IEEJ:2009年8月掲載

Stimulating TechnologicalInnovation in Energy
Charles Weiss,
Distinguished Professor,
Science, Technology and International Affairs,
School of Foreign Service,
Georgetown University
Presentation to Japan Energy Economics Institute,
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August 11, 2009IEEJ:2009年8月掲載

A Revolution in Energy
Technology is Needed Our Addiction to Fossil Fuels Entails
 Huge Economic Costs
 Huge Geopolitical Costs
 Huge Environmental Costs

 This addiction must be overcome for reasons of Security – to assure domestic supply
 Sustainability – to mitigate global warming Market-based incentives are needed but will beinsufficient to stimulate urgently needed
technological innovation.
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IEEJ:2009年8月掲載

A Carbon Charge(Carbon Tax or Cap-and-Trade)

Market-based Incentive is Necessary The price of CO2 emissions becomes a cost of
doing business It sends an unmistakable signal to energy
users that the market is changing - IFsustained and high enough But the first laws to be passed are likely tohave loopholes, escape clauses, ‘exit ramps’
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IEEJ:2009年8月掲載

But Even a Strong Carbon Charge
will be Insufficient.
Public Investment is Needed.
 The need for new technologies is urgent.
 Well-known imperfections in the market fortechnology support the need for public
investment: non-appropriability, etc.
 Recent venture capital is for Commercialization,
not for R&D
 Tends to back technologies with specific subsidies
 Examples: corn ethanol, California support system
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IEEJ:2009年8月掲載

A major R&D program to stimulateinnovation in energy technology isboth justifiable and essential
But what would it actually look
like? How would it be structured?
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IEEJ:2009年8月掲載

The Backdrop: Decline in
Energy R&D
 Today, US federal spending on energy R&D
is about half what it was in 1980
 Energy R&D declined from 10% of all US R&D in1980 to just 2% in 2005. (in ‘02 dollars) Between 1980 and 2005, the US decreased its
energy R&D investment by 58%.
 Level of new energy research was about $3.5
billion in ‘07 -- less than half the R&D spendingof the largest US pharmaceutical co.

 Private sector R&D story is similar
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IEEJ:2009年8月掲載

US Public/Private Energy
R&D Trends
Source: Nemet and Kammen (2007)

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IEEJ:2009年8月掲載

IEA: OECD Countries –Similar R&D Decline

9US Private Energy Sector R&D Investment is
Small Compared to that into
Sectors with Significant Innovation:

Innovating industries  The biotech industry invests 39% of its(small) annual revenue, Pharmaceuticals invest 18%,
 Semiconductors invest 16%.

Established industries: Electronics industry invests 8% of sales
 Auto industry invests 3.3%.
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IEEJ:2009年8月掲載

Overall US Industry Average
R&D Investment Is 2.6% of
Sales
The private energy sector invested
on-average less than 1% ofannual revenue in R&D from1988-2003

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IEEJ:2009年8月掲載

Experts: Multiply Energy R&D

Recommendation

Multiplier

US Private
R&D

US Public
R&D

Total US
R&D

Current Level

X1

$1.2B

$3.6B

$4.8B

PCAST (2007), NCEP X2(2004) ACI (2006),
Stern Review (2006)

$2.4B

$7.2B

$9.6B

Council on
Competitiveness

X3

$3.6B

$10.8B$15.4B

Davis and Owen,
Schock, CEPR

X4

$4.8B

$14.4B$19.2B

Nemet and Kammen,
high estimate

X10

$12B

$36B

$48.B
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IEEJ:2009年8月掲載

Is an R&D Increase Justified?

 Precedents for increased government spending on
similar scale (in 2002 dollars) Apollo Program ($185 billion over nine years), Carter/Reagan defense buildup ($445 billion over eight
years),
 Doubling National Institutes of Health ($138 billion over
five years)
 Ballistic Missile Defense ($145 billion over the first six
years - actual dollars).

NB: These are examples of the needed size andscope of an r&d increase, not the way such a
program should be organized

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Is an R&D Increase Justified? (2) Historic rate of return implies that Energy R&D isan economically worthwhile investment:
 U.S. Dept. of Energy in 2001 reported its 20 mostsuccessful energy savings projects saved 35 times
their total cost.
 1997 PCAST report estimated that potential
benefits from energy research, development anddemonstration could result in a multi-decade 40 to
1 return on federal investment
 Combines: energy efficiency, energy savings, plus newtechnology

 Social rate of return on federal R&D overall hasbeen typically 5 to 1 over a decade (Tassey 2007)14

IEEJ:2009年8月掲載

IEA: Investments Required for
CO2 Reductions are Huge:
 The International Energy Agency (IEA) 2008
report estimates stabilizing CO2 emissions at current levels in 2050
will require a total worldwide investment of $17
trillion ($400 billion per year), including both R&D
and implementation.
 Reducing emissions to 50% below 2005 levels, thegoal that the G-8 leaders committed to in July
2008, will require a total worldwide investment of$45 trillion ($1.1 trillion per year) in R&D and
implementation
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IEEJ:2009年8月掲載

More Money is Essential, but is
Not the Whole Answer
Energy is an established, complex sector. In
such sectors, technological innovation is more
complicated than in new sectors like
information.

The toughest step is market launch.

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Energy Technology Presents
Difficulties for Innovation Theory

IEEJ:2009年8月掲載

 Technologies for energy supply and use pervade theeconomy Huge Scale: $1.5+ Trillion/year in US alone

 Fossil fuels are convenient and cheap, if you don’t
count externalities
 Entrenched ‘legacy’ technologies, backed by Vast subsidies and tax advantages
 $500 Billion from 1950-2003

 Public investments in infrastructure Politically powerful companies
 Public expectation of low-cost energy
 Established patterns of expertise and regulation

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IEEJ:2009年8月掲載

The US has a“Covered Wagon” Culture
We’re good at completely new things:
 Don’t like your neighborhood?
 Take a covered wagon over the mountain to new territory!
 This is the case in technology - We’re good at launching completely new things that create
new functionality
 We’re not good at going back over the mountain in the otherdirection - at rediscovering established territory and bringing
innovation to it We do biotechnology, we don’t go back and fix the health caredelivery system.
 Yet there are huge gains to be had, not just from the new
18 butalso from fixing the old

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U.S. Innovations Like to Land in“Unoccupied Territory.”
Energy is “Occupied Territory”•We pack our Metaphorical “Technological Covered
Wagons” and Go West, leaving Legacy Problems Behind
The bad news:•Established sectors are complex and hard and often haveestablished, cost-efficient incumbents•We’re used to launching technology in open fields•That’s what we did in computing•New energy must parachute into occupied territory•And will be shot at

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 Alternative technologies do exist at allstages of research and development
 But most of them must be competitive
immediately upon market introduction
against subsidized legacy competitors that
don’t pay for environmental or geopoliticalcosts

It’s a ‘Non-Level Playing Field’
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IEEJ:2009年8月掲載

A Public Strategy for Energy
Technology Should be…

 Very Large in Scale and Scope Comparable to Apollo Project in Size and Scope But NOT in Form or Organization

 Private Sector Led
 Public-Private Partnerships

 Technology Neutral Avoid technology lock-in
 The opposite of the present pattern of subsidies tospecific subsidies with powerful lobbies ‘No Lobbyist Left Behind’ International in Scope and Conception
 Organized around Obstacles to Market Launch 21

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We Have Developed aFour Step Analysis:
 1. Launch Pathways: Group technologies to be
implemented into categories based on launchcharacteristics
 2. Tie to Policy Packages: Use these launch pathways
to guide federal innovation policy roles: Bundle policies, available across technologies, so as to be astechnology neutral as possible.

 3. Gap Analysis: to identify gaps between existing
institutions in the U.S. innovation system
 4. Recommendations for Institutional Innovations tofill these gaps
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IEEJ:2009年8月掲載

Market Launch Categories
1. Experimental technologies requiring long-term
research Examples: Fusion, Hydrogen Fuel Cells
2. Disruptive innovations that can be launched inniche markets where they are competitive, andachieve gradual scale-up building from thisbase.
 Examples: Solar photovoltaics and wind foroff-grid power, light-emitting diodes
3. Secondary innovations - uncontested launch:components in larger systems that face
immediate market competition based on price,
but are acceptable to the system manufacturer.
 Examples: Batteries for Plug-in Hybrids,
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Enhanced Geothermal, On-Grid Wind & SolarEnergy Technology Launch Categories– Special Obstacles
4. Secondary innovations - contested launch:component innovations having inherent cost disadvantages
and facing political and non-market economic efforts toblock their introduction.

 Examples: Carbon Capture and Sequestration, Biofuels, Nuclear
Power

5. Special Financing Requirements:

 Examples: (a) Conservation and end-use efficiency -- Improved IC
engines, Building Technologies, Appliance Standards
 (b) Advances in manufacturing technology and scale-up of
manufacturing for all types of energy technology so as to drive
down production costs © Large-scale demonstrations: enhanced geothermal, carbon
capture and sequestration

6. Special Infrastructure Requirements:

 Examples: Wind energy, Carbon Capture and Sequestration,
biofuels

IEEJ:2009年8月掲載

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A Few Especially Promising andImportant Technologies
 Carbon Capture andSequestration (CCS) Enhanced (“Hot Rocks”)
Geothermal Critical for Coal-Burning
Countries: US, China,
India
 Capture CO2 from
Smokestack of Power
Plants, Cement Plants,
Pipe it to Underground orUndersea Storage

IEEJ:2009年8月掲載

 Pump Water Deep
Underground and Let it be
Heated by Underground Rocks,
and in this way Derive Renewable Energy from
Underground Heat Even if
there is no Natural Water Near
the Rocks – greatly expanding
the possible locations forgeothermal

Both of These Technologies Require
Expensive Demonstration Projects
at Full Scale to Demonstrate Safety and
to Derive Techno-Economic Parameters

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IEEJ:2009年8月掲載

After Identifying Gaps in the U.S.
Innovation System, We Recommend
Establishing and Funding: 1) Advanced Research Projects Agency for Energy (ARPA-E):
A translational R&D entity 2) A wholly-owned government corporation for “back end”
elements:
 Sharing the financing of carefully monitored, full-scaledemonstrations of large engineering projects
 Encouraging and incentivizing industry consortia to cut costs ofmanufacturing technologies and processes
 Speed the scale-up of manufacturing production capacity
 Financing installation of conservation, efficiency and related newtechnologies in residential and commercial markets 3) A Think-Tank to develop a detailed “roadmap” for therequirements for the development and launch of particularenergy-related innovations (including consideration of socialand environmental impact), and to recommend policies to26
facilitate them

ARPA-E for Translational Research has
now been Established and Funded with$400 million from the “stimulus package”
 The Right-Left concept: identify a challenge
on the ‘right side’ of the pipeline and thennurture the science breakthrough on the ‘left
side’ to get there Move from breakthrough to innovation
 Hybrid model blends university researcherswith startups and smaller firms
 Small, flexible, flat, non-hierarchical,
collaborative networks, with turnover,risk-taking culture, and great talent in the
ARPA-E staff
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The ARPA-E model fortranslational research (cont’d) Needs research funding at a scale to makea difference Stimulus bill: $400 million initial appropriations

 Needs careful structuring as an IslandBridge model:

 An "ISLAND" FREE FROM BUREAUCRATICSTRESSES AND PRESSURES But with a BRIDGE BACK TO THE DECISIONMAKERS
WHO CAN IMPLEMENT ITS DISCOVERIES ARPA-E structure is still being worked out
within the US Department of Energy.
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IEEJ:2009年8月掲載

A Program Commensurate with the
Scope of the Energy Problem can be
Realized Only with Leadership
This is the toughest Technology Implementation Task
the U.S. has facedWe have to do it rightAddressing a broad range of technology and the whole
Innovation Process . . .
Not with favored technologies (“Silver Bullets”)
Not by Pork Barrel (“No Lobbyist Left Behind”)
Despite likely opposition from powerful incumbent
technologies

Public attitudes toward energy and the public role insupporting innovation will need to be changed.
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The Need for TechnologicalInnovation in Energy is a Global
Problem and Requires anInternational Solution

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But there’s a Tension between
 The need to provide incentives to innovation by
private corporations
 The need to encourage adoption of improved
technology by developing countries – especiallycarbon capture and sequestration (CCS) when this is
ready The aspirations of China and India to become majorinnovators in energy technology
 Reluctance of countries reliant on coal to accept
higher energy costs resulting from carbon capture andsequestration (CCS)31

IEEJ:2009年8月掲載

This Raises Both
Challenges and Opportunities
 Cooperative, pre-competitive researchon problems that will not directly resultin proprietary goods and services
 Possible relaxation of intellectual
property requirements (or soft loans
and technical assistance) for transfer oftechnology
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IEEJ:2009年8月掲載

A Potential Breakthrough in US Policy
 The House of Representatives, with the supportof the Administration, has passed a climatechange bill, including a cap-and-trade regimeand ‘border adjustments.’ ‘Border adjustments’ will force interest in carbon
charges in countries that do not have them –but raise difficult issues for the WTO regime.

 On the negative side, support to the President’s
proposed program of energy research anddevelopment was sharply reduced.
 Action in the Senate is still pending.
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The U.S. is in no moral position tolecture other countries, despite thiswelcome change in U.S. policy.
Even so, we all live on the sameplanet and must work together tosolve this serious problem.
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You Can Read All About It:"Yes we can! Indeed, this is a book for these times. Providing new vocabulary
and new categories, the authors advance the urgently needed conversation about
how government can spur the innovations in the energy system that will mitigate
climate change. Anyone interested in seeing real progress made by biofuels,
renewable electricity, nuclear power, carbon dioxide capture and storage, or autoand building efficiency should read this book."Robert H. Socolow, Professor,
Mechanical and Aerospace Engineering, and Co-Director, The Carbon Mitigation
Initiative, Princeton University"This book provides, in a single volume, a clear and beautifully written review ofinnovation theory and energy technology. It then uses these insights to propose
a practical framework for designing a national policy on energy and climate thatdraws both on theory and on the authors' extensive practical insights into what
can actually be achieved through public policy. Anyone interested in designing anenergy policy that actually works, escaping ideological battles and the passions of
single-technology advocates, should read this book.” Henry Kelly, President,
Federation of American Scientists"The authors have taken on the enormously important task of describing aworkable public policy framework that is needed for transforming our energy
system to a fully sustainable state. Finally, a book that not only covers all thecritical issues and technology options, but also describes them in a manner which
is objective, rational, and digestible."Jefferson W. Tester,Kroll Professor of
Sustainable Energy, Cornell University"This extraordinary book by Charles Weiss and William Bonvillian offers a fourstep framework for analysis and action to meet America's need for secure,sustainable, and affordable clean energy. The most technologically advanced andinnovative nation on the planet has seemed unable to meet this need because
our traditional innovation processes are inadequate. Generating, distributing, andusing energy in 21st century America, because of its scale, complexity, and inplace infrastructure, is totally unlike the narrow goals of the oft-cited Apollo
Project. Furthermore, the multitude of technologies and the potential for
unpredictable breakthroughs rules out a classical technology roadmap. Weiss andBonvillian combine experience, analysis, and realpolitik to present a roadmap notfor energy technology itself, but for the public-private process to fund, produce,
and insert energy innovations into the economy."Charles M. Vest, President,
National Academy of Engineering, President Emeritus, MIT"For a variety of reasons: geologic, geographic, geopolitical, and environmental預
n energy transformation is already underway, but it will take massive
investments, technological breakthroughs and thoughtful management as thetransition proceeds. As the new Administration (and world leaders) grapple withthe dual challenges of energy security and climate change, technology, timing,and scalable delivery systems will be key components in any solution. Weiss andBonvillian lay out a comprehensive roadmap for guiding policymakers throughsomewhat uncharted terrain by identifying pathways to successful development
and deployment of innovative technologies and make a persuasive case for
global cooperative efforts. This is a must-read for sustainable energy
futurists!"Frank Verrastro, Director and Senior Fellow, Energy and National

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Security Program, Center for Strategic and International Studies

IEEJ:2009年8月掲載

Reserve Slides

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Step Two: Policy Packages Matchedto Launch Categories (1) Front End Support:
 Needed for all technologies
 Examples - research and development (R&D), technology
prototyping and demonstrations (P&D), public-private R&D
partnerships, monetary prizes to individual inventors andinnovative companies, and support for technical educationand training (2) Back End Incentives (carrots) to encouragetechnology deployment: Needed for secondary (component) technologies
 Examples - tax credits for new energy technology products,
loan guarantees, price guarantees, government procurement
programs, new product buy-down programs
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Step Two, cont’d - Policy Packages
for Promoting
Energy Innovation
 (3) Back End Regulatory and Related

Mandates (sticks):

 For secondary technologies - contested launch Prospect of political battles since launch will becontested Examples: standards for particular energy
technologies in building, construction, andcomparable sectors, renewable portfolio standards,
fuel economy standards, emissions taxes, generaland technology-specific intellectual property
policies.
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IEEJ:2009年8月掲載

Step Three: Identify the Gaps in
Existing Energy Innovation System
 “Front-End” - RD&D  Translating Research into Innovation
 Carefully monitored demonstrations of engineeringintensive technologies (Carbon Sequestration, Biofuel
Processing) Improved manufacturing processes

 “Back-End” - deployment
 Manufacturing scale-up Launching into the economy
 Installation of conservation technology
 Financing infrastructure standup

 “Roadmapping”

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IEEJ:2009年8月掲載(2) The Government Corporation
 Helps assure commercial
involvement and projects thatmeet commercial standards
 Insulates demonstrations from
Congressional interference Draws talent from the commercial
and financial sectors andcompensates them accordingly not a gov’t bureaucracy
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The Government Corporation(cont’d) Promotes industry consortia to cut
manufacturing costs through process
improvements (SEMATECH Model)
 Supports Financing to Speed Production
Scale-Up Enhances the flow of credit toconservation, efficiency and related newtechnologies in residential andcommercial markets. (‘Fannie Mae’ GSE
Model)41

IEEJ:2009年8月掲載(3) The Roadmapping
Think Tank
 Should be tied to industry consortia,
with access to private, academic, andpublic sector expert leaders on energy
technologies (SEMATECH Model)
 Develops common packages of “BackEnd” incentives for groups oftechnologies so as to help promotetechnology neutrality
お問い合わせ：report@tky.ieej.or.jp42