In a recent NY Times column (read for free), Thomas Friedman advocates a "Manhattan Project to develop energy independence."
The Manhattan Project was a project to develop a devastating new weapon. History has shown that government has a pretty good track record when it comes to military research. This may simply be because there's no genuine free market to compare it to. But there is no doubt that government has created a lot of pretty cool weapons, such as aircraft cariers, nuclear powered submarines, and of course nuclear bombs. And in a sense there is a competition between nations to develop the best weapons, so military research is akin to a few huge corporations competing against each other.
On the other hand, government has a really bad track record when it comes to economic investments. A huge government program to develop new sources of energy is guaranteed to become a huge political boondogle and a much bigger source of courruption than of energy. If 50% of military research is wasted money, closer to 90% of energy research would be wasted money.
The free market is especially capable of delivering the most economically efficient forms of energy to consumers. The reason why it's delivering us $3 per gallon gasoline is because at that price there is no better alternative.
When it comes to energy, government is more often the problem than the solution. Our government has been very stupidly encouraging the use of natural gas to generate electricity. This has been the absolute worst energy policy in the history of the United States. Natural gas is too valuable and scarce of a resource to waste on electricity generation when there are more plentiful sources of electricity such as coal and nuclear power. I have been writing about this in my blog for a long time, and if we have a natural gas shortage this winter (which looks to be a strong possiblity if it's a cold winter) I will be able to loudly proclaim "I told you so."