The federal government and
private industry are both reducing their investments in energy
research and development (R&D) at a time when geopolitics,
environmental concerns, and economic competitiveness call instead
for a major expansion in U.S. capacity to innovate in this sector.
Although the Bush administration lists energy research as a
“high-priority national need” and points to the recently passed
energy bill as evidence of action, the 2005 federal budget reduced
energy R&D by 11 percent from 2004. The American Association for
the Advancement of Science projects a decline in federal energy
R&D of 18 percent by 2009. Meanwhile, and arguably most troubling,
the lack of vision on energy is damaging the business environment
for existing and startup energy companies. Investments in energy
R&D by U.S. companies fell by 50 percent between 1991 and 2003.
This decline occurred despite numerous calls from expert groups
for major new commitments to energy R&D. A 1997 report from the
President’s Committee of Advisors on Science and Technology and a
2004 report from the bipartisan National Commission on Energy
Policy each recommended that federal R&D spending be doubled. The
importance of energy has led several groups to call for much
larger commitments, on the scale of the Manhattan Project of the
1940s.
A comparison with the pharmaceutical industry is revealing. In
the early 1980s, energy companies were investing more in R&D than
were drug companies; today, drug companies invest 10 times as much
in R&D as do energy firms. Total private sector energy R&D is less
than the R&D budgets of individual biotech companies such as Amgen
and Genentech. The nation’s ability to respond to the challenge of
climate change and to the economic consequences of disruptions in
energy supply has been significantly weakened by the lack of
attention to long-term energy planning. The current energy bill is
a collection of subsidies without any such vision.
Comparison to previous major government research programs
suggests that a serious federal commitment to energy R&D could
yield dramatic results. Using emissions scenarios from the
Intergovernmental Panel on Climate Change and a framework for
estimating the climate-related savings from energy R&D programs
developed by Robert Schock from Lawrence Livermore National
Laboratory, we calculate that energy R&D spending of $15-30
billion/year would be sufficient to stabilize CO2 at double
preindustrial levels. This 5- to 10-fold increase in spending from
current levels is not a pie-in-the-sky proposal; in fact it is
consistent with the growth seen in several previous federal
programs, each of which took place in response to clearly
articulated national needs. In the private sector, U.S. energy
companies could increase their R&D spending by a factor of 10 and
would still be below the average R&D intensity of U.S. industry.
Past experience indicates that this investment would be repaid
several times over in technological innovations, business
opportunities, and job growth.
R&D investment is an essential component of a broad
innovation-based energy strategy that includes transforming
markets and reducing barriers to the commercialization and
diffusion of nascent low-carbon energy technologies. The economic
benefit of such a bold move would repay the country in job
creation and global economic leadership, building a vibrant,
environmentally sustainable engine of new economic growth.
Precedents for federal investment
For each of eight federal programs in which annual spending
either doubled or increased by more than $10 billion during its
lifetime, we calculate a baseline level of spending that would
have occurred if funding grew 4.3 percent per year (the 50-year
average historical growth rate of U.S. R&D). The difference
between the actual spending and the baseline during the program we
call extra program spending. We also examined the thesis that
these large programs crowd out other research and found that the
evidence for this contention is weak or nonexistent. In fact,
large government R&D initiatives were associated with higher
levels of both private sector R&D and R&D in other federal
programs.
Declining energy R&D investment
Since 1980, energy R&D as a percentage of total U.S. R&D has
fallen from 10 percent to 2 percent. Since the mid-1990s, both
public and private sector R&D spending has been stagnant for
renewable energy and energy efficiency, and has declined for
fossil fuel and nuclear technology. The lack of industry
investment suggests that the public sector needs to play a role in
not only increasing investment directly but also correcting the
market and regulatory obstacles that inhibit investment in new
technology.
Patent data confirms problem
Patenting provides a measure of the outcomes of the innovation
process.We use records of successful U.S. patent applications as a
proxy for the intensity of innovative activity and find strong
correlations between public R&D and patenting across a variety of
energy technologies. Since the early 1980s, all three
indicators—public sector R&D, private sector R&D, and patenting
—exhibit consistently negative trends.The data include only U.S.
patents issued to U.S. inventors. Patents are dated by their year
of application to remove the effects of the lag between
application and approval.
Highly cited patents offer hope
In the same way that journal citations can be used as a measure
of scientific importance, patent citation data can be used to
identify “high-value”patents. In the energy sector, valuable
patents do not occur randomly; they cluster in specific periods of
productive innovation. In each year, between 5 percent and 10
percent of the patents examined qualified as high value. The
drivers behind these clusters of valuable patents include R&D
investment, growth in demand, and exploitation of technical
opportunities.These clusters reflect both successful innovations
and productive public policies, and mark opportunities to further
energize emerging technologies and industries.
The fuel cell exception
One bright spot in the nation’s energy innovation system is the
increased investment and innovation in fuel cells. Despite a 17
percent drop in federal funding, patenting activity intensified by
nearly an order of magnitude, from 47 in 1994 to 349 in 2001, with
much of the activity driven by private sector investment fuelled
by rising stock prices. The relationship between fuel cell company
stock prices and patenting is stronger than that between patenting
and public R&D. The five firms shown account for 24 percent of
patents from 1999 to 2004. Almost 300 firms received fuel cell
patents between 1999-2004, reflecting participation both by small
and large firms.
Federal energy patents seldom cited
Patent citations can be used to measure both the return on R&D
investment and the health of the technology commercialization
process, as patents from government research provide the basis for
subsequent patents related to technology development and
marketable products. The difference between the U.S. federal
energy patent portfolio and all other U.S. patents is striking,
with energy patents earning on average only 68 percent as many
citations as the overall U.S. average from 1970 to 1997.This lack
of development of government sponsored inventions should not be
surprising given the declining emphasis on innovation among
private energy companies.
This article was originally published in Issues in
Science and Technology, Fall 2005 issue, pages 84 - 88.
http://www.issues.org/
Len Gould
11.17.05 |
Brilliant thesis, and
article.
Your statement:
"The lack of industry investment suggests that the public
sector needs to play a role in not only increasing investment
directly but also correcting the market and regulatory
obstacles that inhibit investment in new technology."
can certainly serve as the basis for a lot more inquiry,
the results of which I'm sure would be similarly fascinating.
Question: Do you agree there is an apparent relationship
vis timing of the fairly dramatic falloff in energy sector R&D
investment apparent in your graphs in the mid 1980's, the
ascendance of the concept of "deregulation" of energy
utilities, and the general "lurch to the right" economically
of the Regan era?
|
Daniel Kammen
11.19.05 |
Great question.
There are a number of features of the R&D drop off. Part of
it is likely to be that the peak in federal funding ($6
billion/year) had, by the mid-1980s, fallen back to pre OPEC
crisis levels. Low federal funding, as we laid out in the
paper, sadly leads to lower private sector investment due to
the degree to which private sector investment is so strongly
correlated with public sector spending. [The issue of private
sector funding and 'entrainment' with public sector spending
in the energy sector, which is very much NOT the case in areas
such as biotech...].
All that said, Len makes a key observation on the effects
of deregulation. There is no question that the emergence of
deregulation played an important role in drop-offs in private
sector funding for energy R&D. The declines were not so
dramatic by the 1980s, but they were in the 1990s with
dramatic reductions in energy R&D at many invester owned
utiliteis (IOU), as well as declines in funds contributed to
EPRI. The early debates over deregulation were in full-swing
in the 1980s, and comparisons of IOU funding over a 20 year
period were dramatic. We detail some of these changes at:
http://socrates.berkeley.edu/~rael/papers.html#policy (see
the last paper by Kammen and Margolis).
What is quite interesting is that utilities have not only
reduced R&D spending, but they have also shifted where the
funds go: with growth in demand-side management, and declines
in not only basic R&D but also in transmission and
distribution. |
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