The FY2012 Omnibus appropriations act passed through the House and Senate conference committee last week caps off the recent round of austerity battles over the federal discretionary budget. Clean energy innovation investments, particularly those at the Department of Energy, have been targeted for cuts. But the recent FY2012 budget deal stabilizes or boosts funding for key office that house energy innovation projects. In fact, key clean energy programs like ARPA-E, the Energy Innovation Hubs, and next-generation small modular nuclear reactor development received sizable increases, especially considering the budget cutting mood prevalent in Congress this year.

Robert Solow, Nobel laureate and father of neoclassical economic growth theory, says that policymakers’ current economic solutions are nothing more than “drivel” and that spurring innovation – especially energy innovation – must be a central goal of public policy moving forward.

As ITIF and the Breakthrough Institute recently reported in Taking on the Three Deficits, policymakers of all stripes largely ignore the role innovation must play to break America out of its current economic rut and restore budget balance in Washington. The top-line message - only targeted public investments in programs that boost innovation, productivity, and next-generation industries combined with targeted cuts in consumptive spending will put the United States on a long-term path to sound fiscal footing.

It’s time to stop pretending we can solve climate change with unenforceable pledges to use fossil fuels a little less. We’re seven billion people and growing. We’re a 60 trillion dollar global economy and growing. It’s time for some new ideas and better tools. Here’s one: let’s make innovation central to the Durban negotiations. As an alternative to carbon targets, let’s create government clean energy RD&D (research, development, and demonstration) investment intensity targets that countries can sign up for in lieu of agreeing to cap carbon emissions. In doing so, world leaders would effectively boost investments in the front-end of clean energy innovation—an area of significant concern and underfunding—thus spurring the development of the very technologies all countries, rich and poor, need to drastically reduce emissions without ongoing expensive subsidies. Paraphrasing Arun Majumdar, director of Department of Energy’s Advanced Research Projects Agency-Energy, there a lot of places around the world that want to turn the lights on for the first time.

We need to help turn them on the right way—that is, without using more fossil fuels and emitting more carbon. It’s time to stop pretending we can solve climate change with unenforceable pledges to use fossil fuels a little less. Fortunately, the Durban talks seem ripe for new ideas for two reasons:First, many countries and advocates want to begin discussing new emission reduction targets and legally binding mechanisms. The first commitment period of the Kyoto Protocol—which called for a five percent reduction in carbon emissions below 1990 levels—expires in 2012 (and only some European countries meet their targets, largely with the help of carbon offsets). Though targets and timetables aren’t expected to be officially negotiated in Durban, each is expected to be a hot topic of discussion. But as we’ve learned from the U.S. and international climate debate, carbon reduction targets is a small piece of the larger policy puzzle. And, as we have seen, they might never get accepted by all nations needed to accept them.

Mandating carbon reductions does apply pressure on governments to take policy action (and it has arguably helped spur some governments to make limited actions so far), but by itself is insufficient and ultimately diverts attention from the real agenda: driving clean energy costs down through innovation. Caps rely almost exclusively on prices to induce change (caps raise the price of carbon emissions). And it is now clear that price hikes induce some behavior change (e.g., driving smaller cars, insulating buildings, etc.), but they don’t magically lead to the creation of new generations of affordable non-fossil alternatives. So, while it is great that more countries are ready for new targets and caps, we need to be honest about their limitations. Second, Durban aims to complete an institutional framework for progress made during the Copenhagen and Cancún negotiations, such as finalizing the architecture of the Green Climate Fund—a financing mechanism to support accelerated technology transfer to developing countries for both adaptation and mitigation efforts. In Copenhagen, developed countries agreed to commit $30 billion to the Fund by 2012 and plan to invest $100 billion per year by 2020. While the details aren’t set, it can be assumed that the lion’s share of the Fund will be used to subsidize the sale of existing clean energy technologies.4 But this doesn’t get us very far at all. The problem is that innovation is absent from discussions of the Fund. This is just another kind of clean energy subsidy, akin to feed-in tariffs or tax credits for buying clean energy that rich countries have had in place for years. If innovation isn’t central to these discussions, their impact will be limited to simply subsidizing high cost technologies for countries that can’t afford them in the first place. Subsidies of existing clean energy technologies are not the answer in rich countries, and even less so in poor countries.

As such, the Fund should be completely rededicated away from subsidies of existing technologies and instead go toward research and development designed to get the unsubsidized cost of clean energy cheaper than fossil fuels. In other words, developing countries would be much better off if rich countries used their money on domestic clean energy RD&D rather than clean energy handouts. Only when clean energy is cheaper than fossil fuels will developing countries make the switch and only then will it make their economies stronger, rather than weaker. Again, we should seize on the apparent understanding that new technologies are needed and try to persuade negotiators that we need to reprogram money to get these technologies developed, off the ground and ready for deployment. Developing nations will complain, arguing yet again that the North is oppressing the South, but the best way to help the South is for the North to continue to develop breakthrough technologies.But reprogramming the Fund is not enough. Durban can and should go even further. This is where clean energy RD&D intensity targets come in.

Looking past the possibility of any legally-binding global emission target (and U.S. involvement in any treaty), the international climate negotiations opening today in Durban, South Africa are missing the point – the only way the world is going to drastically reduce carbon emissions is through innovation, argues Clean Energy Analyst Matt Stepp in a cross-post from The National Journal on the 2011 UN Climate Conference.

Yet, Durban is set to be weighed down by discussions of caps, targets, and subsidies even though their impact will be severely limited. It’s time for an international policy reset. Let’s stop pretending we can solve climate change with unenforceable pledges to use fossil fuels a little less or subsidize our way to a global clean energy future and prioritize strengthening the global clean energy innovation ecosystem.

It’s worth noting a pair of recent developments on the Defense Department energy front. First, the Environmental Security Technology Certification Program which runs the Installation Energy Test Bed Initiative, has announced 27 award recipients under its latest funding round. The program will test emerging clean and efficient energy technologies in operating environments, assess their performance, and facilitate scale-up for the most promising. Second, the Office of the Assistant Secretary of Defense for Operational Energy Plans and Programs and the Defense Logistics Agency released a report that critically assesses the prospects and challenges surrounding the long-term transition to alternative fuels, and identifies some substantial challenges that won’t be met without accelerated innovation in the biofuels industry.

There is a long-running debate in clean energy policy over whether we should focus on innovation to create new technologies or simply deploy the technologies we already have. The reality is this debate represents a false choice: it shouldn’t be whether to deploy, but how. Part of the problem is that little attention is paid to the kinds of innovation we need: deployment can drive incremental innovation, which is important, but is also insufficient to develop the low-cost clean energy technologies the world needs to slow the buildup of carbon emissions. Instead, we need to recognize the limitations of incremental innovation, as well as the political and economic realities that make large-scale deployment unlikely in the near term. A better strategy would be to implement targeted deployment strategies that can drive incremental innovation where appropriate without simply propping up low-upside technologies, while driving hard at more radical public-private innovation. This is the best way to yield the full suite of cleantech solutions we need.