Recently, the Information Technology and Innovation Foundation’s (ITIF) released its report, “Challenging the Clean Energy Deployment Consensus.” Provocative in tone, the report argues that a transition to a low-carbon energy system requires the development of new energy technologies that are much less expensive than the existing suite of clean energy technologies. The report concludes with several recommendations, including a recommendation to increase public investment in energy R&D to $15 billion annually—a target proposed by the American Energy Innovation Council in 2010 and referenced in Secretary of Energy Moniz’s Senate confirmation testimony earlier in 2013.
ITIF’s report emphasizes that the key to mitigating climate change is to make clean energy cheap enough to replace conventional energy without subsidies. This is important both for the United States to reduce its current emissions and for the world to avoid massive future emissions. Climate change is a global phenomenon, and energy consumption in developing countries will grow significantly as populations become more affluent. Unless clean energy is cheap enough to be deployed everywhere, this future demand is likely to be met in large part by fossil fuel energy sources.
ITIF suggests that, while deployment has driven clean energy costs down incrementally, only new technology breakthroughs will result in a level-change in the cost of clean energy, driving it low enough to displace conventional energy worldwide. In line with this, ITIF suggests that too much public investment goes toward clean energy deployment and not enough toward clean energy R&D, arguing that regulation and incentives on their own will not induce innovation in a significant manner or fast enough.
In our view, the first argument over-generalizes actual development pathways that various energy technologies have travelled. Technology breakthroughs do occur and make sudden changes in energy costs possible, but they are not the whole story. For example, as we reported in our R&D Case studies, while the development of jet engines was a real technology breakthrough, incremental improvements of the technology over decades enabled their unforeseen adaptation to electric power generation – and is part of the reason why gas-fired power is now so cheap. The other reason gas-fired power is cheap is because of the economical production of shale gas – a story of many incremental improvements in horizontal drilling and hydraulic fracturing that eventually led to a technology breakthrough. Similarly, breakthroughs in LED lighting were on their own not enough; years of incremental improvements in LED chip fabrication, light quality, and integration into lamps were just as critical for moving technologies to successful commercialization. While public investment in technology breakthroughs is critical for a clean energy future, public investment in the less glamorous incremental improvements to clean energy technology are similarly important.
The second argument discounts the contribution of deployment incentives. The costs of clean energy are comprised of three general categories: technology costs, non-technology business costs (often termed “soft costs”) and financing costs. Deployment incentives have stimulated new demand for clean energy, spurring manufacturers to ramp up production and attain economies of scale to meet this demand. These economies of scale are responsible for significant decreases in technology costs. Similarly, the increase in deployment activities has enabled businesses to gain new knowledge from their experiences and apply them to their operations. This “learning-by-doing” has enabled clean energy businesses to lower costs from installation, customer acquisition and other operations—efficiencies in cost that are transferable to new technologies as well. The learning-by-doing also applies to investors; increased clean energy deployment has generated track records of performance and forged deal structures that have unlocked new investment and reduced costs of capital for clean energy. While R&D can drive down technology costs, it is unclear what impact it can have on non-technology business costs and financing costs.
The lesson is not that we need invest in innovation OR deployment, but that innovation policies and deployment policies are most effective when they are designed and implemented in concert, strengthening the entire energy innovation ecosystem as a whole.
When the US government spurred the development of jet engines during and after World War II, no one guessed that decades later the same technology would be adapted for electricity generation. Today, gas turbine derived from jet engines–called “aeroderivative” gas turbines–provide flexibility for managing peak electricity demand and integrating increasing levels of variable wind and solar power. Aeroderivative gas turbines also power the world’s navies and have proven critical to oil and gas pumping operations. U.S. companies are not the only producers of aeroderivatives, but they are the largest producers, thanks to the long history of U.S. public investments and military-driven partnerships with industry.
Today, AEIC staff release a case study on aeroderivative gas turbine development, the fourth in a series of case studies that illustrate the various ways in which the federal government has played a productive and necessary role in energy technology innovation. Previously, AEIC staff released case studies on unconventional gas exploration & production, advanced diesel internal combustion engines, and low-emissivity windows. The series examines the various mechanisms that the federal government has used to successfully complement and enhance private sector energy technology innovation. In doing so, AEIC’s staff underscore how the federal government acts as a catalyst and instigator to private sector energy innovation.
AEIC applauds House Science leadership for emphasizing the value of publicly-funded R&D and technology transfer
Last week, the House Committee for Science, Space, and Technology’s Research and Technology Subcommittee released a discussion draft of proposed legislation entitled, “Innovative Approaches to Technology Transfer Act of 2013.” The draft text would authorize federal agencies to direct a part of their research budgets to universities, research institutes, and national laboratories for novel approaches to technology transfer. This is particularly important for the Department of Energy and its national laboratories, whose science and R&D activities have been a critical part of clean energy technology innovation. AEIC staff research has found that the national laboratories have had major past successes in using grants for proof-of-concept and small-business technology transfer, such as in low-emissivity window technologies.
AEIC endorses these efforts, as they recognize and realize the value of federally-funded basic science and technology R&D. The letter that AEIC principals sent to the Republican and Democratic members of Congress working on the issue can be read here.
At his confirmation hearing last week, Energy Secretary nominee Ernest Moniz told the Senate that the United States spends far too little on energy R&D. “We are underinvesting by a factor of three,” he said, directly citing AEIC’s previous statements. Indeed, although U.S. energy R&D has been growing in recent years, levels are still below their peak in the 1970s — and they’re set to drop in the years ahead. We’re spending less on R&D to develop various clean-energy technologies than groups like the International Energy Agency have recommended. Moreover, federal energy R&D is lower than what a variety of experts have argued is necessary to tackle climate change.
The article was written by Brad Plumer and can be read on the Washington Post Wonkblog.
In the last half century, American companies have developed the technologies and established the businesses that shape the world’s energy systems today. American companies have led in energy innovation in large part because they are supported by our federal government’s commitment to driving innovation. Acting as a catalyst or instigator, the federal government can quicken the cycles of discovery and invention.
As the American Energy Innovation Council outlined in its previous reports, Catalyzing Ingenuity and The Business Plan, private sector innovation cannot address our energy challenges on its own. Private markets generally do not exist for certain society-wide interests, such as ensuring long-term economic competitiveness, maintaining energy security, improving public health, or protecting the environment. Moreover, the private sector has tended to systematically under-invest in research and development relative to the societal benefits that could be realized through such investment, since businesses and investors cannot fully capture the value of their innovation. Markets will undoubtedly drive innovation, but they will so more rapidly when government addresses these twin challenges.
Today, AEIC staff release three case studies that illustrate the various ways in which the federal government has played a productive and necessary role in energy technology innovation. Staff research on unconventional gas exploration & production, advanced diesel internal combustion engines, and low-emissivity windows examine the various mechanisms that the federal government uses to complement and enhance private sector energy technology innovation.
Most often, the government plays the role of catalyst–speeding up activity that the private sector might have developed over longer periods of time. This role commonly takes the form of lowering risks of new technology to the private sector, such as through seed grants and cost-sharing of demonstration projects; creating incentives that reward use of new technologies and drive learning-by-doing, such as through tax credits; speeding diffusion of technical knowledge, such as through public-private partnerships and applied research and development; and standardizing information to help markets work better, such as through labeling and certification schemes.
Sometimes, the government plays the role of an instigator–creating new conditions that change the direction of private sector activity. This role commonly takes the form of creating new knowledge that market participants will not or cannot, such as through basic and applied research, and driving demand for private sector technology innovation, such as through direct procurement or performance standards.
In both roles, the government’s efforts are a complement to the private sector, not a substitute for them. An exhaustive history of each technology’s development would demonstrate that the private sector is the primary force translating ideas into products and markets; however, it is beyond our scope to recount these efforts in detail. Furthermore, these cases show that the dividing line between private sector and government efforts often blurs. For example, public-private partnerships generally utilize cost-sharing, generating R&D efforts that neither party on its own would undertake. Similarly, government funding of R&D through national laboratories and universities invests many young scientists and engineers with skills that they subsequently take to the private sector. In some cases, the government has been the biggest or the sole customer of particular energy technologies, resulting in collaborative effort with the private sector vendor.
Additionally, these case studies suggests we change our understanding of how energy technology innovation works.
Traditionally, technological innovation has been conceived of as “following a path,” starting with new knowledge and proceeding linearly through increasingly realized stages of research and development until reaching full realization of an intended end-product. “Basic” and “applied” research and development are generally synonyms for scientific research and technological invention, a convention that often demarcates the responsibilities of governments and markets. Commercialization tends to be presumed and considered as a follow-on process from innovation, rather than part of innovation itself.
These cases demonstrate that the preceding convention is incomplete. Throughout these cases, energy technology innovation does not often follow a linear path. Rather, diverse research and development efforts, often from previously unrelated domains, intersect to produce novel discoveries or inventions. Similarly, while the intended goals of particular innovations are important, the useful ends of those innovations are sometimes unpredictable. Failure to realize intended goals is common, but failures may still be productive, as successful innovations are sometimes difficult to identify until years or decades have elapsed. Moreover, new knowledge does not always precede new technology; the act of invention and learning-by-doing leads to further discoveries and informs scientific research. Commercialization is rarely automatic; economic, informational, and infrastructural barriers are often surmounted with supportive policies.
For these reasons, energy technology innovation should be thought of not simply as a specific intention realized through a particular program, but also as an emergent property of a vibrant R&D ecosystem. A productive and appropriate government role in such a system is not easily demarcated by either “basic” or “applied” work. Rather, the government’s role should be as catalyst and instigator of the cycles of discovery and innovation across diverse energy and technology domains.
The three cases are available on the staff research section of the AEIC website.
Republicans are praising a clean energy program supported by President Obama for a reason. ARPA-e is about catalytic funding of energy innovation–small grants that help develop promising new high-risk, high-reward technologies. ARPA-e’s employees themselves are on time-limited assignments, helping the agency avoid bureaucratic stasis that can affect other government R&D. And the funding is spread competitively to projects across the country in both universities and companies.
The article, written by Jim Snyder, can be read at Bloomberg Businessweek.
Today, the F.D.A. approved the first use of artificial retina technology to give limited vision to the blind. While some financing came from the private sector, major support for the development came from Department of Energy , along with other federal agencies. Specifically, through the Artificial Retina Project, DOE funded several national laboratories to work in multidisciplinary teams on dual-use technologies relevant to both DOE’s energy mission and the artificial retina technology. Who would have guessed that research on environmental sensing and biofuels would play key parts in letting the blind see anew? It stands as a testament not only to American ingenuity, but also to the game-changing pay-offs that federal investments in energy technology can produce. And it will undoubtedly mark the beginning of a heretofore completely new industry.
The article was reported by Pam Belluck and can be read at the New York Times.
Good times or bad, one must manage for the future. Discovery and innovation is the pathway there.
Our economy, prosperity and well-being have been driven by scientific discovery and technological innovation in ways that most people rarely think about. In the coming weeks, Congress has a decision to make that will determine if the partnership between government, universities and industry in scientific discovery and technological innovation will continue in the robust way it has in the past. Looming across-the-board budget cuts — known as the sequester — are set to significantly reduce vital federal investments in scientific research and development, and in STEM (science, technology, engineering and mathematics) education. These indiscriminate cuts may save money in the short term, but there will be a significant, long-term, irreparable price to pay if the U.S. government slashes its support for science and engineering and for those who pursue those fields. The authors urge Congress to allocate scarce funds in a manner that creates economic growth and security both now and in the future.
The op-ed, written by Richard Templeton, president and CEO of Texas Instruments, and Shirley Ann Jackson, president of Rensselaer Polytechnic Institute, can be read at Politico.
The US can and should take unilateral action on climate change because energy innovation is fundamentally valuable, regardless of what other nations do. Good energy innovation policy emphasizes basic and applied research at the pre-commercial stages. Government funding is worthwhile across a range of industries because returns from early-stage research are often too speculative and long-term to attract private investment, and because the knowledge created by breakthroughs is spread widely instead of being captured by the inventor. The US government has a strong track record of effectively funding this type of research, using relatively small sums of money in an apolitical way, such as with ARPA-E. AEIC agrees strongly that good innovation policy is the key to low-carbon future, although AEIC differs with the author about what good innovation policy entails.
The op-ed, written in the National Review by Oren Cass, can be read here.
The global clean energy marketplace is expanding rapidly, but with no clear, consistent, long-term national energy policies, American industry risks losing out to competition abroad. In their recently released report, Innovate, Manufacture, Compete, the Pew Charitable Trusts discusses the results of workshops held across the country with industry, academia, and other stakeholders. The report concludes that not only is policy uncertainty the overriding problem for clean energy investment, but also that lack of access to capital and long-standing subsidies to conventional energy sources are the main reasons that policy matters. They recommend that the United States:
- Establish a clean energy standard to guide deployment and investment for the long term.
- Significantly increase investment in energy research and development.
- Enact a multiyear but time-limited extension of tax credits for clean energy sources.
- Level the playing field across the energy sector by evaluating barriers to competition.
- Enhance clean energy manufacturing in the United States.
- Expand markets for U.S. goods and services.
The Pew Charitable Trusts report can be read here.