In Chapter 1 we describe the urgent challenges posed by the current U.S. energy system and make the case that accelerated innovation in energy technologies will be essential in meeting these challenges. In this chapter, we explore the question of determining the appropriate role for the U.S. government in fostering energy innovation. This is a complex issue because the U.S. energy system encompasses many functions (e.g., invention and discovery, R&D spillovers, economies of scale, clustering, learning by doing, deployment, etc.); government actions to facilitate innovation interact with private actors in many markets; there are a multiplicity of actors (e.g., national and regional public organizations, private firms, universities, consumers); there is deep uncertainty in future technology performance rooted in many factors (e.g., the rate of technological change, economic growth, energy prices, consumer adoption, etc.).

In this book we take a systems approach to the innovation process. The chapter starts by focusing on selected key government functions, and in Chapter 6, we integrate the analysis from this chapter with analysis and holistic recommendations that cut across the entire system. Our analysis in this chapter starts with the energy research, development, and demonstration (RD&D) investments of the U.S. Department of Energy (DOE) – the single largest public funder of energy RD&D in the United States. Despite the broader scope of DOE's jurisdiction, which we trace to its historical roots, we limit our analysis to only the department's energy RD&D funding activities. After describing DOE's current role investing in energy RD&D, we analyze how DOE makes decisions about its energy RD&D investments. We argue that a method to inform public energy RD&D funding decisions that allows for an integrated, consistent, and transparent analysis among competing technology areas is needed.