06 October 2009

GPPi publishes policy paper on state and trends of public energy and electricity R&D in the EU and the US

GPPi has published a policy paper entitled "State and Trends of Public Energy and Electricity R&D: A Transatlantic Perspective". The paper, authored by GPPi Associate Director Jan Martin Witte, provides some context for this evolving discussion on the role of public energy R&D, with a specific focus on the power sector. The paper is a product of GPPi's Global Energy Governance program.

It is now widely accepted that carbon markets alone will not be sufficient to initiate large-scale greenhouse gas mitigation efforts that are needed in the short- and medium-term to avoid catastrophic climate change. In response, policymakers have started to broaden their climate policy strategies. One of the policy tools that has received renewed attention in this context is public energy R&D. Both researchers and policymakers are calling for significant increases in public energy R&D commitments to foster the development of low-carbon technologies in the power sector.

Starting from a brief review of the general case for public R&D support, and technology support measures in the climate change context in particular, the paper zooms in on three questions: First, what do the numbers tell us with regard to the development of public energy R&D commitments during the past two decades? More specifically, what explains the widespread stagnation, if not decline, of public energy R&D funds since the early 1980s? Second, to what extent are the recent calls for more funding for energy R&D heeded by deeds and how likely is it that the funding upgrades called for by studies such as the Stern Review will be realized? Third, and finally, considering increasing public and political support for greater investments in energy R&D, what mechanisms should policymakers employ to minimize rent-seeking and investments in "pie-in-the-sky" energy proposals?

While policy instruments designed to foster broader market uptake of renewable energy technologies (such as measures for guaranteed market access, legislated rate increases, etc.) have found wide application on both sides of the Atlantic in recent years, a review of energy R&D funding trends shows that public spending for basic research, feasibility testing and early commercial viability exploration has dropped dramatically in the entire OECD world since the early 1980s. However, more recent budget increases in both the US and also the European Union (EU) indicate a reversal of that situation. However, it is too early to tell whether these funding increases are likely to be sustained, and whether they will eventually result in budget levels for energy R&D that many climate change experts are calling for. It also remains to be seen what impact the global economic crisis (and thus strained government coffers) may have on medium-term spending levels on energy R&D.

Yet, even if sustained spending increases can be realized, policymakers would do well to recognize the limits and pitfalls of publicly funded innovation programs. Experience with public energy R&D support suggests that spending programs need to be carefully designed to avoid investments into pie-in-the-sky programs and to reduce wasteful rent-seeking. Thus, in order to maximize the impact of public energy R&D support, the key recommendations of the paper include:

• The introduction of competition among those who execute energy R&D activities. This requires opening up grant-making processes to a wide array of competent research institutions in the public and private sectors. Opening up competition for research funds has the potential to increase the quality of outputs and has been widely practiced already in the EU and the US.
  
• The establishment of tangible performance measures. The design of subsidy programs should explicitly spell out performance measures and milestones. This will be difficult in many cases but it ensures that underperforming programs can be eliminated on the basis of evidence. Such performance measures should not just apply to large-scale endeavours (that anyway are subject to more public scrutiny) but also smaller grants processes that often do not attract much public attention and that can be renewed by government bureaucracies.
  
• Bottom-line incentive structure in implementing agencies. Those implementing research with public monies should face straightforward bottom-line incentive structures in the implementation of R&D. Unfortunately, public budgeting rules frequently set perverse incentives. Intelligent subsidy design should try to eliminate those hurdles.
  
• Ensuring regular feedback to improve public accountability. Feedback and evaluation procedures have long been part and parcel of public R&D subsidy programs in the EU and the US. Such programs enhance the accountability of programs, and can also help to reduce the incidence of "capture" of public R&D funds by special interest groups. Wherever possible, such evaluation should be conducted by independent agencies and not actors that have a stake in the process.
  
• The design of public energy R&D programs should not be done in a vacuum. Instead, it is becoming increasingly obvious that policy coherence in the climate change arena will be one of the key challenges in the future.

To download the paper, please click here.

For more information, please contact Jan Martin Witte

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