Government Energy Innovation: Well Worth It
The Washington Post ran a piece in its Outlook section this weekend on government investments in energy that is rightly getting significant push back. The piece ran under the provocative headline: Before Solyndra, a long history of failed government energy projects. (It was, unfortunately, one of a few negative stories from the weekend.) Here’s the Post’s lede:
Solyndra, the solar-panel maker that received more than half a billion dollars in federal loans from the Obama administration only to go bankrupt this fall, isn’t the first dud for U.S. government officials trying to play venture capitalist in the energy industry.
Thankfully, a number of analysts have written thoughtful responses to the article, and I want to share a few of them. Together they serve as a reminder of why energy innovation is a worthwhile investment for the federal government to be making. First, I want to quote the excellent Michael Levi, of the Council on Foreign Relations, who frames this question the right way:
…it doesn’t take much for $172 billion of spending on energy innovation to pay off. U.S. consumers spent roughly $30 trillion on primary fuels and electricity infrastructure between 1970 and 2009… one can loosely conclude that if government spending lowered either energy prices or consumption by a mere 0.5 percent, it was worthwhile… Indeed government would need to be spectacularly ineffective to not have generated a positive return on its investment.
It’s worth remembering the mere size of the market, as Levi notes. His bottom line: “government investment in energy research is generally pretty wise.” That’s putting it conservatively.
At ClimateProgress, Joe Romm has a more forceful rebuttal:
The handful of energy technologies cited above, developed through funding by my old office, the Office of Energy Efficiency and Renewable Energy, havereturned about $30 billion on an R&D investment of about $400 million. I defy anybody to identify an independent report from a body as credible as the National Academy showing such a staggering return on investment for US taxpayer dollars.
Ted Nordhaus and Michael Shellenberger of the Breakthrough Institute posted a response of their own, noting the role of government in various energy technologies.
What gets left out (and forgotten) is that virtually every one of today’s major energy technologies exists thanks to sustained US government investments in research, development, and demonstration… To be sure, not every DOE investment has succeeded. But even the projects frequently named as failures were often secret successes.
Here are the examples they offer:
- Hydro-electric power like the Hoover Dam could not have been built without public funding.
- Nuclear power — including promising small modular reactors, used for 50 years on U.S. submarines — required intensive government development and investment.
- Today’s wind turbines were pioneered by the United States in the seventies and deployed off-shore thanks to help from the Danish government two decades ago.
- Solar panels were pioneered by NASA, and have seen massive price declines thanks to government research, development, and deployment. Industry leader First Solar is a direct descendant of DOE research as are Nanosolar and GE’s thin film solar division.
- And today’s ultra-efficient natural gas turbines derive from DoD investments in better jet engines and from a DOE program in the 1990s.
For those who don’t follow the energy wonkosphere, I’ve just cited four individuals from three organizations who generally don’t see eye to eye on quite a few aspects of energy policy. And yet each sees the Post story as quite misguided.
Private actors are excellent at taking a newly proven technology and commercializing it, but they have little incentive to invest heavily in the basic science that leads to those breakthroughs. The benefits of a new innovation inevitably spill over into society; firms are unable to capture 100% of the value of new information. The result is that the private sector will always under-invest in R&D, making government funding essential. Corporate R&D, while important, is nowhere near sufficient.
Returning to The Post’s story, the question it poses is: “What does Washington have to show for these investments?” The answer, by all accounts, is Plenty. And plenty more would be gained by increased investment in energy innovation.
Photo by Innovationexcellence.com.
Other Posts by Walter Frick
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