Policy Options: Funding R&D
Graph
3.
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There is concern that spending on energy
innovation, from both private and public sources,
may prove inadequate relative to the challenges
confronting the world in the twenty-first century.
United
Nations Development Program
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Source:
Uranium Information Center
Research and development is the basis for technological
innovation, and is essential to commercialize renewable
resources. Current R&D financing in the private
sector is not sufficient for renewable technologies
to have technological advantage and to be cost competitive
with conventional energy resources. If our goal is
for a sustainable world, we must accelerate the rate
of R&D to mainstream clean energy technologies.
Technological advantage motivates investors to fund
R&D. An investment is sound when the technology
they invest in produces large returns. However, new
technologies that yield benefits for society do not
always provide monetary returns for the private sector.
Electricity from renewable resources, for example,
provides significant social benefits by mitigating
air pollution, and thereby allieviating the social
and environmental threats of disease and global climate
change. As discussed in the externality and subsidy
sections of this site, the market fails to include
such costs into the price of economic activities,
so we call this a market failure. Consequently, fossil
fuels appear cheaper in the marketplace because we
do not need to pay for their negative effects on society.
To make R&D for renewables attractive for private
investment, governments can implement policies to
internalize social and environmental costs into the
price for energy.
Another deterrent for private investment in R&D
is the high initial cost of new technologies, particularly
renewables. Once technologies are commercially available,
their costs naturally decrease because of what we
learn and experience from their application. Private
firms understand this phenomenon, and often initially
sell products for less than production costs because
they know they will make profit after costs are driven
down. However, it is difficult to recover costs for
some technologies, including renewables. Nations that
have overcome this dilemma have used public financial
support to account for the initial costs. Denmark
implemented policies such as subsidies and feed-in
tariffs that account for their successful wind industry,
now dominating 50% of the world market.
The UNDP outlines questions governments should consider
in their decisions to finance a field of energy research:
- Is it expected to contribute to achieving a transition
to a sustainable energy future?
- Will it strengthen the competitiveness of (national)
industries?
- Is the quality of the research infrastructure
in the field of interest good enough?
Additionally, to enhance the design of an R&D project:
- Limit the number of topics.
- Optimize the efficiency of public expenditures.
- Strengthen international cooperation.
- Enhance the application of knowledge.
Current R&D spending patterns
The IEA reports that overall energy R&D has declined
in the past several decades. See Graph
3. In industrialized countries, reported public
funding has fallen from $15 billion in 1908 to $7 billion
in 2000. Eighty percent of expenditures in 2000 were
by Japan and the US; 47% of this was for nuclear energy,
18% for energy efficiency, 8% for renewables and 6%
for fossil fuels.
Although this information is disappointing, actual technological
improvements for renewables has been tremendous in the
same time frame. The IEA held a workshop on the needs
for renewables and concluded that great strides in R&D
have enhanced the industry recently. They determined
the future to be bright for the industry. They also
outlined what technological improvements are needed
for each renewable resource. Click on the links below
for more detailed information.
IEA's
main findings on recent technological breakthroughs
IEA's
R&D future priorities for each renewable resource
R&D in the developing world
Developing nations must dedicate public funds to renewable
R&D because technologies most adaptable to their communities
(e.g., decentralized rural electrification) tend to
be under-funded in industrialized nations. Many times
developing nations also need a smaller production scale
or have different operating environments that those
in which the technologies were developed, in industrialized
nations.
Another way to bring advanced technology to developing
nations is through the "leapfrogging". Leapfrogging
is the process of bringing modern, cleaner and more
efficient technology to a place where they have dated
or little energy infrastructure. This allows them to
skip over the interim technologies that industrialized
countries used. A common example is bringing cell phones
to areas that do not have phones, rather than building
the entire infrastructure for land lines and then later
bringing in cellular service.
It is essential to fund capacity
development to ensure the energy technology
will be used effectively and maintained properly. Merely
funding technological advancement or leapfrogging is
not sufficient if the people can not use, repair and
maintain the new equipment.
Cooperation between developing and industrialized nations
is important for creating a sustainable energy system
in the developing world. Some drivers to increase cooperation
include joint ventures, licensing, or local subsidiaries,
and others. South-South energy technology transfer is
another great option for finding solutions to common
challenges. Bilateral aid, multilateral programs and
increased access to global capital markets enhance a
developing country's ability to have joint energy R&D,
to share information on clean energy policies and programs
and to trade the technologies among one another.
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International Energy Agency
Additional R&D, along
with determined policy support for market
deployment, are viewed as the way to expedite
the evolution of renewable energy to the point
where it can double or triple its contribution
to our energy needs.
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Policy Options
Nearly all policy tools described on GENI's policy driver
pages can be used to stimulate R&D because the incentive
for investment is determined by a competitive energy
market, and nearly all policy options are geared toward
this end. Targets, subsidies, taxes and feed-in tariffs
all help equalize the costs of renewables to fossil
fuels and increase market share, making the industry
more competitive. However, to direct resources to R&D
specifically, a nation can
- Formulate research priorities
- Direct public funding of specific R&D activities
- Implement technology forcing standards (i.e. vehicle
emissions standards)
- Push corporate technology development agreements
- Initiate and stimulate networks of innovation
Another way to provide incentive for private R&D
without creating new laws is to educate the public,
creating desire for new products. Firms know they will
bring in revenue though a larger customer base if they
create new products that their consumers demand. Raising
public awareness can be achieved through eco-labelling,
community education and encouraging research cooperation
between universities and industries.
Resources:
Need
for Renewables, International Energy Agency
Energy
for Sustainable Development, A Policy Agenda
(pertinent information in Chapter 5), UNDP
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