of outmigration. In Sub-Saharan Africa, the youth bulge is making its way through compulsory education with increasing demands for government policy to meet high rates of youth unemployment. It is an open question whether today’s youth bulges globally will drive prosperity as they enter the labor market. Policymakers are faced with shaping labor force training, and government policy rooted in demonstrable industry needs to meet this challenge. At the same time, green jobs is already one of the most rapidly growing occupations. The International Energy Agency (IEA) projects that adopting clean energy technologies will generate 14 million jobs by 2030, with 16 million more to retrofit and construct energy-efficient buildings and manufacture new energy vehicles. At the same time, the World Economic Forum’s 2023 future of jobs report cites the green transition as the key driver of job growth. However, the developing world is not making the corresponding investments in training programs for the green jobs that are driving growth. 

Alignment with Existing Initiatives

The Biden-Harris Administration’s approach to the energy transition, supply chain resilience, and energy security must address this human capital challenge. Systemic approaches to building the skills for the energy transition through education and training complement the IRA’s incentivized apprenticeships, and focus investments from the IIJA, by building out a complete technical, vocational, education and training system oriented toward building the skills required for the energy transition. We propose a whole-of-government approach that integrates public investment in workforce training to focus on the energy transition and nearshoring with effective approaches to workforce development to address the growing green skills gap that endangers youth employment, the energy transition, energy security and supply chain resilience. 

The Biden-⁠Harris Administration Roadmap to Support Good Jobs demonstrates a commitment to building employment and job training into the Investing in America Agenda. The Roadmap catalogs programs throughout the federal government that address employment and workforce training authorized in recent legislation and meant to enable more opportunities for workers to engage with new technology, advanced manufacturing, and clean energy. Some programs had cross-sector reach, like the Good Jobs Challenge that reached 32 states and territories authorized in the American Rescue Plan to invest in workforce partnerships, while others are more targeted to specific industries, like the Battery Workforce Initiative that engages industry in developing a battery manufacturing workforce. The Roadmap’s clearinghouse of related workforce activities across the federal ecosystem presents a meaningful opportunity to advance this commitment by coordinating and strategically implementing these programs under a single series of objectives and metrics. 

Identifying evidence-driven training programs can also help fill the gap between practicums and market-based job needs by allowing more students access to practical training than can be reached solely by apprenticeships, which can have high individual transaction costs for grantees to coordinate. Additionally, programs like the Good Jobs Challenge required grantees to complete a skills-gap analysis to ensure their programs fit market needs. The Administration should seek to embed capabilities to conduct skills-gap analyses first before competitive grants are requested and issued to better inform program and grant design from the beginning and to share that learning with the broader workforce training community. By using a coordinated initiative to engage across these programs and legislative mandates, the Administration can create a more catalytic, scalable whole-of-government approach to workforce training.

Collaborating on metrics can also help identify which programs are most effective at meeting the core metrics of workforce training—increased income and job placements—which often are not met in workforce programs. This initiative could be measured across programs and agencies by (1) the successful hiring of workers into quality green jobs, (2) the reduction of employer recruitment and training costs for green jobs, and (3) demonstrable decreases in identified skills gaps—as opposed to a diversity of measures without clear comparability that correspond to the myriad agencies and congressional committees that oversee current workforce investments. Better transferable data measured against comparable metrics can empower agencies and Congress to direct continued funds toward what works to ensure workforce programs are effective.

The DOL’s TAACCCT program provides a model of how the United States has successfully invested in workforce development to respond to labor market shocks in the past. Building on TAACCCT’s legacy and its lessons learned, we propose focusing investment in workforce training to address identified skills gaps in partnership with industry, engaging employers from day one, rather than primarily targeting investment based on participant eligibility. When investing in bridging critical skills gaps in the labor market, strategy and programs must be designed to work with the most marginalized communities (including rural, tribal, and Justice40 communities) to ensure equitable access and participation. 

Increased interagency collaboration is required to meet the labor market demands of the energy transition, both in terms of domestic production in the United States and the greening of international supply chains from Mexico to South Africa. Our proposed youth workforce global strategy, the Energy Security Workforce Training Initiative outlined below provides a timely opportunity for the Administration to make progress on its economic development, workforce and climate goals. 

Plan of Action

We propose a new Energy Security Workforce Training Initiative to coordinate youth workforce development training investments across the federal government, focused on critical and nearshored supply chains that will power energy security. ESWT will be charged with coordinating U.S. government workforce strategies to build the pipeline for young people to the jobs powering the energy transition. ESWT will rework existing education and training institutions to build critical skills and to transform how young people are oriented to, prepared for, and connected to jobs powering the energy transition. ESWT will play a critical role in cross-sector and intergovernmental learning to invest in what works and to ensure federal workforce investments in collaboration with industry address identified skills gaps in the labor market for the energy transition and resilient supply chains. Research and industry confirmation would inform investments by the Department of Energy (DOE), Department of Education (ED), Department of Commerce (DOC), and Department of Labor (DOL) toward building identified critical skills through scalable means with marginalized communities in mind. A key facet of ESWT will be to normalize and align the metrics by which federal, state, and local partners measure program effectiveness to allow for better comparability and long-term potential for scaling the most evidence-driven programs.

The ESWT should be coordinated by the National Economic Council(NEC) and DOC, particularly the Economic Development Administration. Once established, ESWT should also involve an international component focused on workforce investments to build resilience in nearshore supply chains on which U.S. manufacturing and energy security rely. Mexico should serve as an initial pilot of this global initiative because of its intertwined relationship with U.S. supply chains for products like EV batteries. Piloting a novel international workforce training program through private sector collaboration and U.S. Agency for International Development (USAID), DOL, and U.S. International Development Finance Corporation (DFC) investments could help bolster resilience for domestic jobs and manufacturing. Based on these results, ESWT could expand into other geographies of critical supply chains, such as Chile and Brazil. To launch ESWT, the Biden Administration should pursue the following steps.

Recommendation 1. The NEC should name an ESWT Initiative Coordinator in conjunction with a DOC or DOL lead who will spearhead coordination between different agency workforce training activities.

With limited growth in government funding over the coming years, a key challenge will be more effectively coordinating existing programs and funds in service of training young people for demonstrated skills gaps in the marketplace. As these new programs are implemented through existing legislation, a central entity in charge of coordinating implementation, learning, and investments can best ensure that funds are directed equitably and effectively. Additionally, this initial declaration can lay the groundwork to build capacity within the federal government to conduct market analyses and consult with industries to better inform program design and grant giving across the country. The DOC and the Economic Development Administration seem best positioned to lead this effort with an existing track record through the Good Jobs Challenge and capacity to engage fully with industry to build trust that curricula and training are conducted by people that employers verify as experts. However, the DOL could also take a co-lead role due to authorities established under the Workforce Innovation and Opportunity Act (WIOA). In selecting lead agencies for ESWT, these criteria should be followed:

  1. Access to emerging business intelligence regarding industry-critical skills—DOC, DOE
  2. Combined international and domestic remit—DOE/DOL, DOC (ITA)
  3. Remit that allows department to focus investment on demonstrated skills gaps, indicated by higher wages and churn—DOC
  4. Permitted to convene advisory committees from the private sector under the Federal Advisory Committee Act—DOC

Recommendation 2. The DOC and NEC, working with partner agencies, should collaborate to identify and analyze skills gaps and establish private-sector feedback councils to consult on real-time industry needs.

As a first step, DOC should commission or conduct research to identify quantitative and qualitative skills gaps related to the energy transition in critical supply chains both domestically and in key international markets — energy efficiency in advanced manufacturing, electric vehicle production, steel, batteries, rare earth minerals, construction, infrastructure and clean energy. DOC should budget for 20 skills gap assessments for critical occupational groups (high volume of jobs and uncertainty related to required, relevant skills) in the above-mentioned sectors. Each skills gap assessment should cost roughly $100,000, bringing the total investment to $2 million over a six-to-twelve-month period.  Each skills gap assessment will determine the critical and scarce skills in a labor market for a given occupation and the degree to which existing education and training providers meet the demand for skills.

This research is central to forming effective programs to ensure investments align with industry skills needs and to lower direct costs on education providers, who often lack direct expertise in this form of analysis. Commissioning these studies can help build a robust ecosystem of labor market skills gap analysts and build capacity within the federal government to conduct these studies. By completing analysis in advance of competitive grant processes, federal grants can be better directed to training based on high-need industry skill sets to ensure participating students have market-driven employment opportunities on completion. The initial research phase would occur over a six-month timeline, including staffing and procurement. The ESWT coordinator would work with DOC, ED, and DOL to procure curricula, enrollment, and foreign labor market data. Partner agencies in this effort should also include the Departments of Education, Labor, and Energy. The research would draw upon existing research on the topic conducted by Jobs for the Future, IYF, the Project on Workforce at Harvard, and LinkedIn’s Economic Graph.

Recommendation 3. Host the Energy Security Workforce Development White House Summit to galvanize public, private, and social sector partners to address identified skills gaps.

The ESWT coordinator would present the identified quantitative and qualitative skills gaps at an action-oriented White House Summit with industry, state and local government partners, education providers, and philanthropic institutions. The Summit could serve as a youth-led gathering focused on workforce and upskilling for critical new industries and galvanize a call to action across sectors and localities. Participants will be asked to prioritize among potential choices based on research findings, available funding mechanisms, and imperatives to transform education and training systems at scale and at pace with industrial transformation. Addressing the identified skills gaps will require partnering with and securing the buy-in of both educational institutions as well as industry groups to identify what skills unlock opportunities in given labor markets, develop demand-driven training, and expanded capacity of education and training providers in order to align interests as well as curricula so that key players have the incentives and capacity to continually update curricula—creating lasting change at scale. This summit would also serve as a call to action for private sector partnerships to invest in helping reskill workers and establish buy-in from the public and civil society actors. 

Recommendation 4. Establish standards and data sharing processes for linking existing training funds and programs with industry needs by convening state and local grantees, state agencies, and federal government partners.

ESWT should lay out a common series of metrics by which the federal government will assess workforce training programs to better equip efforts to scale successful programs with comparable evidence and empower policymakers to invest in what works. We recommend using the following metrics: 

  1. Successful hiring of workers into quality green jobs
  2. The reduction of employer recruitment and training costs for green jobs
  3. Demonstrable decreases in identified skills gaps

Metrics 2 and 3 will rely on ongoing industry consultations—as well as data from the Bureau of Labor Statistics. Because of the diffuse nature of existing skills gap analyses across federal grantees and workforce training programs, ESWT should serve as a convenor for learning between jurisdictions. Models for federal government data clearinghouses could be effective as well as direct sharing of evidence and results between education providers across a series of common metrics.

Recommendation 5. Ensure grants and investments in workforce training are tied to addressing specific identified skills gaps, not just by regional employment rates.

A key function of ESWT would be to determine feasible and impactful strategies to address skills gaps in critical supply chains, given the identified gaps, existing funding mechanisms, the buy-in of critical actors in key labor markets (both domestic and international), agency priorities, and the imperative to make transformative change at scale. The coordinator could help spur agencies to pursue flexible procurement and grant-making focused on outcomes and tied to clear skills gap criteria to ensure training demonstrably develops skills required by market needs for the energy transition and growing domestic supply chains. While the Good Jobs Challenge required skills gap analysis of grantees, advanced analyses by the ESWT Initiative could inform grant requirements to ensure federal funds are directed to high-need programs. As many of these fields are new, innovative funding mechanisms could be used to meet identified skills gaps and experiment with new training programs through tiered evidence models. Establishing criteria for successful workforce training programs could also serve as a market demand-pull signal that the federal government is willing and able to invest in certain types of training, crowding-in potential new players and private sector resources to create programs tailored for the skills industry needs.

Depending on the local context, the key players, and the nature of the strategy to bridge the skills gap for each supply chain, the coordinating department will determine what financing mechanism and issuing agency is most appropriate: compacts, grants, cooperative agreements, or contracts. For example, to develop skills related to worker safety in rare-earth mineral mines in South Africa or South America, the DOL could issue a grant under the Bureau of International Labor Affairs. To develop the data science skills critical for industrial and residential energy efficiency, the ED could issue a grants program to replicate Los Angeles Unified School District’s Common Core-aligned data science curriculum.

Recommendation 6. Congress should authorize flexible workforce training grants to disperse—based on identified industry needs—toward evidence-driven, scalable training models and funding for ESWT within the DOC to facilitate continued industry skills need assessments.

Congress should establish dedicated staff and infrastructure for ESWT to oversee workforce training investments and actively analyze industry needs to inform federal workforce investment strategies. Congress and the Administration should also explore how to incentivize public-private partnerships and requirements for energy, manufacturing, and supply chain companies to engage in curriculum development efforts or provide technical expertise to access tax credits included in the IRA or CHIPS.

Recommendation 7. ESWT could also incorporate an international perspective for nearshored supply chains critical to energy security and advanced manufacturing. 

To pilot this model, we recommend:

  1. Bilateral coordination of federal workforce and training investments across agencies like State, USAID, and DFC: Mexico could serve as an ideal pilot country due to its close ties with U.S. supply chains and growth in the manufacturing sector. This coordination effort should direct USAID and other government funding toward workforce training for industries critical to domestic supply chains for energy security and green jobs.
  2. Two-way learning between domestic and international workforce programs: As ESWT develops effective strategies to address the skills gap for the energy transition, the interagency initiative will identify opportunities for two-way learning. For example, as curricula for eclectic vehicle assembly is developed and piloted in Mexico with support from USAID, it could inform U.S.-based community colleges’ work with the DOL and DOE.
  3. If successful, expand to additional aligned countries including Brazil, India, and South Africa and nations throughout the Americas that source energy and manufacturing inputs for the green economy: ESWT could facilitate scalable public-private partnership vehicles for partner country governments, private corporations, philanthropy, and nongovernmental organizations to collaborate and fund country-dedicated programs to train their energy and climate workforce. This step could be done in conjunction with naming a Special Envoy at the State Department to coordinate diplomatic engagement with partner countries. The Envoy and Coordinator should have expertise and experience in North and South America economic relations and diplomacy, and labor markets economics. Congress could incorporate dedicated funds for ESWT into annual appropriations at State.

Conclusion

The transition from an economy fueled by human and animal labor to fossil fuels took roughly 200 years (1760–1960) and was associated with massive labor market disruptions as society and workers reacted to a retooled economy. Avoiding similar labor market disruptions as we seek to transition off fossil fuels over decades, not centuries, will require concentrated coordinated action. The Energy Security Workforce Training Initiative will overhaul education and training systems to develop the skills needed to reduce greenhouse gas emissions in the labor markets central to long-term U.S. energy security and ensure that supply chains are resilient to shocks. Such a coordinated investment in training will lower recruitment, selection, and training costs for firms while increasing productivity and move people into the middle class with the jobs fueling the energy transition. 

By focusing federal workforce funding on addressing the green skills gap, we will be able to address the human capital challenges implicit in scaling the infrastructure, manufacturing overhaul, and supply chain reconfiguration necessary to secure a just transition, both at home and abroad. By building in critical international supply chains both for manufacturing and energy security from day one, the ESWT Initiative incorporates two-way learning as a means to knit together strategic supply chains through bilateral investments in equitable workforce initiatives. 

Frequently Asked Questions (FAQs)
What can a coordinator/interagency collaboration model offer that existing approaches do not?

Existing investments in workforce development are fragmented and are not oriented toward building the workforce needed to a net-zero carbon world, with secure energy supplies and resilient supply chains. This collaboration model ensures that workforce investments are aligned towards the net-zero carbon by 2050 aim and are targeted to the domestic and international labor markets essential to ensuring that aim, energy security, and supply chain resilience.


Similarly, to the Feed the Future Coordinator, created in 2009 because of global food insecurity and recognizing after the L’Aquila Italy G8 Summit Joint Statement on Global Food Security towards a goal of mobilizing $20 million over three years towards global agricultural and development that we needed a greater focus on food security. 


This role would ensure that programs are aligned around common goal and measuring progress towards that goal. The NEC oversees the work of the coordinator. Ultimately, the Coordinator would work with Congress and the NEC to develop authorization language. 

How would the ESWT function with differing funding sources and agency stakeholders? Does Congress need to authorize this?

Instead of creating a new fund or program requiring congressional authorization, the ESWT strategy would align existing workforce investments across government with the Administration’s aim of net-zero greenhouse gas emissions by 2050.

What evidence is there that workforce training and education can meet the skills gap you identify? What is the risk of failure?

Skills gaps are persistent problems around the world as education and training systems struggle to keep up with changing demands for skills. Simply investing in training systems, without addressing the underlying causes of skills gaps, will not address skills gaps. Instead, investment must be tied to the development of market-demanded skills. In IYF’s experience, this requires understanding quantitative and qualitative skills gaps, developing an industry consensus around priority skills, and driving changes to curricula, teaching practices, and student services to orient and train young people for opportunities.

How does this approach align with current and past legislative priorities?

Our proposed unified approach to workforce development for the energy transition aligns with the priorities of the former Congress’s House Subcommittee on Higher Education and Workforce Investment, the US Strategy to Combat Climate Change through International Development; and the Congressional Action Plan for a Clean Energy Economy and a Healthy, Resilient, and Just America.

How does this approach align with USAID’s priorities?

Systemic workforce approaches that engage the public, private, and civil sectors spur catalytic investments and bring new partners to the table in line with USAID’s commitment to drive progress, not simply development programs. However, there has been little concentrated investment to build the necessary skills for the energy transition. A coordinated investment strategy to support systemic approaches to build the workforce also aligns with USAID’s localization agenda by:



  1. Building the capacity of local Technical Vocational Education and Training systems to develop the workforce that each country needs to meet its zero-emission commitments while continuing to grow its economy. 

  2. Developing the capacity of local organizations, whose mission will be to facilitate workforce development efforts between the public, private and civil sectors. 

  3. Incentivize industrial policy changes to include workforce considerations in the plan to decarbonize.

  4. Creating increased opportunities to generate and share evidence on successful workforce strategies and programs. To keep up with this rapid transformation of the economy, it will be essential to share information, lessons learned, and effective approaches across international, multilateral, and bilateral organizations and through public private partnerships. For example, the Inter-American Development Bank has identified the Just Transition as a strategic priority and is working with LinkedIn to identify critical skills. As Abby Finkenauer, the State Department’s Special Envoy for Global Youth Issues, has long championed, bringing domestic and international lessons together will be critical to make a more inclusive decarbonized economy possible.

Using Other Transactions at DOE to Accelerate the Clean Energy Transition

Summary

The Department of Energy (DOE) should leverage its congressionally granted other transaction authority to its full statutory extent to accelerate the demonstration and deployment of innovations critical to the clean energy transition. To do so, the Secretary of Energy should encourage DOE staff to consider using other transactions to advance the agency’s core missions. DOE’s Office of Acquisition Management should provide resources to educate program and contracting staff on the opportunity that other transactions present. Doing so would unlock a less used but important tool in demonstrating and accelerating critical technology developments at scale with industry.

Challenge and Opportunity

OTs are an underleveraged tool for accelerating energy technology.

Our global and national clean energy transition requires advancing novel technology innovations across transportation, electricity generation, industrial production, carbon capture and storage, and more. If we hope to hit our net-zero emissions benchmarks by 2030 and 2050, we must do a far better job commercializing innovations, mitigating the risk of market failures, and using public dollars to crowd in private investment behind projects. 

The Biden Administration and the Department of Energy, empowered by Congress through the Inflation Reduction Act (IRA) and the Bipartisan Infrastructure Law (BIL), have taken significant steps to meet these challenges. The Loan Programs Office, the Office of Clean Energy Demonstrations, the Office of Technology Transitions, and many more dedicated public servants are working hard towards the mission set forward by Congress and the administration. They are deploying a range of grants, procurement contracts, and tax credits to achieve their goals, and there are more tools at their disposal to accelerate a just, clean energy transition. The large sums of money appropriated under BIL and IRA require new ways of thinking about contracting and agreements.

Congress gives several federal agencies the authority to use flexible agreements known as other transactions (OTs). Importantly, OTs are defined by what they are not. They are not a government contract or grant, and thus not governed by the Federal Acquisitions Regulations (FAR). Historically, NASA and the DoD have been the most frequent users of other transaction authorities, including for projects like the Commercial Orbital Transportation System at NASA which developed the Falcon 9 space vehicle, and the Global Hawk program at DARPA.

In contrast, the Department of Energy has infrequently used OTs, and even when it has, the programs have achieved no notable outcomes in support of their agency mission. When the DOE has used OTs, the agency has interpreted their authority as constraining them to cost-sharing research agreements. This restricts the creativity of agency staff in executing OTs. All the law says is that an OT is not a grant or contract. By limiting itself to cost sharing research agreements, DOE is preemptively foreclosing all other kinds of novel partnerships. This is critical because some nascent climate-solution technologies may face a significant market failure or a set of misaligned incentives that a traditional research and development transaction (R&D) may not fix.

This interpretation has hampered DOE’s use of OTs, limited its ability to engage small businesses and nontraditional contractors, and prevented DOE from fully pursuing its agency mission and the administration’s climate goals.

Exploring further use of OTs would open up a range of possibilities for the agency to help address critical market failures, help U.S. firms bridge the well-documented valleys of death in technology development, and fulfill the benchmarks laid out in the DOE’s Pathways to Commercial Liftoff.
According to a GAO report from 2016, the DOE has only used OTs a handful of times since they had the authority updated in 2005, nearly two decades ago. Compare the DOE’s use of OTs to other agencies in the four-year period in the table below (the most recent for which there is open data).

TABLE 1

From GAO-16-209

Almost every other agency uses OTs at a significantly higher rate, including agencies that have smaller overall budgets. While quantity of agreements is not the only metric to rely on, the magnitude of the discrepancy is significant. 

Other agencies have made significant changes since 2014, most notably the Department of Defense. A 2020 CSIS report found that DoD use of OTs for R&D increased by 712% since FY2015, including a 75% increase in FY2019. This represents billions of dollars in awards, much of which went to consortia, including for both prototyping and production transactions. While the DOE does not have the same budget or mission as DoD, the sea change in culture among DoD officials willing to use OTs over the past few years is instructive. While DoD did receive expanded authority in the FY2015 and 2016 NDAA, this alone did not account for the massive increase. A cultural shift drove program staff to look at OTs as ways to quickly prototype and deploy solutions that could advance their missions, and support from leadership enabled staff to successfully learn how and when to use OTs.

The Department of Transportation (DOT) only uses OTs for two agencies, the Federal Aviation Administration (FAA) and the Pipeline and Hazardous Materials Safety Administration (PHIMSA). Like DOE, the FAA is not restricted in what it can and can’t use OTs for. It is authorized to “carry out the functions of the Administrator and the Administration…on such terms and conditions as the Administrator may consider appropriate.” Unlike DOE, the FAA and DOT have used their authority for several dozen transactions a year, totaling $1.45 billion in awards between 2010 and 2014.

FIGURE 1

Source

From the GAO chart (Table 1), it’s clear that ARPA-E also follows the DOE in deploying very few OTs in support of its mission. Despite being originally envisioned as a high-potential, high-impact funder for technology that is too early in the R&D process for private investors to support, the most recent data shows that ARPA-E does not use OTs flexibly to support high-potential, high-impact tech.

The same GAO report cited above stated that:

“DOE’s regulations—because they are based on DOD’s regulations—include requirements that limit DOE’s use of other transaction agreements…. Officials told us they plan to seek approval from the Office of Management and Budget to modify the agency’s other transaction regulations to better reflect DOE’s mission, consistent with its statutory authority. According to DOE officials, if the changes are approved, DOE may increase its use of other transaction agreements.” 

That report was published in 2016, but it is unclear that any changes were sought or approved, though they likely do not need to change any regulations at all to actually make use of their authority.1 The realm of the possible is quite large, and DOE has yet to fully explore the potential benefits to its mission that OTs provide. 

DOE can use OTs without any further authority to drive progress in critical technologies.

The good news is that DOE has the ability to use OTs without further guidance from Congress or formally changing any guidelines. Recognizing their full statutory authority would open up use cases for OTs that would help the DOE make meaningful progress towards its agency mission and the administration’s climate goals. 

For example, the DOE could use OTs in the following ways:

Given the exigencies of climate change and the need to rapidly decarbonize our society and economy, there are very real instances in which traditional research contracts or grants are not enough to move the needle or unlock a significant market opportunity for a technology. Forward contract acquisitions, pay for delivery contracts, or other forms of transactions that are nonstandard but critical to supporting development of technology are covered under this authority.

One promising area where it seems the DOE is currently using this approach is in supporting the hydrogen hubs initiative. Recently the DOE announced a $1 billion initiative for demand-side support mechanisms to mitigate the risk of market failures and accelerate the commercialization of clean hydrogen technologies. The Funding Opportunity Announcement (FOA) for the H2Hubs program notes that “other FOA launches or use of Other Transaction Authorities may also be used to solicit new technologies, capabilities, end-uses, or partners.” The DOE could use OTs more frequently as a tool to advance other critical commercial liftoff strategies or to maximize the impact of dollars appropriated to implementation of the BIL and IRA. Some areas that are ripe for creative uses of other transactions include:

This demand-pull would complement other recent actions taken to bolster critical minerals like the clean vehicle tax credit and the Loan Program Office’s loans to mineral processing facilities. Such a consortium could come from the existing critical materials institute or be formed by separate entities.

DOE could use other transactions to further support this nascent consortium and increase the demonstration and deployment of geothermal projects. The agency could also use other transactions to organize the sharing of critical subsurface data and resources through a single entity.

A carbon removal purchasing agreement for the DOE’s Regional Direct Air Capture Hubs could function much the same as the proposed hydrogen hubs initiative. It also could take the shape of a consortium of DAC vendors, nonprofits, scientists, and others managed by a single entity that can set standards for purchase agreements. This would cut the negotiation time among potential parties by a significant amount, allowing for cost saving and faster decarbonization.

DOE could organize an advance market commitment for long-duration energy storage capabilities on federal properties that meet certain storage hour and grid integration requirements. Such a commitment could include the DoD and the General Services Administration (GSA), which own and operate the large portfolio of federal properties, including bases and facilities in hard-to-reach locations that could benefit from more predictable and secure energy infrastructure. Early procurement of capability-meeting but expensive systems could help diversify the market and drive technology down the cost curve to reach the target of $650 per kW and 75% RTE for intra-day storage and $1,100 per kW 55 and 60% RTE for multiday storage.

To use OTs more frequently, the DOE needs to focus on culture and education.

As noted, the DOE does not need additional authorization or congressional legislation to use OTs more frequently. The agency received authority in its original charter in 1977, codified in 42 U.S. Code § 7256, which state:

“The Secretary is authorized to enter into and perform such contracts, leases, cooperative agreements, or other similar transactions with public agencies and private organizations and persons, and to make such payments (in lump sum or installments, and by way of advance or reimbursement) as he may deem to be necessary or appropriate to carry out functions now or hereafter vested in the Secretary.” [emphasis added]

This and other legislation gives DOE the authority to use OTs as the Secretary deems necessary. 

Later guidelines in implementation state that other officials at DOE who have been presidentially appointed and confirmed by the Senate are able to execute these transactions. The DOE’s Office of Acquisition Management, Office of General Counsel, and any other legal bodies involved should update any unnecessarily restrictive guidelines, or note that they will follow the original authority granted in the agency’s 1977 charter. 

While that would resolve any implementation questions about the ability to use OT at DOE, the agency ultimately needs strong leadership and buy-in from the Secretary in order to take full advantage. As many observers note regarding DoD’s expanding use of OTs, culture is what matters the most. The DOE should take the following actions to make sure the changing of these guidelines empowers DOE public servants to their full potential:

  1. The Secretary should make clear to DOE leadership and staff that increased use of OTs is not only permissible but actively encouraged.
  1. The Secretary should provide internal written guidance to DOE leadership and program-level staff on what criteria need to be met for her to sign off on an OT, if needed. These criteria should be driven by DOE mission needs, technology readiness, and other resources like the commercial liftoff reports.
  1. The Office of Acquisition Management should collaboratively educate relevant program staff, not just contracting staff, on the use of OTs, including by providing cross-agency learning opportunities from peers at DARPA, NASA, DoD, DHS, and DOT.
  1. DOE should provide an internal process for designing and drawing up an OT agreement for staff to get constructive feedback from multiple levels of experienced professionals.
  1. DOE should issue a yearly report on how many OTs they agree to and basic details of the agreements. After four years, GAO should evaluate DOE’s use of OTs and communicate any areas for improvement. Since OTs don’t meet normal contracting disclosure requirements, some form of public disclosure would be critical for accountability.

Mitigating risk

Finally, there are many ways to address potential risks involved with executing new OTs for clean energy solutions. While there are no legal contracting risks (as OTs are not guided by the FAR), DOE staff should consider ways to most judiciously and appropriately enter into agreements. For one resource, they can leverage the eight recent reports put together by four different offices of inspector generals on agencies’ usage of other transactions to understand best practices. Other important risk limiting activities include:

  1. DoD commonly uses consortiums to gather critical industry partners together around challenges in areas such as advanced manufacturing, mobility, enterprise healthcare innovations, and more.
  1. Education of relevant parties and modeling of agreements after successful DARPA and NASA OTs. These resources are in many cases publicly available online and provide ready-made templates (for example, the NIH also offers a 500-page training guide with example agreements).

Conclusion

The DOE should use the full authority granted to it by Congress in executing other transactions to advance the clean energy transition and develop secure energy infrastructure in line with their agency mission. DOE does not need additional authorization or legislation from Congress in order to do so. GAO reports have highlighted the limitations of DOE’s OT use and the discrepancy in usage between agencies. Making this change would bring the DOE in line with peer agencies and push the country towards more meaningful progress on net-zero goals.

Frequently Asked Questions
What are some examples of OTs?

The following examples are pulled from a GAO report but should not be regarded as the only model for potential agreements.


Examples of Past OTs at DOE
“In 2010, ARPA-E entered into an other transaction agreement with a commercial oil and energy company to research and develop new drilling technology to access geothermal energy. Specifically, according to agency documentation, the technology being tested was designed to drill into hard rock more quickly and efficiently using a hardware system to transmit high-powered lasers over long distances via fiber optic cables and integrating the laser power with a mechanical drill bit. According to ARPA-E documents, this technology could provide access to an estimated 100,000 or more megawatts of geothermal electrical power in the United States by 2050, which would help ARPA-E meet its mission to enhance the economic and energy security of the United States through the development of energy technologies.


According to ARPA-E officials, an other transaction agreement was used due to the company’s concerns about protecting its intellectual property rights, in case the company was purchased by a different company in the future. Specifically, one type of intellectual property protection known as “march-in rights” allows federal agencies to take control of a patent when certain conditions have not been met, such as when the entity has not made efforts to commercialize the invention within an agreed upon time frame.33 Under the terms of ARPA-E’s other transaction agreement, march-in rights were modified so that if the company itself was sold, it could choose to pay the government and retain the rights to the technology developed under the agreement. Additionally, according to DOE officials, ARPA-E included a United States competitive clause in the agreement that required any invention developed under the agreement to be substantially manufactured in the United States, provided products were also sold in the United States, unless the company showed that it was not commercially feasible to do so. This agreement lasted until fiscal year 2013, and ARPA-E obligated about $9 million to it.”


Examples at DoD
“In 2011, DOD entered into a 2-year other transaction agreement with a nontraditional contractor for the development of a new military sensor system. According to the agreement documentation, this military sensor system was intended to demonstrate DOD’s ability to quickly react to emerging critical needs through rapid prototyping and deployment of sensing capabilities. By using an other transaction agreement, DOD planned to use commercial technology, development techniques, and approaches to accelerate the sensor system development process. The agreement noted that commercial products change quickly, with major technology changes occurring in less than 2 years. In contrast, according to the agreement, under the typical DOD process, military sensor systems take 3 to 8 years to complete, and may not match evolving mission needs by the time the system is complete. According to an official, DOD obligated $8 million to this agreement.”

Are there any restrictions on the use of OTs?

Other interpretations of the statute have prevented DOE from leveraging OTs, and there seems to be confusion on what is allowed. For example, a commonly cited OTA explainer implies that DOE is statutorily limited to “RD&D projects. Cost sharing agreement required.”


But nowhere in the original statute does Congress require DOE to exclusively use cost sharing agreements, nor is this the case at other agencies where OTs are common practice.


However, the Energy Policy Act of 2005 did require the DOE to issue guidelines for the use of OTs 90 days after the passing of the law, and this is where it gets complicated. They did so, and according to a 2008 GAO report, DOE enacted guidelines which used a specific model called a technology investment agreement (TIA). These guidelines were modeled on the DoD’s then-current guidelines for OTs and TIAs, mandating cost sharing agreements “to the maximum extent practicable” between the federal government and nonfederal parties to an agreement.2 An Acquisition/Financial Assistance Letter issued by senior DOE procurement officials in 2021 defines this explicitly: “Other Transaction Agreement, as used in this AL/FAL, means Technology Investment Agreement as codified at 10 C.F.R., Part 603, pursuant to DOE’s Other Transaction Authority of 42 U.S.C. § 7256.” However, the DOE’s authority as codified in 42 U.S.C. § 7256 (a) and (g) does not define OTs as TIAs, the definition is just a guideline from DOE, and could be changed.

What are Technology Investment Agreements?

Technology Investment Agreements are used to reduce the barrier to commercial and nontraditional firms’ involvement with mission-critical research needs at DOE. They are particularly useful in that they do not require traditional government accounting systems, which can be burdensome for small or new firms to implement. But that does not mean they are the only instrument that should be used. The law says that TIAs for research projects should involve cost sharing to the “maximum extent practicable.” This does not mean that cost sharing must always occur. There could be many forms of transactions other than grants and contracts in which cost sharing is neither practicable nor feasible.


Furthermore, the DOE is empowered to use OTs for research, applied research, development, and demonstration projects. Development and demonstration projects would not fit neatly in the category of research projects covered by TIAs. So subjecting them to the same guidelines is an unduly restrictive guideline.

What are consortiums?

Consortia are basically single entities that manage a group of members (to include private firms, academics, nonprofits, and more) aligned around a specific challenge or topic. Government can execute other transactions with the consortium manager, who then organizes the members around an agreed scope. MITRE provides a longer explainer and list of consortia.