Part of AEI’s Center for Technology, Science, and Energy’s (CTSE) Science, Industry, and the State Project
Key Points
- Market and system failures have long impeded private investment in US energy innovation. Nonmarket competition from China has recently added new impediments.
- A robust federal energy innovation policy that deploys an array of fiscal, regulatory, information, trade, and other tools can overcome these obstacles. These tools have been used piecemeal in the past but must be used systematically and strategically to be successful in the future.
- Federal energy innovation policy will be most effective if it is relatively narrowly focused, concentrating scarce innovation resources and limited executive authority on a few big opportunities.
Executive Summary
Vannevar Bush left an enduring image in science policy of an unsettled frontier that could be explored at the research community’s leisure. That image has often misled policymakers in the past, and it is particularly misleading for those who seek to mobilize American innovators to tackle today’s energy and climate challenges.
A variety of market and system failures impede the translation of technological opportunities developed in the United States into energy innovations that will achieve national goals for security, affordability, economic growth, and environmental protection. These impediments include environmental externalities, knowledge spillovers, market power, coordination failures, uncertainty, and perceived risk. Fortified Chinese “settlements” on the energy innovation “frontier,” made possible by Chinese government policies and business strategies, add another layer of impediments to US energy innovation.
The federal government has the power to enable US innovators to more effectively contest the frontier. Federal fiscal, regulatory, information, trade, and other policy tools have been used in a piecemeal fashion to advance energy innovation in the past. These tools must be deployed systematically and strategically if energy innovation policy is to effectively address all the barriers in the future.
Enacting and implementing such a policy is difficult due to the fragmentation of federal policymaking. The scope for effective policy is further narrowed by extreme Chinese first-mover advantages in specific areas. These constraints may be accommodated by focusing energy innovation policy on a few domains that are most important, promising, and consensual. Such focused forays could yield large dividends if they are informed by a deep understanding of technological opportunities, market dynamics, resource constraints, and social and geopolitical forces. Adopting a targeted approach has risks, but at least it would avoid the nostalgic trap of believing the United States can explore an endless frontier at its leisure.
Introduction
Vannevar Bush is the hero of the founding myth of US science policy. Bush mobilized high-tech companies, federal science bureaus, and academic institutions—what we would today call the “innovation ecosystem”—to create a panoply of new tools of warfare, culminating in the ultimate weapon, the atomic bomb. Bush, the story goes, then codified what he had learned in Science: The Endless Frontier, his 1945 report to the president.1 All that was left to his successors was to implement this heroic vision.
Vannevar Bush’s Misleading Legacy
The myth has been debunked many times.2 Yet it endures, thanks to not only Bush’s extraordinary wartime accomplishments but also the vivid imagery of his postwar work. In April 2025, Michael Kratsios, the director of the White House Office of Science and Technology Policy, invoked Bush’s legacy. “The American pioneer spirit,” he said in an address at the Endless Frontiers retreat, “still seeks the exploration of endless frontiers.”3
The frontier image captures something true about basic research. It can be a foray into the unknown that returns confirmatory facts and perplexing anomalies. But the image also misleads, as Roger Pielke Jr. and others have pointed out.4 Much of what early American colonists considered the frontier was already settled and familiar to the native populations. Where European pioneers encountered powerful Native American civilizations or European rivals, the frontier was a zone of conflict rather than exploration.
This second image of the frontier captures something true about technological innovation. Even as they grapple with technical and practical challenges, innovators must frequently wrestle with entrenched incumbents, who seek to limit access to the frontier, and competitors, who may have arrived from a different direction. Kratsios acknowledged this truth, offering “a strategy of both promotion and protection.”5 (Emphasis in original.)
While the discovery of anthropogenic climate change fits the first image of the frontier, the pursuit of technological solutions to it more often fits the second, more conflictual image. Innovators developing clean energy technologies have long battled the many beneficiaries of unabated fossil fuel use. More recently, new competitors from China have settled the energy innovation frontier, sometimes building fortresses that control vast and growing swaths of territory.
If American innovators are to make substantial headway in this contested territory, policymakers must abandon the myth of the “endless frontier.” Energy technology pioneers need accurate and up-to-date maps, the means to explore and build quickly, and recourse to alliances and defenses to shore up vulnerable positions. Merely provisioning the wagon train and setting it on its way—funding basic research and supporting startups—will rarely lead to durable progress.
The federal government could use an array of tools to carry out an innovation policy fit for today’s semi-settled energy technology landscape. These tools—fiscal, regulatory, informational, and diplomatic—have been deployed piecemeal over many decades. They have not been used systematically and strategically to enable creation, demonstration, commercialization, and scale-up of new energy technologies in the face of state-supported international competition.
The barriers to enacting, implementing, and sustaining such a policy are not merely metaphorical but institutional and political. These barriers might be lessened, but they are not likely to disappear. Policy must be designed with them in mind. Relatively narrowly focused forays that concentrate scarce innovation resources and limited executive authority on a few big opportunities are less likely to run aground than an expansive approach that seeks global leadership across the energy technology landscape.
These policy themes are developed in this report. The argument begins by linking innovation with national energy and climate goals. The following section explains how market and system failures impede private innovation investments and activities. The next section brings Chinese competitors, who operate largely outside a conventional market framework, into the picture. The following two sections describe the key tools in the US energy innovation policy kit and the challenges to wielding them effectively, illustrating them with historical examples. The next section sets forth the concept of focused forays and analyzes the second Trump administration’s civilian nuclear energy policy in this light. A brief conclusion wraps up.
Security, Affordability, Economic Growth, and Environmental Protection: Goals for US Energy Innovation Policy
Energy is a worthy focus for federal policymakers. It underpins every aspect of daily life: housing, food, transportation, work, and even leisure and culture. Reliable access to energy at an affordable cost is taken for granted in the United States. The energy system meets most Americans’ expectations most of the time. But when it doesn’t, crises ensue: blackouts and panic at the pump.6 Elected officials sometimes lose their jobs as a result.
To avoid such extreme outcomes and continually improve living standards incrementally, energy policy should focus on four goals: security, affordability, economic growth, and environmental protection. Energy innovation can and should contribute to all four.
Security concerns about Middle East oil long dominated the US energy policy agenda. The shale gas revolution, a product of federal energy innovation policy and private entrepreneurship, eased these worries and enabled the United States to become the world’s largest producer of oil and natural gas. Russia’s invasion of Ukraine and renewed Middle East conflict have recently rekindled these historical energy security concerns, while cybersecurity has emerged as a new focus.7
Affordability has surged back into the public consciousness, despite the growth of domestic fuel supplies. Increased US exports of liquefied natural gas have raised domestic prices. Electricity rates have also been rising, and the build-out of data centers for artificial intelligence will continue to add upward pressure. Some analysts believe electricity will be “the new price of eggs” influencing upcoming elections.8
Secure and affordable energy creates opportunities for economic growth in both producing and consuming sectors. The growing shale gas industry fed a growing petrochemical industry in the early part of this century. Renewables and energy storage have become growth engines more recently. Innovative nuclear and geothermal startups may replicate this feat in the coming decades. Trillions of dollars of investment are at stake each year globally.9
Finally, minimizing the environmental consequences of energy production and use is an important policy objective, to which innovation can contribute. The development and application of pollution-control devices, for instance, have largely cleaned up smog and acid rain from coal and gasoline combustion in the United States. Energy-related greenhouse gas (GHG) emissions are key targets for innovations that will help protect human societies and the environment from climate change worldwide.10
Market and System Failures: Conventional Barriers to Energy Innovation
The energy market is enormous, home to some of the world’s largest and most capable firms. Private firms, however, will not innovate to a socially optimal degree, nor will they advance social goals without policy incentives and sanctions. The economic theory of market failure helps explain why: Markets do not properly price the benefits and costs of innovative goods and services. Innovation systems theory provides a complementary framework: Markets do not perform key societal functions that underpin innovative activities. Market and system failures plague energy innovation and inhibit the achievement of national goals. Public policy can, in principle, address both.11
The best-known market failures are environmental externalities and knowledge spillovers. Markets do not price pollution, which means market participants have no incentive to innovate to control it. Innovation policies like well-designed regulations and taxes may create this incentive. Markets also have trouble putting a price on new knowledge, because the benefits it creates are uncertain and spill over from the creators to other parties. Public funding of openly published research is one policy that addresses this market failure.12
Incumbent market power may also discourage energy innovation. Owners of energy technologies with large economies of scale, such as power plants and grids, have weak incentives to innovate because new entrants have difficulty entering their markets. The size and prominence of such asset owners may also give them political influence that further discourages competitors. Price and entry regulation, if well administered, may overcome these barriers to innovation.13
Coordination failures are another set of obstacles to energy innovation. The complexity and interdependence of many energy systems frequently constrain change. Many parties must coordinate technically and share risks and costs for innovations to take root. Hydrogen-based energy systems, for example, will need low-cost production methods, new forms of transportation, and innovative end uses to develop simultaneously and at scale if they are to displace existing systems. The US Regional Clean Hydrogen Hubs program is seeking to create such systems, with some difficulty.14
Market and policy uncertainty may also impede energy innovation. Uncertainty particularly discourages large investments that take many years to yield returns, such as in “hard tech” business startups and capital-intensive industrial projects. The probability that conditions may deteriorate while these ventures reach maturity raises the risk premium that investors demand. Policy uncertainty has risen in recent years, as partisan shifts have led to wide swings in spending, taxation, and regulation.15
A final set of obstacles to energy innovation involve public perceptions of risk. Energy users may fear disruption if innovations do not perform as their proponents promise. Residents who live near large energy facilities may perceive that the harms on their communities will outweigh the benefits. Such perceptions may slow adoption and spark regulatory and legal challenges that raise the cost of or flatly prohibit innovation.16 Wind power, solar power, nuclear power, and hydraulic fracturing are among the many technologies that face such challenges.
These barriers in various combinations compose the “valley of death,” a metaphor nearly as hoary in the innovation policy field as “endless frontier.” It captures the difficult passage that would-be innovators strive to traverse from proof of concept to large-scale adoption. While many energy innovations should fail on the merits, some that deserve to survive—those that could outperform the incumbents on one or more key metrics if debugged, refined, and scaled—never have the chance to prove themselves.
Energy innovation policy should seek to give innovators this chance. The United States’ energy innovation system has many strengths, among them a rich knowledge base, a dynamic culture of entrepreneurship, and deep and diverse sources of capital. A successful policy would further unlock these capabilities by resolving, or at least reducing, market and system failures.
China Risk: Fortified Settlements on the Energy Innovation Frontier
The conceptual frameworks of market and system failure largely assume rational action in a closed economic system. Even if federal policies redressed these failures, large barriers to energy innovation would remain, because these two assumptions do not always hold. Much of the US energy system is not closed but open to international forces, and many actors influencing that system do not always act in an economically rationally manner. State-owned oil companies abound, for instance, and they frequently exercise monopoly power and advance geopolitical goals at the expense of profit maximization.
These petroleum behemoths’ impact is far less consequential for US energy innovation, however, than new entrants in emerging sectors from China are. Chinese energy technology firms are often privately owned, but they receive direct and indirect government support. This enables them to grow rapidly and often innovate. Government support is not necessarily coordinated across the central, provincial, and local levels or even among central government ministries. Indeed, vast sums appear to be wasted. The lack of coordination and profligate spending help keep weak firms alive, drive down prices and profits, and encourage excess capacity, which finds a key outlet in export markets. Yet despite its many flaws, the system has given China enormous first-mover advantages in some large, rapidly growing sectors.17
The solar photovoltaic (PV) manufacturing industry is a good example of these dynamics. The industry’s core technology was invented in the United States in 1954 and was initially applied, at very high cost, to satellites and spacecraft. After the United States’ interest in solar power waned in the 1980s, German and Japanese firms took leadership.
Chinese manufacturers entered the market in the 2000s with support from lower levels of government. As these new entrants found success, the central government swung into action, designating solar PV manufacturing a “strategic emerging industry” in 2010. By 2011, China made 60 percent of the world’s solar cells. Today, Chinese firms dominate all stages of the solar PV supply chain, which has grown tenfold in the past decade. Yet their profits have been thin at best. Brutal competition at home and abroad has not winnowed the field as it would have in a freer market. The use of forced labor in China’s solar supply chain further distances the industry from Western standards.18
Subsidized Chinese competition decimated solar PV manufacturing in the rest of the world. Leading producers in the United States, Germany, and Japan exited the business or went bankrupt. The United States and other Western governments were unable or unwilling to sustain or protect them. Promising technological pathways that might have allowed US firms to leapfrog Chinese competitors were abandoned because the innovators lacked revenue to fund research and development and scale-up.
First Solar, the sole US survivor in the industry, is the exception that proves the rule. In addition to developing a unique core technology, cadmium telluride thin-film PV cells, it diversified beyond manufacturing and maximally leveraged limited policy support to stay alive. China’s commanding position has discouraged all but the hardiest venture capitalists from funding domestic solar PV manufacturing startups over the past decade.19
Lithium-ion batteries and electric vehicles, the other two pieces (along with solar PV) of Chinese President Xi Jinping’s “new trio” of manufacturing industries, are following a similar trajectory. (See Figure 1.) They were invented and commercialized outside China but have been fully indigenized by Chinese producers, benefited from enormous subsidies, and been refined and improved as a result. They are now subject to excess capacity and withering price competition spilling over into the global market. These stories are still unfolding, and the parallels are imperfect, but there is a risk that the outcomes will echo those in solar PV. Tesla CEO Elon Musk put it this way: “Frankly, I think, if there are not trade barriers established, [Chinese electric carmakers] will pretty much demolish most other companies in the world.”20
China’s central government is already looking beyond the new trio. This emerging “ElectroState” has built out an advanced power grid and is building more new nuclear plants than any other country, in addition to its massive investments in renewables. It announced 148 “National Demonstration Projects” in 2024–25, across energy storage, energy efficiency, low-carbon industrial processes, carbon capture and sequestration, and grid operations in addition to power generation. Chinese scientists and inventors dominate measures of publications and patenting in many fields of energy technology.21
Kratsios’s admonition that policymakers attend to protecting as well as promoting innovation should be recalled here. Far from being an unspoiled wilderness beckoning the scientific explorers of Vannevar Bush’s America, the frontier of energy innovation is dotted with fortified Chinese settlements. China is rapidly expanding many of these outposts and erecting defenses to secure its control. The defenses include stocks of human capital, organizational capabilities, and intellectual property, which are familiar to Western analysts of science and technology policy, and some defenses that are less familiar, such as control of natural resource inputs and willingness to absorb massive financial costs.
Contesting the Frontier: The Disorganized Energy Innovation Toolkit
Although the scale and depth of the Chinese challenge is unprecedented, international competition to US energy innovators is far from new. Similarly, many of the market and system failures cataloged above have long been recognized by policy analysts. In response, federal policymakers have developed tools that have been implemented sporadically and in a largely uncoordinated fashion. If the United States is to contest the frontier and achieve key national goals in the next quarter century, the energy innovation policy toolkit must be better integrated and used more consistently.
Direct federal spending on energy science and technology dates back nearly a century and a half, to when the US Geological Survey began mapping natural resources. A century later, the energy crisis of the 1970s elevated the field to the top tier of federal priorities and prompted the formation of the Department of Energy (DOE). The investment quickly waned, however, when oil prices dropped precipitously in the following decade. It has fluctuated since and has never reattained the inflation-adjusted peak hit in 1978. (See Figure 2.) Such inconsistency creates uncertainty that mutes the impact of federal funding on durable private investments in physical and human capital, particularly in the face of patient Chinese investment.22
Federal energy innovation funding is siloed as well, limiting its impact on coordination failures in the private sector. Basic research, applied research and development, demonstration projects, and financial assistance for early adopters of new technologies are managed by separate DOE offices that have weak incentives to collaborate. (Tax incentives for early adopters, to complicate matters further, are managed by the Department of the Treasury with technical support from DOE.)
These offices (or their congressional overseers) typically view support for agencywide, crosscutting teams as detrimental to their core responsibilities. Some forms of coordination are expressly forbidden. For instance, large-scale, first-of-a-kind projects, such as new types of electricity generation and manufacturing plants, cannot receive both DOE grants and DOE loans or loan guarantees. Bureaucratic valleys of death thus sometimes compound those that exist in markets.23
Federal tax policies also shape energy innovation. Taxing polluters may induce pollution-reducing innovation, internalizing the environmental externality. Scrubbers that remove sulfur from the smokestacks of coal-fired power plants, for instance, were aided by a cap-and-trade program to reduce acid rain in the 1990s. Congress has rejected similar measures to reduce GHG emissions, instead opting to use tax incentives to reduce the costs of adopting specified energy technologies. The federal production tax credit (PTC) for wind energy, for example, has helped improve turbines since its introduction in 1992.24
Like DOE innovation spending, federal tax policy has been inconsistent and uncertain, a pattern exaggerated by partisan conflict. The wind PTC, to continue the example, has been in and out of the code over the years, removed most recently by the reversal in 2025 of policy enacted in 2022. In addition, tax incentives have sometimes subsidized static technologies, whose producers are not innovative, rather than targeting dynamic ones.
No systematic adjustment of incentives occurs as technologies mature and the innovation impacts of incentives wane. Legislators have recently sought to restrict incentives from flowing to Chinese manufacturers in several energy industries, but implementing these complex provisions has created confusion on the ground. Finally, tax policy is only sometimes aligned with spending policy. Integrating the two tools can amplify their effects, as occurred with hydraulic fracturing for natural gas extraction.25
Regulating prices and entry is a third tool in the energy innovation policy kit. Infrastructures like power lines and pipelines have long been seen as natural monopolies that must be regulated to ensure service and limit gouging. Regulatory responsibilities are shared between the Federal Energy Regulatory Commission and state public utility commissions. Regulatory “restructuring” in the 1990s added a set of regional entities that manage wholesale electricity markets to the mix.26
The impact of this patchwork of price and entry regulation on energy innovation is difficult to assess. Utilities in fully regulated states may be more inclined to take risks on new capital-intensive physical technologies like carbon capture systems and advanced nuclear reactors, because they can be confident that regulators will require ratepayers to give them an adequate return on these investments. Software innovations, however, which are increasingly important as distributed electricity generation and storage resources proliferate, do not necessarily receive parallel treatment and may therefore be adopted and improved more slowly. In regions and states where markets play a stronger role, entrepreneurs have greater opportunities to field new technologies, such as grid-scale batteries, but they confront the usual market failures when risks and costs are high. Overall, the US electricity grid, the most important infrastructure of the current era, suffers from coordination failures that constrain innovation and even rational planning, particularly when compared with grids in nations that have more centralized utility and regulatory structures.27
Environmental, health, and safety regulation also shapes energy innovation. Some pollution-control technologies, like catalytic converters for automobile engines, have been dramatically advanced through federal mandates. If, however, such technologies have not been “adequately demonstrated” (a term embedded in the Clean Air Act), regulation may instead stifle the regulated industry and, with it, innovation. The degree to which carbon capture technology for coal and natural gas power plants satisfies this criterion, and hence may legally be mandated, has been hotly debated in recent years. Federal investments in demonstration projects might resolve this issue, but they have not yet done so.28
The history of nuclear power is an extreme case of some of these dynamics. Civilian power plants spun out of defense investments in the nuclear navy in the 1950s and proliferated in the 1960s with support from the Atomic Energy Commission, which had both developmental and regulatory responsibilities. Public perceptions of the risks of nuclear power prompted the separation of these responsibilities in the 1970s. Heavy-handed regulation by the Nuclear Regulatory Commission (NRC) subsequently contributed to a multi-decade lapse in plant construction, stymieing innovation as well. Recent regulatory reforms, in combination with renewed federal investment, tax incentives, entrepreneurial ingenuity, and demand growth, may revive this technological field in the coming decade.29
The federal government’s roles as a large energy consumer and energy technology adopter, and its influence on others that play these roles, are additional levers that may influence energy innovation. Federal agencies may be more willing to take risks or may have specialized needs that create early niche markets for innovators. Green buildings, alternative-fuel vehicles, and renewable energy are among the technologies that agencies have targeted over the years, albeit with limited success. Once innovations have been proved, federal recommendations and standards may encourage or require federal contractors, state and local governments, and other market participants to adopt them. The federal Energy Star labeling program is an example of such a mechanism.30
Information dissemination and field building is a little-appreciated but surprisingly powerful tool for federal energy innovation policy. Federal program managers may serve as neutral conveners who enable coordination among diverse interests by facilitating knowledge exchange and future technology roadmapping. The Advanced Research Projects Agency–Energy incorporates this function into its program design. Test beds and user facilities, similarly, can provide trusted information that helps align industry players. DOE’s national laboratories may play these roles with facilities such as Pacific Northwest National Laboratory’s Grid Storage Launchpad and Idaho National Laboratory’s Advanced Test Reactor.31
International trade policy and diplomacy may also contribute to energy innovation, particularly by providing technology developers with relief from state-subsidized competition. Tariffs and quotas may neutralize unfairly low prices, enabling domestic innovators to acquire early customers and begin to scale up. Coordination with allies may further increase opportunities to scale and exchange knowledge and nurture diversified supply chains. Unfortunately, US trade policy has generally not been deployed strategically to advance energy innovation, being driven instead by legal proceedings and technical findings and yielding results like those observed in the solar PV industry.32
The federal energy innovation policy toolkit is sprawling. It might be used to ameliorate market and system failures and strengthen US innovators facing Chinese competition. But it has not been deployed in a consistent, integrated strategy designed to pursue these objectives.
The requisites of such a strategy are relatively straightforward. First, the appropriate tools that would address the specific policy challenges should be mobilized. Basic research funding will not aid growth companies facing predatory import prices, for instance. Second, policy tools should provide incentives and signals to the energy innovation ecosystem that are durable enough to induce investment in long-lived assets. The annual risk of revision, for instance, attenuates the impact of tax incentives. Third, policies should be calibrated to drive sustained innovation. Top-down regulation with fixed standards is one tool that tends to lock in the status quo and box out innovators. Finally, the toolkit must be deployed in a coordinated fashion. Lax trade policies that allow subsidized foreign competitors to bankrupt start-ups spun out of federally funded labs illustrate the costs of poor coordination.
Although these requisites may be easy to state, they are not easy to act on. Deep institutional and political factors help explain why a consistent, integrated energy innovation policy has long eluded the United States.
America Disjointed: Institutional and Political Obstacles to Effective Energy Innovation Policy
One set of institutional and political factors that inhibit energy innovation policy date to the United States’ founding. The Constitution requires that legislation pass both chambers of Congress and be signed by the president. It ensures that states wield authority independent of Washington. Additional barriers reside in the administrative state that was built in the 20th century, notably impeding control and coordination of federal agencies. These features deeply shaped recent policy outcomes.
In an era of divided government and narrow majorities, the contemporary legislative gauntlet typically yields one of two outcomes: stalemate or “Christmas tree” bills that offer something for nearly everyone. After a decade of stalemate, four major bills that included significant energy innovation provisions passed between December 2020 and August 2022: the Energy Act of 2020, Infrastructure Investment and Jobs Act (IIJA), Chips and Science Act, and Inflation Reduction Act (IRA). These laws did not enact a coherent strategy but, reflecting congressional norms, were instead an unwieldy mix of long-gestated ideas and secret, last-minute bargains.33
The IIJA, for instance, allocated over $25 billion to support large-scale energy technology demonstration projects, meeting a major policy challenge. Such projects are typically too large, complex, and risky for private investors to fund and would not be built without a federal cost share.34 Some of the technology areas specified by Congress for this portfolio, such as advanced nuclear power, point-source carbon capture, and long-duration energy storage, were ripe for such investment. Others, however, such as direct capture of carbon dioxide from the air and large-scale clean hydrogen production and use, were not. Some promising areas, like geothermal energy and biotechnology, were ignored. This inconsistent calibration reflected the chaotic legislative process.
The executive branch’s implementation of these bills, not surprisingly, bogged down. Handed difficult assignments by Congress, agencies like DOE sometimes lacked the administrative capabilities to carry them out with dispatch. The White House sought to achieve priorities like job creation and environmental justice in parallel with energy innovation, further complicating agency decision-making processes. Interagency coordination sometimes added more layers and sometimes failed, confounding industry expectations.35
DOE’s Regional Clean Hydrogen Hubs program is an extreme case in point. An $8 billion initiative inserted into the IIJA by Senator Joe Manchin, the powerful swing vote in that chamber, the program required complex coalitions of states, companies, research institutions, and other participants to be created, devise projects, and apply for awards of up to $1 billion. The ensuing review, award, and negotiations processes were subject to dozens of decision criteria. Even with DOE funding, many of the proposed projects would not be financially viable without a hydrogen PTC included in the IRA. Yet IRS regulations implementing this credit were not released until January 2025, stalling many projects.36
Such delays, whether intrinsic to the congressional mandate or the result of executive branch management failures, left energy innovation policy vulnerable to cutbacks after President Trump regained office and secured a legislative majority. Congress revised many of the IRA’s tax incentives in the 2025 One Big Beautiful Bill Act, while the administration pulled back unobligated funds, canceled awards, and revised regulations. Some incentives and signals that were expected to be durable during the Biden years, inducing hundreds of billions of dollars of private investment in battery, electric vehicle, and solar panel factories, proved short-lived instead.37
President Trump altered the energy innovation investment landscape further by stretching presidential authority to support incumbent interests. His administration ordered coal-burning power plants that were slated to close to remain open on an emergency basis, for example. It pulled federal permits from offshore wind projects nearing completion. It opened protected federal lands and waters to oil and gas exploration and seized control of Venezuela’s oil industry. Trump’s “energy dominance” vision centers on using oil and natural gas production and trade to exert geopolitical leverage.38
Not surprisingly, Trump’s assertion of extremely broad executive powers has begun to encounter resistance from other institutions. Congress rejected many of his proposed cuts to DOE’s research and development budget. Litigation has restored some canceled awards and projects. Many states are pushing forward energy agendas at odds with the current administration’s.39
Even so, Trump may have shown how a future president seeking to create a consistent, integrated energy innovation policy may counter some of the tectonic forces of institutional decentralization. In fact, although his administration’s policy focuses primarily on strengthening fossil fuel industries, it is also using expansive executive authority to try to reinvigorate the US nuclear power industry, including by offering support for innovations that could advance security, economic, and environmental goals such as reducing GHG emissions. This thrust has salutary features that could be incorporated into similar focused energy innovation policy forays in the future.
Focused Forays: Overcoming Institutional Fragmentation and Sidestepping Impregnable First-Mover Advantages
Focus is the most important feature in an effective federal strategy for energy innovation policy. An expansive innovation policy that seeks global leadership across the energy technology landscape will almost certainly run aground on political and institutional obstacles, as the Biden-era approach did. A focused approach would concentrate scarce innovation resources on a few big opportunities while in other domains encouraging rapid adoption of energy technologies that have been developed elsewhere. Expanded executive authority, even if pared back from its apogee in the first year of Trump’s second term, could strengthen collaboration across agencies and with other levels of government. Well-chosen objectives for these focused forays could mute the trade-offs among goals that engender conflict and dissipate momentum.
This approach also stands a better chance of overcoming Chinese first-mover advantages. Only sustained, focused presidential leadership of the executive branch, Congress, and the nation would mobilize the tens or hundreds of billions of dollars in public research and development and capital investment and the decade or more of concerted effort required to catch up (or stay ahead) in a major technological field. Focused forays would be easier to adjust and recalibrate as technological, geopolitical, and economic circumstances warrant during the catch-up period than frontier-wide efforts.
The flip side of leading is lagging: The United States would accede to Chinese (or other foreign) leadership in some fields. Such choices should be made deliberately and with a clear understanding of the relative risks to national goals. A comparison of batteries and solar PV, two of China’s energy technology strongholds, is illustrative. Batteries are increasingly vital for military systems, such as drones, as well as vehicles and power systems. Lagging in battery innovation could put national security at risk. Solar PV is a clean, low-cost electricity resource with limited national security applications. Substitutes for solar PV are available, and reliance on solar PV technology that is behind the innovation curve has only a marginal impact on other national goals.
The Trump administration’s nuclear power policy can, in a preliminary fashion, be assessed as a focused foray. Nuclear power is intimately linked to national security through its overlap with nuclear weapons. It is a high-density, low-GHG-emissions resource for electricity generation. Although the United States has a robust nuclear technology development industry, it has built only three commercial reactors in the past 40 years. China built 37 in the past decade and has 38 under construction, including the world’s first fourth-generation plant. Along with Russia, it dominates the global export market.40 (See Figure 3.)
The president’s goal, according to an executive order signed in May 2025, is “lasting American dominance in the global nuclear energy market.”41 Several of his international trade deals include commitments to invest in the US nuclear power industry. The administration has repurposed IIJA funding to support the Advanced Reactor Demonstration Program, retooled DOE’s loan program to concentrate on nuclear projects, accelerated reform of the NRC, and laid the basis for alternative pathways to put new designs into service through DOE and the Department of Defense, which is also using its buying power to pull innovative reactors into the market.42
This foray may be able to tap into bipartisan support. The Biden administration’s “Liftoff report” for advanced nuclear power offered a pathway to commercialize new technologies. Many of its components were embodied in bipartisan legislation, including tax incentives that were sustained in the OBBBA.43 Several Democratic state governors, like New York’s Kathy Hochul, have embraced the technology.44 Investors and large customers, notably AI data center developers, have committed or promised billions in private funding.45
Critics question whether nuclear power will become affordable, given the industry’s track record and workforce and supply-chain challenges. The administration’s commitment to nuclear innovation is diluted by its support for not only coal and natural gas power but also Westinghouse’s AP1000 design, a large reactor that was very costly in its first instantiation at Georgia’s Plant Vogtle. Small modular reactors that may prove more cost-effective in the long run will apparently have to compete for funding with such older designs. Staff cuts at the NRC and in DOE’s nuclear energy program may slow progress and could undermine the public’s already fragile trust in this technology. International partnerships that might bring expertise and experience, such as with South Korea, are threatened by the president’s inconsistency.46
Despite the promising environment for innovation in electricity generation technology created by surging demand, even a more focused, well-administered foray into the nuclear field would face obstacles. The demand forecast, especially at the regional level, is highly uncertain.47 Other innovative technologies, such as enhanced geothermal and grid-scale batteries, have shorter deployment timelines than nuclear plants have, as do mature fossil and renewable technologies. The US grid itself remains balkanized, with diverse and overlapping governance and market structures that hamper the build-out of transmission and distribution and create uncertainty about revenues for power generators.
If, as the International Energy Agency has declared, “the Age of Electricity is here,” the United States may be better-off using the tools mobilized by the current administration to pursue focused forays that advance technological opportunities better aligned with the fragmented grid it has. China, given its more centralized institutional structure and much younger infrastructure, has an easier path to becoming the world’s first “ElectroState.” Even if future presidents maintain some of the enhanced executive authority that Trump seeks to establish, that authority may be better invested in technologies that are more flexible and modular.48
Conclusion: A Different Kind of Frontier
Focused forays along the contested frontier of energy innovation have the potential to yield large dividends for the United States and the world. By using many tools in a set of integrated, well-targeted strategies, federal policymakers could advance the nation significantly toward achieving its energy security, affordability, growth, and environmental goals. Which domains these forays should pursue ought to be the topic of intense deliberation informed by a deep understanding of technological opportunities, market dynamics, resource constraints, and social and geopolitical forces. No determinative algorithm will specify a course of action. National leaders must weigh the options and make consequential choices in the face of uncertainty. Adopting a targeted approach has risks, but at least it would avoid the nostalgic trap of believing the United States can explore an endless frontier at its leisure.
About the Author
David M. Hart is a senior fellow for climate and energy at the Council on Foreign Relations and a professor emeritus of public policy at George Mason University.