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Workers examine panel at a factory in China, a leader in solar panel manufacturing Wang Xiaochuan/Xinhua/Sipa

Barack Obama's plan to pull the country out of recession has a strong green hue. Conventional wisdom says Washington won't have the stomach or the dollars to tackle long-term issues like climate change or dependence on foreign oil when the economy is in the tank and oil prices have plunged. Wrong conclusion, Obama says. These problems, "left unaddressed, will continue to weaken the economy and threaten national security," he said on Nov. 18 in a video message to a climate summit meeting in California.

His fix? Obama plans to set ambitious targets for reducing emissions that cause global warming—and to invest $15 billion or more per year in energy efficiency, renewables like wind and solar, biofuels, nuclear power, and "clean" coal. Beyond the environmental benefits, says the President-elect, the investment "will also help us transform our industries and steer our economy out of this economic crisis by generating 5 million new green jobs that pay well and can't be outsourced."

Whether or not a "green" stimulus will create millions of American jobs is hotly debated by economists. On the one hand, the seeds of the transformation have already been planted thanks to market forces, such as overall higher energy prices, and government policies like tax credits for renewable energy. But there are also major questions. Many executives and experts say the most effective policy to push America toward a clean, efficient energy future is putting a price on emissions of greenhouse gases like carbon dioxide, thus raising the price of energy. That's a tough sell now to Americans struggling to pay their bills. There's also a danger that the government could steer investments to the wrong technologies. Remember synfuels, President Jimmy Carter's experiment to reduce dependence on foreign oil? Most important, a green stimulus plan from Uncle Sam may end up sending billions of dollars to foreign companies instead of to Main Street, since the U.S. lags in such crucial industries as solar panels and wind turbines. Will green technologies become today's VCRs and flat-panel TVs, invented in the U.S. and commercialized elsewhere?

But the fear of enriching overseas companies simply makes a green stimulus more necessary and urgent, proponents argue. Without a plan like Obama's, which would expand U.S. markets for new technologies, American companies may fall even further behind. Michael R. Splinter, CEO of Applied Materials (AMAT) in Santa Clara, Calif., is a believer in the need for government support. Splinter has seen his business of supplying equipment for factories to make solar panels soar beyond his wildest projections. But 97% of the company's equipment goes to foreign manufacturers, who then sell panels in the U.S. It seems like the U.S. has "given up on manufacturing," Splinter laments. "Right now we are on a path to being a second-tier player in clean energy technology."

A plan like Obama's could turbocharge American industries, Splinter and other executives say. Why have European companies become world leaders in wind and solar power? Because a number of governments guarantee that anyone who supplies renewable power to the electric grid will get a premium price for that power. That cost is then passed along to customers.

POLITICAL LAND MINES

Similar incentives could work magic in the U.S., says Lester Brown, president of the Earth Policy Institute. America already has a vibrant green-energy sector, so the transformation could be rapid. There are upward of 3 million Americans employed in green jobs, ranging from renewable-power startups to businesses with products that reduce waste and pollution or boost energy efficiency.

And even when goods come from foreign companies, some of the jobs will be in the U.S. One growing trend is for European and Asian manufacturers to build factories in America so they can be closer to what promises to be the world's largest market.

By Steve LeVine

By the autumn of 2001 it looked as if Peter Diamandis' luck had run out. Five years earlier, the wonkish Bronx-born doctor with dreams of being an astronaut had made headlines by promising to pay $10 million to the first privately financed crew to fly into space. He saw the jackpot as a way to spur a private space industry, as well as a means to generate some business for himself and perhaps even a ride to the moon. True, Diamandis had nowhere near $10 million, but he already had set up a nonprofit organization, X Prize Foundation, to run the contest and thought he could raise the money easily from corporate patrons. He was wrong. No one was willing to give away that much cash, particularly after the September 11 terrorist attacks. The contest appeared on the brink of collapse.

Today the 47-year-old Diamandis is often hailed as a visionary. After securing funding, his handsome offer ended up prompting a hoped-for space race, with Diamandis awarding the $10 million in 2004 to a team bankrolled by Microsoft (MSFT) co-founder Paul Allen. Since then, X Prize Foundation has started three more challenges—for super-efficient cars, human genome sequencing, and lunar space flight. Diamandis and his staff now are evaluating ideas from would-be sponsors for competitions on such causes as improving health care and promoting clean energy. If the ideas are promising, the foundation would then draft rules and solicit entrants.

GENIUS AT RAZZMATAZZ

His X Prize, moreover, has become a template for organizations, companies, and even the federal government. The format: Announce an attention-grabbing goal, find a benefactor who'll put up the prize money or pay for it yourself, wait as the brightest minds race each other to come up with the answer, and then bask when you declare a winner. Today there are dozens of copycat contests in the U.S. and Europe for everything from curing Lou Gehrig's disease to solving age-old math conundrums. Awards run from $75,000 to $50 million.

But as contests have proliferated, so, too, have questions about their ability to push forward the boundaries of technology. Are they better at yielding breakthroughs than traditional research and development? Can Lotto-size payouts solve monstrously complex problems? Or are they a fad that stokes vanity-driven entrepreneurs focused on smaller-scale challenges?

Diamandis, not surprisingly, predicts that cash competitions will resolve some of "the world's grand challenges." When he proposed a prize for space travel, he recalls, "a lot of people also told me it was a stupid idea and that no one could win it." But he concedes there are problems that you can't simply "throw a prize at." And at least some scientists see contests as ultimately immaterial in their fields. Richard Gibbs, director of the Human Genome Sequencing Center at Baylor College of Medicine in Houston, notes that researchers have made huge advances in understanding DNA without the lure of a sweepstakes. "The X Prize is cute," he says, "but is not really the driver." Still, he and others say what's the harm if contests generate excitement about science.

Diamandis is an unassuming yet intense plug of a man with a broad smile. Dressed in a black blazer with pointed lapels and black shirt open at the neck, shirttails out, he displays the Space Age paraphernalia that fills his office within the foundation's spacious new headquarters in Playa Vista, Calif.: a portrait of actor William Shatner from his Star Trek days, models of various space vehicles, and a sword commemorating Diamandis' own victory in a big contest, the $500,000 Heinlein Prize in 2006 for contributions to the commercialization of space. A large component of the X Prize is Diamandis' genius at razzmatazz. It helps that the founder's own story resembles a parable of the triumph of persistence.