ARPA-E, the DOE's high risk, high reward R&D program, has been in the spotlight the past two weeks in light of recent successes and budget talks. The disparate news about the agency illuminates the Federal Government's broken approach to innovation. Just last week, the New York Times reported on the success of ARA-E funded programs in finding private capital, but just a week later Josh Freed has had to point out that without Congressional action the crucial agency will have to close shop.

ARPA-E was founded on the idea that technological innovation in energy is an imperative and that the government can play a significant role in helping the private sector thrive. By conducting potentially breakthrough research that the private sector deems too risky, the agency has the potential to open up whole new industries, just as DARPA did with the Internet and GPS. The idea is not a new one, and as Joshua Freed point out, it is rooted in bi-partisan support:

"In 1925, a conservative Republican Congress and President created the first federal aviation research agency. In fact, a Republican president oversaw the very model on which ARPA-E is based, the Defense Advanced Research Projects Agency (DARPA), an agency within the Pentagon created in 1958 in response to Sputnik."

Despite its history, ARPA-E will face the hyper-partisan atmosphere of the upcoming budget debate. It is important, at a moment where the mounting deficit has become a point of contention, to distinguish between spending and investing. ARPA-E is in the purest sense an investment in America:

 

"But what if that program was in fact an investment, one in which $300 million could bring much more in return? If it yielded even $1 billion it would be an enormously successful investment. This is exactly the promise that the Advanced Research Projects Agency (ARPA-E) holds for the United States."

So far the investment is paying off. As previously mentioned, the New York Times recently released a story on the success of the first round of funding. In late 2009 the agency distributed $151 million dollars for projects “deemed too radical or too preliminary to attract much private financing.” Over a year later, six of those have leveraged $108 million in private finance, four times more private investment than the amount of tax payer dollars given to those companies.

Yet even though the agency has been a success to date, its funding remains in limbo - a sign of our federal government's inability to provide sustained support for innovation. Just two years after ARPA-E received funding in the Recovery Act, and four years after the Bush Administration passed it into law unfunded, the agency is already fighting to stay alive. While the passage of the America Competes act in the lame duck session has renewed the DOE's funding authority for 2011, it still needs to receive funding in the upcoming budget if it hopes to keep running into next year. As an agency that is forced to operate on the necessarily long horizons of early stage research, having to scramble for annual funding undermines the very mission of the program.

To understand the importance of ARPA-E, and its continued support, is to get to the fundamental nature of innovation. Jonathon Rothwell and Mark Muro of Brookings Metropolitan, in a recent article for The New Republic, look to Thomas Edison, one of America's greatest innovators, for why the program is essential to American prosperity:

"The basic explanation is that the full value of breakthrough ideas cannot be fully captured by the inventor, and so there is under-investment in invention. Thomas Edison, who has more patents in his name than all but two men in history, went even further. While economic theory suggests that profits from invention are too small to justify adequate expenditure, Edison argued that revolutionary inventions were simply unprofitable.

An 1898 article in Scientific American laid out this view in his words, “The value of a patent to an inventor is directly decreased as the value to the public increases.” The problem, Edison said, is that the large value of breakthrough inventions attracted “infringers,” who reproduce the technology without having to spend the money on research and development. Freed from the burden of having to cover the costs of those initial investments, they are able to sell at a reduced price and undercut the inventor, while the lengthy legal process unfolds."

The world has changed since Edison's day, yet some problems remain the same. Globalization has created a world with no coherent framework for protecting IP rights - on top of this, scientific education, talent, and funding has diffused across the globe. Scientists and engineers today must compete with their colleagues all over the world, and not always on a fair playing field. Muro and Rothwell conclude, "By having the public pay some of the bill for the initial research and development, U.S. inventors can compete on a more even playing field with potential infringers from China or elsewhere."

ARPA-E is an investment in America's energy future, and should be understood as such. Like any profitable investment it needs a certain level of security to operate effectively, and like any good investment when it is profitables you don't stop funding it.