Technology and Innovation

This fall, I created and taught a course at Georgetown University called “Clean Energy Innovation." The course, offered to undergraduates studying Science, Technology, and International Affairs (STIA) in the School of Foreign Service (SFS), introduced the science, economics, and public policies related to breakthrough technologies that could jumpstart the U.S. economy and are the world’s best hope to confront climate change. Now that the semester is over, all of the lecture videos are freely available online on the course website. You can also view the slides used in each lecture as well as the syllabus, which lists a collection of essential articles and book chapters. The course doesn’t have prerequisites (though there is a bit of math!), and I created it in order to offer a one-stop offering for anyone who is interested in understanding the range of topics that clean energy innovation encompasses. For more on those topics, check out the video below, which is an introduction to and overview of the class: We started the semester by examining technological change over the centuries—studying the shifts from waterwheels to power plants, coaches to cars, floppy disks to USB sticks—to understand how innovation unfolds and why it’s particularly difficult in the ossified energy sector. We then delved into the scientific foundations and research frontiers of several major clean energy technology categories in the electric power sector: solar; wind; nuclear; batteries; fuel cells; carbon capture, utilization, and sequestration; hydro; geothermal; and the power grid. Finally, we concluded with a look at how to fund energy innovation, why start-ups can languish in the valley of death, and how federal and local governments can provide an “extended pipeline” of support for research, development, demonstration, and deployment of new technologies. But it is private investors and firms that must ultimately supply most of the investment to commercialize breakthroughs, so the course focuses on the role of the private sector in innovation. Interspersed with the lecture videos, you’ll find Georgetown students presenting the assigned readings—crisply, comprehensively, and creatively. These students blew me away by building on the basics introduced in class and developing new research directions. One student wrote an article for the Brookings Institution arguing that “investment in lithium-ion batteries may crowd out future innovation.” Another’s term paper statistically analyzed various success metrics for the Energy Department’s Advanced Research Projects Agency (ARPA-E) to propose funding a coherent, multigenerational portfolio of clean energy technologies, similarly to how the Defense Department’s DARPA operates. So if you’re curious about clean energy innovation, take this class. And I’m eager to hear your feedback on how I can improve it for future editions. I’m grateful to Joanna Lewis, Chuck Weiss, and Mark Giordano at Georgetown’s School of Foreign Service, as well as Varun Rai at UT Austin, for guidance in creating this course. I’m also indebted to Chuck Weiss, Bill Bonvillian, Colin McCormick, and Dan Stout for delivering phenomenal guest lectures this semester. Watch their lectures on the course website at sivaram.georgetown.domains.  

Democrats and Republicans are girding for battle over energy policy. The two parties are far apart on most issues, like the future of the Clean Power Plan and federal restrictions on oil and gas drilling. But with the Presidential election in the rearview mirror, Donald Trump and the 115th Congress have a chance to embrace a mainstream energy agenda with support from both sides of the aisle and deliver on campaign promises to create manufacturing jobs and boost exports. Innovation is central to this agenda. Today the Information Technology and Innovation Foundation (ITIF) published a report that I wrote with my colleagues Teryn Norris, Colin McCormick, and David Hart, laying out a blueprint for how to accelerate energy innovation. We believe this is a perspective that will resonate with the new administration. In fact, President-elect Trump’s choice for Secretary of State, Exxon CEO Rex Tillerson, has forcefully made the case for why energy innovation “will be vital in the decades ahead.” And former Texas Governor Rick Perry, tapped as Secretary of Energy, has remarked, “Energy innovation, it’s the quickest way to make our anemic economy very powerful.” This thesis has broad support among leaders in the private sector. Just yesterday, a group of wealthy investors led by Bill Gates unveiled Breakthrough Energy Ventures, a fund in excess of $1 billion to invest in early-stage clean energy technology companies. But it will take enabling public policies to unleash private sector investment in energy innovation. In our report, we urge the federal government to: Reform a sprawling set of institutions to increase the commercial impact of federal energy research, development, and demonstration (RD&D) and maximize taxpayer return on investment. These reforms should draw inspiration from experiences in other sectors, including life sciences, semiconductors, electronics, and agriculture, where breakthrough technologies have been successfully commercialized. We distill these lessons into five principles for institutional change that should be applied to key federal agencies, especially the U.S. Department of Energy (DOE): 1. Connect basic science with technology priorities; 2. Reorient the national labs to pursue commercially relevant RD&D; 3. Encourage more private investment in energy innovation; 4. Support demonstration projects; and 5. Complement “supply-push” policies with “demand-pull” policies. These reforms will help focus federal energy-innovation resources on urgent and coherent needs. We put forward six candidates for these “Technology Missions”: 1. Nuclear power; 2. Solar energy; 3. Energy storage; 4. Carbon capture, utilization, and storage; 5. Advanced cooling and thermal energy storage; and 6. Smart energy management and connected vehicles. To fund all of this, we recommend that the United States double its funding for energy RD&D, consistent with the Mission Innovation commitment that it and nineteen other major economies have made. Leading lawmakers on both sides of the aisle have expressed their support for boosting scientific research, so expanding doubling the budget for energy innovation to roughly $13 billion—a rounding error in the federal budget—is politically tractable. And we also offer avenues to supplement Congressional appropriations, for example by restructuring the Strategic Petroleum Reserve. In promoting energy innovation, we argue that “President-elect Trump has an opportunity to make good on his campaign promises to create well-paid advanced-manufacturing jobs, protect the environment, embrace a diverse energy mix that includes fossil fuels, and boost the flagging U.S. trade balance.” His administration and the next Congress should seize it. Read the full ITIF report here.

The Institute of Race Relations’ (IRR) Centre for Risk Analysis has published a study that shows the dramatic increase in mobile phone usage in South Africa and its importance as a portal to internet usage. During the 2000-2014 period, fixed line subscriptions per one hundred people dropped by 38 percent while mobile phone subscriptions increased by 702 percent. The increase affected all races, but the growth is especially striking among ‘Coloured’ and ‘Indian’ South Africans. For Black South Africans it was 405.3 percent; for ‘Coloureds’ it was 763.6 percent; for ‘Indians’ it was 708.3 percent; for Whites it was 470.6 percent. The lower rate of increase among Blacks may reflect the higher levels of poverty among that demographic. Among whites, the lower level may reflect that many of them have long had access to land lines and to cell phones, resulting in a lower rate of usage growth. The IIR predicts that mobile phones will accelerate a shift toward online retail. It also suggests a growth in social media’s influence on politics. The IRR report shows that the South African cell phone market is dominated by three companies: Cell C with a market share of 25.1 percent; MTN, with 33.2 percent; and, Vodacom, with 38.5 percent. All three are South Africa based. Cell C has an important Black Economic Empowerment (BEE) dimension, a government-sponsored program to provide access for blacks to the modern economy; it also has a focus on providing low-cost service. British investors have a large stake in Vodacom. MTN, headquartered in Johannesburg, has world-wide operations. Telecommunications is an important part of the ‘new’ South African economy, even while the ‘old’ economy based on mining continues to decline.

This post is co-authored by Becky Allen, a research associate in the Women and Foreign Policy program at the Council on Foreign Relations. Nigeria has been identified as one of eleven emerging economies with high growth potential for the coming decades. And yet, Nigeria is far from achieving the World Bank’s goal of universal financial access by 2020, with women comprising the majority of Nigeria’s “unbanked.” Only one-third of Nigerian women own a bank account, compared with more than half of Nigerian men, a stubborn gender gap that has grown, not shrunk, in recent years, from 7 percent in 2011 to 21 percent in 2014. Factors preventing women from opening bank accounts in emerging economies – such as Nigeria – include the inability to travel to bank branches, limited financial literacy, and inadequate proof of identification. Ironically, however, evidence suggests that women default less frequently on loans and invest more in their families compared to their male counterparts. In an effort to reverse the growing gender gap among Nigeria’s unbanked, the private and public sectors have begun to harness digital technology to overcome the barriers preventing Nigerian women from opening bank accounts. One such innovative financing tool is the digital BETA savings account. Launched by Diamond Bank in partnership with Women’s World Banking in 2013, BETA savings accounts relieve customers of needing to go to a physical bank branch to open and operate an account. Rather, “BETA Friends” – female bank agents – attend open-air markets with mobile devices, enabling women to setup accounts and make deposits and withdrawals without having to leave their stalls. Significantly, women can open BETA savings accounts without documentation or minimum balance requirements thanks to Nigeria’s tiered Know Your Customer Requirements (KYC), which enables Diamond Bank to open low-value accounts with basic personal information. Since its launch, BETA has reached more than 275, 000 clients. Following the success of BETA, Diamond Bank launched BETA Target Savers Accounts – another innovative digital product designed to increase women’s financial inclusion. These accounts enable women to save for specific goals, such as financing child birth or a child’s education, likewise employing BETA Friends to facilitate the process for women. Diamond Bank also permits women to take out loans without having to provide collateral through the BETA Kwik Loan, a service that operates via BETA technology. Earlier this year, yet another mobile money platform launched to enable women in rural Nigeria to transfer money to one another. This product, the result of a partnership between the nonprofit financial platform Stellar and the fintech service provider Oradian, aims to replace less secure cash transfers (often conducted by a third party individual traveling from one area to another) with mobile money transfers. Most recently, UN Women partnered with the Zamani Foundation, MasterCard, and the National Identity Management Commission to launch the “One Woman, One ID Card” initiative in Nigeria. The project seeks to reduce the number of women without a form of personal identification and to provide women with finance and business training. Within the project’s pilot phase in Kaduna State, five thousand women are expected to benefit, and in total, the initiative is expected to impact 500,000 Nigerian women. According to UN Women representative Adjaratou Ndiaye, 70 percent of Nigerians living below the poverty line – the majority of whom are women – could benefit from increased financial inclusion in the country. Perhaps with the onset of these new technologies targeted at women, Nigeria can narrow, or even close, its banking gap and achieve the 2020 goal of universal financial access.

Rachel Brown, Sherry Cho, Gabriella Meltzer, and Gabriel Walker look at five stories from Asia this week. 1. Asia braces for Trump. On Tuesday night, as results from the U.S. general election poured in from polling places across America, Asian markets reeled at the prospect of a Trump presidency. By Thursday, U.S. markets stabilized and Asian markets had bounced back. But what will a Trump in the White House mean for Asia in the coming four years? At this point, even experts’ best guesses are still uncertain. Trump’s foreign policy strategies are a contradictory bunch: an isolationist “America first” doctrine and protectionist trade practices, but an “extremely tough” approach to taking on U.S. enemies. So far, the signals from Trump’s campaign have been just as mixed. On “day one,” according to a former U.S. Treasury official, Trump may label China a currency manipulator, a decision former U.S. Treasury Secretary Larry Summers called “ludicrous.” But at the same time, Trump spoke with both South Korea’s President Park and Japan’s Prime Minister Abe in a sign of reassurance from the United States to its allies in Asia. This week, two senior Trump advisors on Asia also published a Foreign Policy piece that put forth a vision of “peace through strength” whose policy prescriptions primarily attacked “bad trade deals” and proposed to increase the size of the U.S. Navy fleet. What will actually come to pass is anyone’s guess. 2. Delhi enveloped in life-threatening smog.  Hindus throughout the city of Delhi celebrated the holiday of Diwali, the festival of lights, on Saturday by lighting candles and lamps and setting off fireworks. Unfortunately, these joyful rituals exacerbated the metropolis’s preexisting pollution problem, sparking a week-long period of dangerous smog. The situation has forced the municipal government to close 1,800 schools, as well as impose a five-day moratorium on construction and a ten-day power plant closure; it is also advising residents to remain indoors. Hundreds of people gathered on Sunday to protest, as current levels of particulates are as dangerous as smoking two packs of cigarettes per day and 10 percent of the city’s workforce has been forced to call in sick. According to the World Health Organization, India currently houses thirteen out of the twenty most polluted cities on earth, with Delhi carrying the title of most polluted. Although changing weather conditions with the arrival of winter will dissipate the smog, poor city-dwellers often turn to the burning of trash, plastic, and rubber to keep warm. In addition, the various sources of pollution, including crop burning, vehicles, construction, and fireworks, all fall under the purview of different government agencies, which are oftentimes at odds with one another. Arvind Kejriwal, New Delhi’s chief minister has compared the city to a “gas chamber,” and has said that the government needs to take “some urgent measures.” 3. President Park asks opposition parliament to nominate new prime minister. The recent announcement was a major political concession for South Korean President Park Geun-hye and fresh confirmation of her waning political authority as the scandal involving her ties to Choi Soon-shil continues to roil the country. Despite Park’s efforts to regain public trust by replacing much of her presidential staff and cabinet, surveys show that Park has a less than 5 percent approval rating. Tens of thousands of protestors continue to call for her resignation in demonstrations throughout South Korea. In a Tuesday meeting with the National Assembly’s speaker, Chung Sye-kyun, Park asked opposition parties to nominate a new prime minister. This occurred six days after Park’s proposed candidate for prime minister, Kim Byung-joon, was summarily rejected by the opposition parties that control a majority of the South Korean parliament. Investigations into Choi Soon-shil, the centerpiece of this political scandal, continue. Park has offered to cooperate with any prosecutorial probes, possibly becoming the first South Korean president to be investigated while in office. Prosecutors reported on Tuesday that they had raided the Seoul offices of Samsung, South Korea’s largest chaebol, a kind of large business conglomerate, investigating allegations that the chaebol provided $3.1 million to a company co-owned by Choi and her daughter. Choi was arrested on November 3 and faces allegations of using her friendship with the president to act as a kind of “shadow president” and solicit donations. 4. Cambodia’s Hun Sen using courts as a weapon against opposition. The deputy leader of the Cambodia National Rescue Party (CNRP), Kem Sokha, is the most recent target of a government that rights groups allege is using Cambodian courts as a willful weapon to suppress critics. Kem’s case is one of several facing opposition leaders in what is generally interpreted as an effort to upset the opposition’s organizing efforts for the local elections being held next June. Um Sam Ann, another opposition leader, was sentenced to two-and-a-half years in prison for criticizing the government’s handling of the Cambodia-Vietnam border demarcation. CNRP leader Sam Rainsy, currently in self-imposed overseas exile for the third time in a decade, is also facing legal troubles after an old conviction for defamation was reinstated and his parliamentary immunity was stripped by the government’s legislative majority. Although Cambodia is nominally a democracy, Hun has been Cambodia’s de facto leader for three decades. A 2013 general election, however, saw the CNRP mount a strong challenge to Hun’s control, winning fifty-five seats in the National Assembly and leaving Hun’s Cambodian People’s Party with sixty-eight. Many critics allege that Hun has prioritized the dismantlement of the political opposition since then, using complicit courts as a weapon against them. 5. India Bans 500 and 1,000 Rupee Notes.  In a surprise announcement, Indian Prime Minister Narendra Modi banned the use of 500 and 1,000 rupee notes in an effort to crack down on corruption, money laundering, and tax evasion. These two high denomination bills comprise an estimated 85 percent of the currency currently in use in the country. By requiring individuals to change over their bills, officials hope to bring to light billions of dollars of assets that are not currently reported. But while there may be long-run benefits in improved tax collection and financial transparency, the immediate effect was a stock market drop. The change also led to a two-day ATM shutdown and to chaos at banks where customers attempted to switch their bills for new 500 and 2,000 rupees with added security features. The introduction of a new 1,000 rupee note is also underway. The transition has been particularly felt in cash-dependent rural areas, but will also have implications for everyone from nonresident Indian nationals to foreign visitors. Bonus: Japanese augmented reality will hack your taste buds. At the University of Tokyo’s Cyber Interface Lab, researchers are using augmented reality—a combination of virtual reality and real-world objects—to trick how our brains process eating. Various headsets, detailed in this this video, can digitally manipulate the perceived size of a food item to affect how satiated a wearer feels while eating, or pump scents toward an eater’s nose that can suggest a wide variety of flavors. The effects can potentially reduce calorie intake by making the user believe he or she is eating more, or something different, than in reality. In some experiments, volunteers ate almost 10 percent less when a biscuit appeared 50 percent larger. Some companies, like Samsung, have also begun probing the “culinary virtual reality space” in other ways to offer state-of-the-art—albeit somewhat fictitious—fine dining experiences.

Quartz Africa published a thought-provoking article by Lynsey Chutel titled “The Mystery of Africa’s Disappearing Presidents.” Her take-off point is Malawi’s President Peter Mutharika, who went to New York for the United Nations General Assembly (UNGA) in mid-September and returned home only on October 16. His entourage refused to provide any itinerary. She cites other African leaders who take long ‘vacations’ or otherwise disappear from their countries for long periods of time: Cameroon’s President Paul Biya once spent three weeks in La Baule, France, at a cost of $40,000 per day and later spent two months at the Hotel Intercontinental in Geneva. With respect to the La Baule stay, his spokesman said, “Like any other worker, President Paul Biya has a right to his vacations.” Other African heads of state disappear for “medical reasons.” Because of the general lack of transparency, absence for medical reasons leads to speculation that the president in question has died. Zimbabwe’s Robert Mugabe’s regular trips to Southeast Asia routinely set off such rumors. Sometimes, as in the case with Gabon’s former President Omar Bongo, they do die, even as their spokesmen assure the public that they are in good health. Chutel summarizes: “it’s an all too familiar story for many Africans: leaders’ whose aides swear they’re fit as a fiddle, dying in office under a cloud of mixed messages. A politician admitting to ill health the way Hillary Clinton did during her campaign…is almost unheard of on the continent…” Poor political leadership informs the bad governance that is Africa’s greatest barrier to social and economic development. Chutel makes an important point: the refusal of some African leaders “to be open and honest with the public further shows a disregard for the people who put them in power, and in turn erodes public trust in the leaders themselves.” She raises the hope that as Africa’s population becomes younger, better educated, and part of the information age, the leaders’ behavior that she chronicles will become politically unacceptable: “African presidents have to learn to talk to—and account—to their people.”

For seventy years, Argonne has hosted cutting-edge scientific research. The first national laboratory in the United States, Argonne was created in 1946 as an extension of the Manhattan Project to develop nuclear technology. Today, its research spans high-energy physics, supercomputing, and advanced materials, but I paid a visit to Argonne last month for one reason in particular: the Laboratory has established itself as a thriving hub for research on battery energy storage. To write his 2015 book, The Powerhouse: Inside the Invention of a Battery to Save the World, Quartz reporter Steve Levine spent two years embedded in Argonne’s battery laboratories, documenting a thrilling race to develop the next-generation lithium-ion battery. I was particularly fascinated by the central but confusing role that Argonne found itself. As a national laboratory, its core competency is basic science research and development, at which its scientists excel. But on top of that, the Lab has developed external partnerships with the private sector, for example, by licensing technology to General Motors to build the battery for its Volt electric vehicle (Argonne technology may soon emerge in next year’s 238-mile-range Chevy Bolt). And it found itself under intense pressure to deliver results after the Department of Energy designated it as the U.S. energy innovation hub for energy storage. Arguably, a transformative advance in energy storage is the most important clean energy technology need in the quest to confront climate change and secure energy independence. But Argonne, along with a swathe of Silicon Valley start-ups, has struggled to commercialize breakthrough battery technologies. Today, it remains unclear whether a credible challenger can unseat the formidable lithium-ion battery, which Asian firms (and more recently, Tesla) are churning out en masse. Still, on my visit I encountered healthy doses of optimism—tempered by experience with research dead-ends—and a trove of lessons for how to commercialize emerging technologies. Here are four of them: 1. Lithium-sulfur batteries are the best bet to succeed lithium-ion Researchers at Argonne’s Joint Center for Energy Storage Research (JCESR) are racing to deliver an electric-vehicle battery prototype that will pack more energy per pound, at a lower price point, than anything on the market. Lithium-ion batteries currently dominate energy storage, encompassing mobile phones, electric vehicles, and power grids, but their performance is approaching theoretical limits (figure 1). JCESR researchers—after chasing a dead-end in hyped but finicky lithium-air technology—now believe lithium-sulfur will enable cheaper and longer-range electric vehicles that strike the right balance between feasibility of commercialization and better performance. Still, the challenges facing an energy-dense, cost-effective lithium-sulfur battery are formidable. Making it will probably require replacing all of the major components of the lithium-ion battery. Scientists are struggling to prevent the sulfur in the positive electrode, or cathode, from dissolving. And making a required change to the negative electrode or anode—from graphite in lithium-ion batteries to solid lithium metal—has resulted in the electrode developing weird growths (“dendrites”) that can short circuit the battery. Furthermore, researchers are looking for solid materials with which to replace the liquid electrolyte that shuttles ions between the anode and cathode. Still, if they succeed, batteries could store more energy, discharge power more rapidly, and pose fewer safety risks (read: no more fires on planes). Figure 1: Energy densities of standard lithium-ion batteries. Source: Janek, J., and Zeier, W.G. Nature Energy 1 (2016). 2. R&D is needed not only to invent new materials, but also to scale up manufacturing processes Argonne’s Materials Engineering Research Facility (MERF) focuses on an often-overlooked aspect of battery innovation—figuring out how to manufacture new materials at commercial scale. Researchers explained to me their rigorous process flow, which includes vetting new materials to see if they can in theory be scaled up, and making larger and larger quantities of the materials. They might modify the chemical composition to synthesize a material invented in the lab to make it easier to manufacture, but if it fails to deliver the same performance on a large scale, researchers must go back to the drawing board. Importantly, researchers use industrial-scale equipment, which differs substantially from lab tools used to make very small quantities of new materials (figure 2). The logic behind MERF is sound and badly needed. Still, Argonne has a long way to go. So far, MERF has only focused on new materials for lithium-ion batteries, whereas brand new battery technologies are arguably even more in need of such a facility to make up for the industry’s apathy toward emerging battery architectures. And even within the lithium-ion battery space, MERF has struggled to produce a game-changing new material at a scale that battery manufacturers are willing to license. Still, MERF has had some limited examples of successful licensing arrangements. And I’m positive that it will take many more MERF-like facilities—scaling up the manufacturing of batteries as well as other clean energy technologies—to realize the potential of national laboratory discoveries. Figure 2: An industrial-scale reaction chamber (50 liters) for scaling up synthesis of new lithium-ion electrolyte materials (Varun Sivaram) 3. International R&D cooperation is about much more than technology development Recently, the U.S.-China Clean Energy Research Center (CERC) was renewed for another five-year collaboration, and Argonne was chosen to lead the Clean Vehicle Consortium (CVC) from the U.S. side. I was struck by the CVC’s range of goals—over and above developing new technologies in the lab. The collaboration could be a vehicle (pun intended) for U.S. firms to bring advanced battery and vehicle technologies to the Chinese market. And it could offer a venue for senior U.S. and Chinese officials to meet with each other and discuss not only CERC’s progress but also completely unrelated diplomatic priorities. Amazingly, clean energy technology (along with climate change—though friction remains on aspects of climate negotiations) has emerged as the brightest spot in U.S.-China relations, uplifting a relationship that has been otherwise marred by tensions around the South China Sea, cybersecurity, and more. The downside may be that genuine technology development could become a casualty of the pressure on CERC to deliver on broader diplomatic goals. Joint patenting of technology with China has been rare, as U.S. companies in particular remain wary of China’s intellectual property protections. Still, I got the sense that CVC’s collaboration on driverless, networked vehicles is an effort where both the U.S. and Chinese sides are committed to jointly developing new technologies in a largely unexplored area. 4. National laboratories and entrepreneurs could be natural partners Building on a model pioneered at Lawrence Berkeley National Laboratory called “Cyclotron Road,” Argonne is preparing to kick off its own incubator for clean energy technology entrepreneurs to take advantage of the extensive resources at the Lab. Dubbed “Chain Reaction Innovations” (CRI), the program is about to announce its inaugural class of entrepreneurs, pairing them with veteran Argonne researchers to develop their technologies on campus. I’ve argued before that this model is crucial for entrepreneurs to get their start without venture capitalists hanging a Sword of Damocles over their heads by infusing their start-ups with capital but expecting speedy and lucrative payouts. Now, national labs around the country are looking into hosting their own classes of entrepreneurs, and it will likely take many such programs to boost clean energy technology in the wake of the start-up bubble collapse. But in this area as in others, I came away from my visit reassured that Argonne is looking ahead to play a vital role in bringing clean energy breakthroughs to market. I am very grateful to my hosts at Argonne National Laboratory, including Peter Littlewood, Greg Morin, Dave Hooper, Julie Wulf-Knoerzer, Don Hillebrand, Kris Pupek, Norm Peterson, Suresh Sunderajan, Andreas Roelofs, Kevin Gallagher, Brad Ullrick, and Devin Hodge.

This post is co-authored by Sagatom Saha, research associate for energy and U.S. foreign policy at the Council on Foreign Relations. When policymakers mandate adoption of a particular technology, they run the risk that the technology may not yet exist or is too expensive for consumers. Similarly, when the government funds research, development, and demonstration (RD&D) of new technologies, it can’t be sure that any advances it underwrites will get picked up by the private sector and successfully taken to market. Even if the government pursues both activities separately—“pulling” technologies into the market through mandates or standards and “pushing” the development of new technologies through RD&D funding—these risks don’t go away. But the strategy embodied in the Obama administration’s recent push to clean up emissions from large vehicles could address both of these risks in one fell swoop. Last month, the administration released new rules limiting emissions from heavy-duty vehicles like vans, trucks, tractors, and buses. Alongside the standards, it also announced $140 million in new funding for innovative technologies to improve the efficiency of both light and heavy vehicles. Pairing these pull- and push-policies has already proven effective at making sure the right technologies are developed to achieve ambitious standards. This strategy could work to commercialize other energy technologies as well. Indeed, tight coordination of push and pull policies is a staple in other fields, like defense and global health, and should be applied more broadly to energy innovation. That will be tougher politically, however, requiring institutions to cooperate in ways that weren’t envisioned when they were set up. Who’s A-Freight of Efficiency Standards? Under the recent Obama administration standards issued by the Environmental Protection Agency (EPA), heavy trucks must reduce their carbon emissions by 25 percent. Although these vehicles only account for 5 percent of vehicles on the highway, they guzzle 20 percent of the fuel. And because carbon emissions from the transportation sector recently overtook those from the power sector, curbing heavy truck emissions could be crucial to meeting U.S. obligations under the Paris Agreement to reduce its emissions by 26–28 percent by 2025. Although the administration can’t guarantee that manufacturers will be able to meet the mandate, it has strong evidence suggesting they will. Under the Supertruck I program from 2010 to 2015, the Department of Energy funded truck manufacturers and suppliers to improve trucks’ “freight efficiency,” or the amount of freight hauled per gallon of fuel used. All but one manufacturer successfully beat the target of a 50 percent increase in freight efficiency over that of 2009 trucks (the last firm is expected to meet the goal this year). Moving forward, the administration believes manufacturers can match the previous improvement so that the freight efficiency of trucks in 2021 is 100 percent higher than those in 2009. But not only is the administration betting that manufacturers are capable of meeting the new standards—they’re supplying resources to ensure they do. Along with pulling up vehicle performance through regulatory emission standards, the administration is pushing technology improvements through the newly announced Supertruck II program, which will spend $80 million on RD&D programs. The program will aim to build on its predecessor’s progress in commercializing technologies like lighter materials, more aerodynamic designs, and lower-resistance tires. Together, the standards and RD&D funding compose a coordinated push-pull approach that has a better chance of succeeding than either component alone. And we’ve seen examples of orphaned push or pull policies for clean energy before. For example, in 2007 Congress enacted the Renewable Fuels Standard, a pull policy that set mandates more than a decade into the future for the quantities of advanced biofuels that oil refineries would need to blend into gasoline. But few manufacturers have been able to make such advanced fuels, so the federal government is forced to relax the standards year after year. And a memorable example of a failed push policy is the notorious Synthetic Fuels Corporation, into which the federal government poured billions of dollars but cancelled when falling oil prices erased any market demand for oil substitutes. Together, these examples demonstrate that push without pull, or vice versa, can doom policies promoting technological change. Finally, a push-pull approach could overcome political barriers that obstruct pull approaches in particular. When it came time to create the heavy truck standards, the Obama administration had already provided RD&D funding to manufacturers and suppliers like Freightliner and Cummins; these firms were then willing participants in helping set ambitious but achievable efficiency standards. Contrast this collegiality to the simmering tensions between the administration and the auto industry as the two sides spar over the future of light-duty vehicle fuel economy (CAFE) standards. Perhaps a compromise to maintain stringent CAFE standards, paired with additional RD&D support for automakers to meet them, would be mutually acceptable. Extending the Pipeline In their book, Technological Change in Legacy Sectors, Chuck Weiss and Bill Bonvillian argue that the military has adeptly combined push and pull policies, creating an “extended pipeline” to fund innovation from basic research all the way through commercial deployment. For example, institutions like the Defense Advanced Research Projects Agency (DARPA) funded the development of drone prototypes and precision strike capabilities, and the military services later procured these technologies at the other end of the pipeline. Despite some bureaucratic wrinkles, this model worked well to identify a need, specify a desired technology, and acquire the resulting product to guarantee a market to private sector partners. More recently, the U.S. Navy collaborated with the DOE and the Department of Agriculture to create an extended pipeline for advanced biofuels to run military ships and planes--the partnership includes funding for biorefineries to produce military-spec fuels that (presumably) the Navy will then procure. Elsewhere in the global health field, coordination of push and pull policies is common. Indeed, Doctors Without Borders has expanded this paradigm to develop drugs to fight tuberculosis, coining a “Push, Pull, and Pool” model. As before, this model would provide RD&D “push” funding, and it would “pull” new drugs by offering a prize or advanced commitment to purchase a substantial quantity upon development of an effective and affordable drug. On top of this, to be eligible for funding or prizes, private firms would have to agree to submit their chemical discoveries into a pool to enable collaborative research and technology licensing. These models hold lessons for clean energy, and the Obama administration’s coordinated clean truck policies are a step in the right direction. But broadening this approach will require some heavy institutional lifting. Currently, energy R&D is funded in the United States largely by the National Science Foundation (NSF) and the DOE. Demonstration—the middle of the extended pipeline—is funded somewhat haphazardly by DOE. And then deployment standards and support emanate from various other agencies (for example, the National Highway Traffic and Safety Administration (NHTSA) and EPA set light-duty vehicle fuel economy standards). Getting all of these organizations to coordinate with one another is a tall order, and in the long run an institutional reorganization akin to what the United Kingdom undertook in recent decades may be necessary. In the meantime, President Obama has left his successor with a modest but effective blueprint to push and pull energy innovation at the same time.

Here is a quick round-up of this week’s technology headlines and related stories you may have missed: 1. Mo’ cyber, mo’ problems. On Thursday, Yahoo announced that a hack nearly two years ago resulted in compromise of data of at least 500 million users. The company blamed a “state-sponsored actor” for the breach. The breach is almost certainly one of the largest in history. On the same day, hackers leaked Michelle Obama’s passport and details of Joe Biden and Hillary Clinton’s schedules, reportedly stolen from the Gmail account of a young Democratic operative, through DCLeaks.com, the same outlet that published Colin Powell’s personal emails earlier this month and allegedly the work of Russian intelligence. And the website of security journalist Brian Krebs was hit with a massive denial of service attack, so big that Akamai--who was offering Krebs protection from such attacks pro bono--stopped doing so. Krebs tweeted that the same entities also targeted his Skype and email accounts. But despite all the hullaballoo they cause, data breaches may not actually cost companies as much as many thought. A recent RAND Corporation study found that attacks like these typically have minor financial impacts—about $200,000 per incident. 2. ’Shadow Brokers’ got NSA exploits from server in the wild. Reuters reports that National Security Agency (NSA) hacking tools dumped on the internet last month by suspected Russian hackers were left on a server by careless employees. According to four anonymous sources, Shadow Brokers was able to compromise that server and obtained the hacking tools instead of relying on a NSA insider like former contractor Edward Snowden as some suspected. What’s more, the NSA has known about the breach since 2012, just after it happened, and has been monitoring the internet to detect their use, but did not detect any use against the United States or its allies. But as Nicholas Weaver points out, it is unlikely that the NSA has the ability to detect the exploits, which operate within Cisco and Fortinet firewalls, not on the web. Weaver criticizes the NSA’s "hubris" in knowing that the exploits had been stolen but not notifying manufacturers, calling it "evidence that the NSA is not dutifully discharging their role in defending our country from others who seek to exploit our systems." 3. IANA-clingers go out with a bang. Republican Senator Ted Cruz (TX) made a Hail Mary attempt this week to put a stop to the IANA transition, the move by the Obama administration to move control of the IANA functions, a set of clerical functions that keep the internet running smoothly, from the Department of Commerce to the Internet Corporation for Assigned Names and Numbers (ICANN). He got last minute help from GOP presidential candidate Donald Trump, whose campaign released a statement opposing the move. But despite the last minute effort, Congress moved forward with a continuing resolution that does not contain language blocking the move. 4. Tesla joins ranks of hacked cars. A team of researchers from Tencent’s Keen Security Lab announced the discovery of security vulnerabilities in the Tesla Model S, and posted a video showing them controlling the moving vehicle’s brakes, mirrors, windshield wipers, and trunk door. Tesla quickly released a software update after learning about the flaw, and noted that the security exploit was only feasible under very specific conditions. Hacks of cars—which came to the public consciousness last year when security researchers managed to remotely hack the brakes on a moving Jeep—have pushed the White House to issue guidelines for self-driving cars, as well as model legislation for states that wish to legalize automated vehicles. The Department of Transportation will also be releasing a list of best practices for improving vehicle cybersecurity.

Gabriel Walker is a research associate for Asia Studies at the Council on Foreign Relations. This is the final part of a series on China’s role in international development. Read the first and second parts on the Asian Infrastructure Investment Bank and green bonds. On the eve of this year’s Group of Twenty meeting in Hangzhou, U.S. President Barack Obama and Chinese President Xi Jinping formally ratified the Paris Agreement, the UN’s landmark treaty on fighting climate change. So far 180 countries have signed the document and now, including the world’s two largest carbon emitters, twenty-seven have ratified it. If the Agreement garners enough ratifications to enter into legal force by next April, it would formally bind the signatories to staunch global warming by reducing greenhouse gas emissions, encouraging green financing, and promoting climate resilience. Each signatory’s commitment under the Agreement is self-determined, and China has already made headlines by promising to peak carbon emissions by 2030. But China’s Paris commitments go beyond greenhouse gas caps; they also include pledges to bolster sustainable development abroad. In its Intended Nationally Determined Contribution, submitted ahead of the 2015 Paris climate change conference, China promises to promote green, low-carbon development and innovation; to provide financing, technology, and capacity-building to other developing countries; to foster more equitable access to sustainable development for developing countries; and more. China’s far-reaching Belt and Road endeavor will be a litmus test for these commitments: whether and how it aligns with Paris values is an important opportunity for China to display environmental leadership and establish its geopolitical character. The Belt and Road initiative (also known as “One Belt, One Road”) is a massive trade and infrastructure development project on a scale the world has never seen. Specifically, it aims to connect Eurasian nations and their adjacent seas, establish trans-regional partnerships, and “realize diversified, independent, balanced and sustainable developments” throughout the continent. Its two components are an overland Silk Road Economic Belt, stretching from Beijing to Europe, and a Maritime Silk Road, snaking all the way from the Bohai Sea to the Mediterranean. Transportation infrastructure, such as railways and ports, will feature prominently in the plan, but development projects in many other sectors such as energy, agriculture, and industry will also take shape. For the Chinese government, the Belt and Road strategy is both economically and geopolitically significant. From Beijing’s perspective, it ideally will stimulate the Chinese economy by creating new export markets, offloading excess industrial capacity, and focusing Chinese companies’ international business ventures. Geopolitically, Belt and Road strategists hope that it will counter perceived growing American, Japanese, and European influence over the Eurasian continent, and boost China’s global standing by fostering bilateral trade relationships. The Belt and Road plan is not only potentially transformational for catalyzing development across Eurasia, but is also China’s most clearly articulated international foray to date. The Chinese media have already trumpeted the environmentalism of some early Belt and Road projects, calling them a realization of the “Green Silk Road” ideal. Chinese engineers working on a railway in Tajikistan, for example, took special measures to reforest the site to prevent soil erosion, even when local regulations did not require it. A Chinese-built cogeneration power plant in the Tajik capital of Dushanbe uses some of the world’s most advanced dust-filtration and sulfur-scrubbing technologies. Some private companies have even joined together to found a Green Ecological Silk Road Investment Fund, which will direct capital toward solar panel construction, clean energy development, and ecological remediation. At the same time, international Chinese projects have a poor environmental track record: dams in Southeast Asia have intensified drought; oil field development in Chad caused more than $400 million in environmental violations; and banana plantations in Laos have polluted groundwater, not to mention domestic examples of development-related pollution. For Belt and Road projects, the potential for harming fragile ecosystems through railway and road construction, and coastal air quality through increased shipping traffic, for example, is dangerously high. Redirecting excess Chinese industrial capacity—by relocating factories or by laying down thousands of miles of railroad tracks—will also fuel demand for carbon-intensive products such as steel and concrete within China. Belt and Road pipelines and shipping lanes that satiate China’s increasing need for imported natural gas and crude will certainly bolster the international fossil fuel industry. Because the Belt and Road initiative could easily perpetuate inefficient and dangerous modes of development, Beijing fundamentally needs to reinvent how Chinese companies operate abroad. Consistent indicators in a few areas would prove China’s commitment to environmentally conscious Belt and Road projects, including:                               Prioritizing low-carbon or carbon-neutral development projects; Implementing comprehensive measures to protect land, coastal, and marine ecosystems from gradual decline, and effective crisis management procedures to remedy unforeseen accidents; Continuing to transfer low-carbon technologies and technological know-how to other developing countries; Working with development banks with proven track records of good environmental governance, such as the Asian Development Bank and potentially the Asian Infrastructure Investment Bank; Displaying leadership by not engaging in environmentally detrimental projects, such as certain hydroelectric dams, even when the potential for profit is high; And setting a good example by holding domestic Belt and Road development projects within China to the highest environmental standards.   China’s Paris commitments to sow the seeds of sustainable development are lofty and laudable, especially because they involve more than greenhouse gas pledges. Whether or not the Agreement comes into force next year, China has much to gain by putting its ambitious rhetoric into practice and much to lose if its grand plans go awry. If China is indeed able to promote sustainable Belt and Road ventures throughout Eurasia, it would garner a renewed respect on the international stage for its tenacity in upholding global environmental norms.

Rachel Brown, Sherry Cho, Lincoln Davidson, Bochen Han, Theresa Lou, and Gabriella Meltzer look at five stories from Asia this week. 1. China and Russia to hold “routine” naval exercises in the South China Sea. China’s Ministry of National Defense announced on Thursday that China and Russia have scheduled cooperative naval exercises in the South China Sea for September. While China also stated that the naval exercises will be aimed at strengthening Russian-Chinese cooperation and are not directed at any other country, the announcement comes at a time of intensified strain between China and other Asian nations due to rival claims in the South China Sea. Following an international arbitration ruling rejecting Beijing’s claims in the South China Sea earlier this month, U.S. Secretary of State John Kerry has encouraged bilateral talks between Beijing and Manila over the territorial dispute. Reportedly, Chinese Foreign Minister Wang Yi has recently indicated to Mr. Kerry that Beijing seeks to “move away from the public tensions and to turn the page” and resolve tensions through direct dialogue with the parties concerned. Despite this indication of Beijing’s interest in defusing regional tensions and Chinese statements that the drills are targeted at furthering Russian-Chinese strategic partnerships, it is likely that just like previously conducted joint naval exercises in the Sea of Japan, many will construe this as an effort to restrict the influence of the United States and its allies in the Asia-Pacific region. 2. Top Hong Kong anticorruption investigator removed. Following the resignation of Rebecca Li, the acting head of the Operations Department at Hong Kong’s Independent Commission Against Corruption (ICAC), speculation has swirled as to the future of the ICAC’s neutrality. Li’s removal surprised many as she had spent thirty-two years at the commission, earning praise for her work and even becoming the first person from the agency to be sent to an FBI training program. While the nominal reason for her departure was non-political and related to her performance, some suspected that the change was due either to a lack of trust in her by Chinese officials or to her role in investigating a corruption case involving Leung Chun-ying, Hong Kong’s chief executive. Li had been leading the case investigating whether Leung had improperly taken funds from the Australian company UGL. The commissioner of the ICAC claims that the chief executive had no involvement in the decision to remove Li, but the fact that Leung selects the ICAC commissioner and the Chinese government approves the choice has fueled further suspicion. Li is expected to be replaced by Ricky Chu Man-kin. Her removal met much internal opposition and even caused the cancellation of the ICAC’s annual dinner since so many employees planned to boycott. While the ICAC is respected globally for its effectiveness and independence in addressing issues of graft, this turmoil could indicate weakening autonomy at a time when concern in Hong Kong is already mounting over the freedom from mainland Chinese interference in other media and educational institutions. 3. China’s strict condom policies make sex workers vulnerable to HIV. Asia Catalyst, a New York–based nonprofit that promotes civil society and health of marginalized groups in Asia, released a report this week that sheds light on China’s ineffective HIV prevention policies. China’s HIV prevalence is relatively low, with roughly 500,000 people reportedly living with HIV or AIDS at the end of 2014 out of a total population of 1.4 billion. The country’s epidemic is primarily concentrated among high-risk groups such as gay men and sex workers, with 92 percent of cases resulting from sexual intercourse. Sex work is illegal in China, and the Ministry of Public Security categorizes condoms as a “tool of offense” for prostitutes. Among suspected prostitutes, police authorities view condom possession as evidence of illegal activity and precedent for arrest or penalty. As a result, only 48 percent of surveyed prostitutes previously interrogated by police carry condoms, compared to 68 percent of those with no prior encounters with law enforcement. Asia Catalyst is encouraging the ministry to desist condom search and seizure and to decriminalize prostitution, instead working alongside the sex worker community to prevent HIV transmission. 4. Beijing tightens information control. The Chinese government took major steps forward in restricting news outlets that are not state-owned this week, enforcing regulations that ban original reporting by private media. The government shut down Sina, Sohu, and NetEase this past weekend for violating the rules. While the crackdown may have been a direct response to reporting of flooding in northern China that has killed dozens, it also fits into a general trend towards greater state control of the information space. Over the last two weeks, the Chinese government has increased scrutiny of online live-streaming platforms, accusing them of hosting “vulgar” content that “challenges the baseline morality of society.” This week, the Chinese Communist Party released an “informationization” strategy that aims to make the country a cyber superpower by mid-century. While its primary goals is to make China technologically self-reliant, it also has implications for China’s domestic media controls and international propaganda. Responding to reporters’ questions at a press conference announcing the policy document, Cyberspace Administration of China Vice Director Zhuang Rongwen said that the strategy encourages Chinese online media companies to expand their presence in Hong Kong, a move that seems aligned with or inspired by Chinese tech mogul Jack Ma’s purchase of Hong Kong’s leading English-language paper last year. 5. Chinese demolition work on Buddhist monastery sparks controversy. Larung Gar, a Buddhist monastery home to ten thousand monks, nuns, and laypeople located in the Tibetan county of Sertar in Sichuan province, is currently undergoing government-mandated demolition efforts that aim to eradicate quarters for all but five thousand residents by 2017. Two competing narratives are at play. The official purpose—“to build a Buddhism-practicing place that is more orderly, beautiful, safe and peaceful” and to “[accelerate] the urbanization… of Larung Town”—is in line with China’s overall urbanization campaign, which seeks to set the country on a more “human-centered and environmentally friendly path.” Government officials say that the current site posed serious health and safety concerns for its residents, citing nine fires at the institute that had apparently resulted in a loss of $340,000. Advocacy groups, on the other hand, claim that the move is just an attempt to tighten control over Tibetan culture and religious life. United States–based think tank Human Rights Watch points to a recent order that called for greater legal and ideological guidance in the community. While nothing suggests that the authorities consulted the Larung Gar leadership about the demolition, senior monastics are urging calm and discouraging residents from participating in protests. Bonus: New Zealand cracks down on predators. New Zealand Prime Minister John Key announced an ambitious conservation plan that calls for the extermination of non-native predators in the country by 2050. The government estimates that introduced pests cost New Zealand’s agricultural industry 3.3 billion New Zealand dollars (NZD) ($2.4 billion) and kill 25 million native birds annually—including the country’s iconic Kiwi—as well as prey on other local species. Key’s government is setting aside 28 million NZD ($20 million) to support a new joint venture that will develop pest control technologies, and has outlined four interim goals to be met by 2025. A potential sticking point in the plan, however, is New Zealanders’ love for cats, which kill billions of birds and small mammals yearly around the world. An avid cat-lover himself, Key (who owns a cat named “Moonbeam Smokey Fluffy Key”) said that while stray cats are on the government’s hit list, pet cats would be spared.

It’s no secret that venture capital (VC) has fled from the clean energy technology (cleantech) sector, and as a result, new cleantech company formation has slowed. But why did this happen, and is there a future for cleantech? To answer these questions, today I’m excited to release an MIT Energy Initiative (MITEI) paper entitled, "Venture Capital and Cleantech: The Wrong Model for Energy Innovation,” with my colleagues Ben Gaddy at the Clean Energy Trust and Frank O’Sullivan at MITEI. In this morning’s Financial Times, Ben and I summarize our findings: We compared the performance of every medical technology, software technology, and cleantech company that received its first round of VC funding between 2006 and 2011. We found that betting on cleantech start-ups just does did not make sense for VCs, because the sector could not deliver the outsized returns found in other sectors. In particular, companies developing new solar panels, batteries, biofuels, other new energy materials and manufacturing processes collectively destroyed over 80 per cent of the initial capital investment by VCs. Many required large amounts of funding to build factories and their technologies took longer than five years to develop. The few that succeeded still did not deliver enough capital return for VCs to justify staying in the sector. A Losing Combination: High Risk and Low Returns Below, Figure 2 from our MITEI paper breaks down the underperformance of the cleantech sector: Interestingly, the way we classify Nest Labs—which sells sleek thermostats that intelligently regulate indoor temperature to reduce power bills—heavily influences the results. If we count Nest as a software company, which is reasonable, overall cleantech sector performance plunges. This suggests heterogeneous company performance within the cleantech sector. Indeed, when we broke down cleantech into five subsectors, we found that clean software companies were profitable investments, whereas materials and hardware companies performed the worst (Figure 3). Wanted: Corporate Partners It makes sense that cleantech companies scaling up new materials or hardware might underperform software companies that required less up-front capital from investors and paid VCs back handsomely after only a few years. But some other factor is needed to explain why cleantech underperformed the biomedical sector, which can also be capital-intensive and has successfully scaled up lab bench innovations. That factor is corporate support. Figure 4 from our paper demonstrates that biomedical start-ups were twice as likely to be acquired than cleantech start-ups, offering VCs lucrative returns on their investments. In contrast to biomedical corporations willing to strategically invest in innovative start-ups, energy companies—whether electric utilities or oil and gas firms—rarely invest in start-ups or even in-house research and development. Just this weekend, I was reminded of the importance of corporate partnership when I sat down with a cleantech entrepreneur who isn’t following the Silicon Valley model. Bill Brown, CEO of NET Power, is commercializing an innovative power plant that runs on natural gas but produces pipeline-ready carbon dioxide for enhanced oil recovery, other industrial uses, or sequestration rather than spewing carbon emissions into the air. (Dave Roberts at Vox has an excellent write-up on the details). Brown is well on his way to building a 50 MW demonstration project in Texas thanks to support from corporate investors and partners. Exelon (a utility) and CB&I (an engineering firm) have made equity investments of $150 million, and Toshiba (a conglomerate with experience building turbines) has developed a special combustor and turbine in exchange for an exclusivity license with NET Power. Brown told me that working with corporate partners has brought engineering expertise, substantial capital, and the confidence to put steel in the ground. Beyond Venture Capital We close our paper by noting: One lesson that entrepreneurs may take away from this story is that cleantech companies need to adapt to fit the constraints of VCs. Perhaps any cleantech company ought to be a software company in disguise, and new materials and processes are hopeless money losers. That lesson is wrong and could be a disastrous impediment to the development of much-needed clean technologies to upend the world’s energy systems—a transformation that software alone cannot accomplish. The correct lesson is that cleantech clearly does not fit the risk, return, or time profiles of traditional venture capital investors. And as a result, the sector requires a more diverse set of actors and innovation models. Those new actors include Bill Gates’ Breakthrough Energy Coalition, which has pledged to provide billions of dollars in “patient capital” that could transcend the capital and time constraints of VC investors. Institutional investors and corporations will also be crucial to supporting the cleantech sector. To entice these new private actors, public policymakers must de-risk their investments, and we outline a suite of initiatives to do so. Indeed, we conclude, “the rise and fall of hundreds of start-ups might have an upside if a new generation of public and private support avoids the missteps of the cleantech VC boom and bust.” Read our MIT Energy Initiative working paper here, and our Opinion piece in the July 26, 2016 edition of the Financial Times here.

This post is by Becky Allen, a research associate for the Women and Foreign Policy program at the Council on Foreign Relations. As evidenced by the Goldman Sachs 10,000 Women program, the Tory Burch Foundation’s Fellows Competition, and the Vital Voices’ VV Grow Fellowship, among other initiatives, there is increasing private sector investment in women’s entrepreneurship training. And it’s about time more organizations and governments follow suit. We already know that advancing the status of women has a resounding impact on the global development agenda. Countries with greater gender equality see improved health and educational outcomes, as well as more peaceful societies. The connection between women’s economic participation and growth in particular is compelling: a recent McKinsey Global Institute report found that minimizing the gender gap in labor force participation holds the potential to add $12 trillion to global GDP by 2025. In the past few years, research has also shed light on the role that female entrepreneurship plays in driving the global economy forward. Women own an estimated 8 to 10 million small and medium-sized enterprises (SMEs) in emerging markets, where SMEs contribute to more than 50 percent of total employment. However, female-owned SMEs face a financing gap of $285 billion, stymieing their growth. Imagine the economic transformation we would see if we closed this financing gap – evidence suggests it would catalyze job creation and drive GDP growth. But would this transformation also have a lasting impact on gender equality? The recently released 2016 Future of Jobs report suggests that the picture may be more complicated. Female entrepreneurship and labor force participation are competing with the technological revolution. "Disruptive technology," such as artificial intelligence, robotics, big data analytics, and the mobile internet, is expected to replace 7.1 million jobs by 2020 – the majority of which are in female-dominated sectors including office and administrative work; manufacturing and production; and art, design, entertainment, sports, and media. Meanwhile, the top three sectors with anticipated growth are business and financial operations, management, and computer science and mathematics – job arenas typically dominated by men. This data would suggest potential for regressive trends in women’s economic participation. However, there is a possible solution: if female entrepreneurship training programs encouraged women to start businesses in the tech field, perhaps it would continue to advance gender equality. Not only would this create more jobs in a sector of anticipated growth, but it may also have a domino effect on women in tech, facilitating the employment of increasing numbers of women in STEM careers. How would this work? First, women need other female role models and mentors in their field. Seeing women in STEM careers would encourage the recruitment and retention of additional women to such positions – whether as an employee in a female-owned SME or a larger corporation. Studies show that interactions with female STEM professors shift gendered stereotypes of STEM fields, encouraging women to identify such fields as more feminine than masculine. From this, it can be extrapolated that increased numbers of women would be attracted to STEM careers if they developed role models in those fields. Likewise, a study by researcher Yu Xie suggests that choice of role models is related to gender and therefore, "when women become successful in a field, the next generation of women is more likely to emulate their success." Second, in a Harvard Business Review article, researchers concluded that having only one woman in a pool of candidates inhibits her ability to be selected for a job. In contrast, the more women in the pool of candidates, the greater the likelihood a female candidate would be hired. While this seems like straightforward statistics, it is actually about reinventing the norm. One female candidate stands out as being different and "different" is often associated with greater risk for decision makers. The greater the number of female candidates, the more "normal" it feels to have women in the room. Lastly, it is crucial to return to the financing gap faced by female entrepreneurs. While advances in technology have the potential to reduce the $285 billion financing gap as more people turn to mobile banking, a Goldman Sachs study points out that men often adapt faster to new technologies than women do. If investors and governments specifically sought to finance female-owned tech SMEs, the impact would be twofold: more women would be encouraged to join the tech field, and those women might be more sensitive to the needs of other women when devising new tech products and services. We need more female-owned tech SMEs to increase female role models in the field; to train women in this sector, so as to increase the pool of female candidates in STEM; and to develop gender-sensitive technologies. Otherwise, fields dominated by men will continue to grow, while those dominated by women will continue to shrink. If we do not encourage female entrepreneurship, specifically in the tech sector, women around the world will remain a vastly untapped resource in the twenty-first century economy.

This post was co-written by Sagatom Saha, research associate for energy and foreign policy at the Council on Foreign Relations. Recent headlines from the solar energy industry have been bleak. SunEdison—a solar developer which just a year ago aspired to join the ranks of multinational oil companies as an energy “supermajor”—declared bankruptcy in April, after wiping out $9 billion in market value. And the share prices of Yieldcos, the financial vehicles which promised to tap vast capital markets to finance renewable energy projects, have plummeted as well. Last year, I wrote that Yieldcos’ aggressive growth targets and financial model made them vulnerable to the vicious downward spiral that has played out. But as the focus of the industry moves beyond Yieldcos, another example of financial engineering could take center stage. Solar securitization, which dices, bundles, and sells loans for distributed solar projects to deep-pocketed investors, follows a tried-and-true model used to finance everything from cars to home mortgages. In a new MIT Energy Initiative Working Paper, Frank O’Sullivan and Charlie Warren assess the emerging class of residential solar asset-backed securities (ABS). They conclude that this approach has the potential to bring substantial low-cost capital to fuel residential solar adoption, but the model will need to evolve to surmount existing barriers. In particular, securitization could take off if smaller companies get involved and better data emerges to de-risk solar investments. Familiar But Exotic Securitization is probably most well-known for causing a massive recession in 2008, when the subprime mortgage bubble burst and investors realized that securitizing bad loans did not magically extinguish risk. Fortunately, solar securitization so far looks much safer, since the underlying loans are to consumers with much higher credit scores. Although securitization has been around since the 1970s, solar securitization is relatively new—solar companies have only performed seven rounds of securitization, and the first one was in 2013. Still, all of these rounds look very similar to securitizations for other asset classes, like auto, home, or student loans, the authors explain: The solar ABS transactions to date adhere to the general framework of most securitizations, with some important exceptions. Solar ABS use a standard legal structure—the special purpose entity—to combine thousands of rooftop solar systems generating monthly cash flows. Importantly, the special purpose entity is a limited liability company, which is designed to mitigate bankruptcy risk between the solar provider (the originator) and the issuer of the solar ABS. The special purpose entity then issues new debt securities based on the cash flows from the solar leases/PPAs or loan payments. Fixed income investors buy the solar ABS and receive the interest payments. The big payoff from securitization is access to low-cost capital from deep-pocketed institutional investors. In theory, this would allow solar companies to accelerate the pace of solar installations and increase the size of the U.S. residential solar market. The results from the seven securitizations to date are promising—investors have agreed to purchase securities at reasonably low yields of ~4–6 percent (see table below, copied from the MIT paper). Solar ABS Transactions, 2013-2016   Still, the authors note, there are a couple twists: While solar securitization shares many similarities with other ABS, the structures have two specific nuances. First, tax equity investors are crucial because solar providers need to monetize the ITC. However, tax equity’s role in, and capital structure position among other investors, becomes more complicated during solar securitizations. Whereas tax equity investors are usually the senior claimants on the cash flows from the projects, securitization involves another class of investor seeking equally predictable returns: fixed income. Another feature of solar securitizations is their liquidity, or lack thereof. There is little trading of existing solar ABS, indicating a “buy and hold” strategy from institutional investors. The exact number of existing solar ABS investors is not public, but the available data point to relatively small numbers. For instance, Sunrun’s only securitization involved 19 investors according to company presentations. Solar ABS are, after all, esoteric and relatively small, with no issuances above $202 million to date. Asset-Backed Insecurities? Those quirks of solar ABS hint at the barriers that this emerging asset class will have to overcome to fuel rapid growth in residential solar. The authors of the MIT paper cite four in particular: Not enough companies may offer securitizations. To date, only two companies (Solarcity and Sunrun) have performed securitizations. These companies have the scale and diversity of projects to do so on their own, because securitization needs to be done in large chunks to attract institutional investors who avoid small transactions. Public policies could change. The economics of residential solar depend heavily on the method by which solar is compensated by a utility. In many states, solar benefits from “net metering,” which allows a consumer to sell excess solar power back to the grid at the retail rate. Some states—notably Nevada—have started to roll back net metering, raising the specter of reforms elsewhere (Nevada’s February 2016 decision helps explain why the yield on Solarcity’s ABS jumped nearly two percentage points between August 2015 and March 2016). On top of the state policy uncertainty, federal policy could change as well, especially if the IRS makes it more difficult for tax equity investors to invest alongside ABS debt investors. Interest rates could rise. Low yields for solar ABS depend on low underlying interest rates. But if the Federal Reserve continues to tighten rates in coming years, solar companies could see the cost of capital that they can raise through securitization increase. Moreover, worsening market conditions can increase yields on corporate bonds that also could increase solar ABS yields. Solar could become very cheap. This hardly sounds like a risk, but it is in fact an important differentiating risk from other ABS classes. If solar power continues to fall in cost, solar installations might have low “salvage” value in the case of a consumer loan default. From Esoteric to Mainstream Many of those barriers are out of the industry’s control. But the MIT report’s authors suggest one way for the industry to accelerate securitization, especially because ABS currently account for a tiny fraction of the overall U.S. residential solar market: One such option would be to combine transactions from multiple solar providers into a single structure, commonly known as “pooling.” Pooling securitizations across solar providers offers two opportunities in theory. First, smaller and medium-sized developers account for approximately 40 to 50 percent of the existing residential market by installed capacity. There are cash-producing, long-term contracted, and credit-worthy assets already deployed across the United States. Solving the supply problem on solar ABS could be accomplished not only through more securitizations from existing players, but also by expanding the range of originators. Second, other players in the solar ABS market would benefit from its expansion, including banks and rating agencies conducting additional transactions and applying best practices to date. If incentives are well aligned, expanding solar ABS to a new installer base could also have the added effect of increasing solar deployments writ large. In addition, the industry can improve the availability of data to reduce the risk perceived by investors. I spoke with representatives from kWh Analytics, a company that has built a database of 70,000 operating solar projects around the United States. They stressed that databases—for example of consumer credit—have de-risked other asset classes, and the same now needs to happen for solar. If solar companies can back up their projections of solar installation performance with hard data, investors may purchase solar ABS on more favorable terms (e.g., at a higher advance rate, which is the ratio of the debt raised to the underlying collateral. The 75 percent solar ABS advance rate is well below the 92 percent advance rate for autos and 99 percent advance rate for mortgages). And in the process, solar ABS might go from esoteric to mainstream.   Read the full MIT report here. For further reading/listening, check out Greentech Media’s excellent podcast on solar securitization here.