By Jonathan Marshall
The Solyndra scandal has come and gone, but the Department of Energy (DOE) is still giving out loans to risky new clean-tech ventures. Is that a waste of taxpayer money, or a smart investment in a cleaner future?
In a new blog post, University of California at Berkeley energy economist Severin Bornstein doesn’t comment on specific DOE decisions. But he strongly endorses the concept of the government subsidizing not only basic science research — a “no brainer” accepted by nearly all innovation scholars — but also some downstream development and deployment of new technology, such as “commercial-scale compressed-air power storage or a new nuclear reactor design.”
Borenstein, like most mainstream economists, firmly believes the market is generally the best mechanism for allocating investment. But when it comes to new technology, individual firms may underinvest in R&D because they can’t capture the full social value of knowledge that spills over to other companies and even other industries.
When the government assists in the development of new technology, it can both increase the sum total of knowledge and help it spread much faster, hindered less by patents and secrecy that firms would otherwise impose.
Especially when it comes to a global problem like climate disruption, Borenstein argues, “We need innovations to be adopted as quickly and smoothly as possible around the world, a process that will almost surely be hampered by anything that relies on negotiations over intellectual property rights. Subsidizing innovation can be tied to disclosure and reporting requirements that encourage replication and further innovation.”
Just one day after Borenstein published his “defense of picking winners,” the acting director of the Department of Energy’s Advanced Research Projects Agency-Energy (ARPA-E), Dr. Cheryl Martin, spoke with Environment & Energy News (subscription required) to explain how the agency picks winners — recipients of grants for bleeding-edge research on such transformational technology as the manufacture of light-weight metals, new battery chemistries for electric vehicles, the biological conversion of natural gas to liquid fuels, innovative semiconductor materials for improved power conversion, and new solar power technology.
Martin explained that the agency sets aspirational performance and cost targets for new technology, then asks “all the bright minds across America to come up with ideas on how to get that.” It picks roughly a dozen of the most promising ideas to fund, then rigorously follows their progress each quarter to winnow out those that run out of steam.
“We just stop the project and then focus in on the ones that are working to move them forward,” she said. “So, the real knowledge is in the acting on what you know and acting quickly. Fail fast. Take what you know and move to the next step.”
To improve the chances of commercial success, and to accelerate the diffusion of technology, ARPA-E tries to bring together university and private-sector corporate researchers on its projects.
While the jury is still out, the agency’s approach looks highly promising based on results of the past five years.
On Feb. 25, ARPA-E announced that 22 of its projects had leveraged $95 million in government funding into more than $625 million in subsequent private-sector investment. Some 24 ARPA-E project teams have formed new companies, and others have partnered with various government agencies to take their work to the next level.
The broader DOE loan guarantee program, which was first established under President George W. Bush, also claims successes supporting less speculative technology ventures. Its director takes credit for “early, active, and crucial support to the first five U.S. utility-scale solar PV [photovoltaic] projects,” including several large contributors to PG&E’s portfolio of renewable energy.
He claims that 97 percent of the department’s loan guarantees are solid to date. “The deep due diligence we do is more rigorous than the private sector and the approvals process is just as rigorous,” he declared. “There is a brutal competition among the applicants to make it through our gauntlet of due diligence.”
Email Jonathan Marshall at firstname.lastname@example.org.