Subsidizing renewables increases research and development

The last post discussed Severin Borenstein’s findings that most justifications for renewables subsidies don’t make sense. David Popp’s Innovation and Climate Policy brings up a different reason, a market failure that might not adequately be addressed by simply pricing fossil fuels at a much higher level, to reflect their costs.

This post is California-centric. My state has invested heavily in renewables—is this a good choice, or can we do better?

Every major paper I’ve read on energy policy stresses the need for research and development (R&D), both government (basic research) and private investments (closer to market). This is necessary today so that tomorrow’s energy is cheaper. Every paper I have read on energy says that R&D needs to be increased significantly, that we will pay dearly tomorrow for failing to invest enough today. In an article on the hearing for current Secretary of Energy Moniz, the Washington Post provided more information:

Spending for R&D should be greater
The Washington Post looks at the level of investments in R&D in a number of charts; here, expenditures are well below International Energy Association recommendations.

Spending over time
We’re also spending much less on energy than in the 1970s. (Energy research funds doubled in real terms between 1973 and 1976, and almost doubled again by 1980. The Arab oil embargo began in October 1973.)

Federal R&D can be increased by direct expenditure (although we choose not to, much), but not so for private R&D. What to do? Popp says that using subsidies and mandates to make renewables more attractive today, more than they would be if a huge cost were added to GHG emissions, is important, because this leads to large private R&D increases, and is an investment in our energy future.

This may be, but I found his arguments unpersuasive. Let me know what I missed. I don’t know that Popp reaches conclusions that are wrong in any way, but that it may make sense to explore the issues more completely.

First, how much money goes to energy R&D?

This is the amount of R&D paid for by the Department of Energy (DOE), from 1990 – 2013, about $6 billion for energy in 2013.

Popp errs in saying that DOE 2008 energy R&D was $4.3 billion, and that 23% went to nuclear. The chart shows this is clearly not the case—Popp does not differentiate between fission (the current method) and fusion, decades in the future, or civilian and military research. Globally, Popp says, 39% of $12.7 billion went to nuclear, and only 12% to renewables. Looking at the numbers in greater detail gives a different picture. For example, while it is true that in 2005, over 40% of global energy R&D is fission and fusion, taking out Japanese research (mostly for its breeder reactor), and French research (Areva is government owned), total fission research in 2005 was $308 million, less than 1/3 that spent on renewables.

What should R&D focus on?

Is private R&D currently targeted in a way that makes sense? Where are the biggest deficiencies?

I did not see a treatment of this question. Severin Borenstein says that it is important for California to focus not just on reducing its own emissions, but finding solutions that are important for the world.

The number one solution in Intergovernmental Panel on Climate Change Working Group III, the number one solution in various International Energy Agency reports, is increased efficiency (in power plants, transmission and distribution, cars, heating and cooling, appliances, etc). Carbon capture and storage (CCS) is very high on the list of technologies for making electricity. This is because CCS can work with existing fossil fuel plants which are likely to be in operation for decades, and with industries such as steel which are energy intense but do not use electricity. Additionally, CCS can be used with bionergy to take carbon dioxide out of the air. Carbon capture and storage is not a source of energy but a number of methods that reduce significantly carbon dioxide released when burning fossil fuels or bioenergy.

There are a number of other low-GHG solutions, including nuclear, solar, and wind, and to a lesser extent, geothermal. By implying that the R&D budget for nuclear is already high, Popp appears to imply that it is sufficient. Even if an R&D budget is large, how do we determine what constitutes a sufficient funding?

• Size of the current and historical R&D budget, both public and private, is not the only criterion—huge amounts have been spent on solar panel (photovoltaic, or PV) R&D over the decades, and PVs still are not able to compete with fossil fuels or nuclear power without huge subsidies. PVs need more R&D than wind and nuclear to get to affordable—solar has greater R&D needs. How do we evaluate needs, and choose among sources? Does it make sense to consider wind and solar together?

• The role the solution will play in the future is also important, as is the timing of the solutions. International Energy Agency has been warning for years that CCS research especially needs to be done on a much faster time scale (see any executive summary of their Energy Technology Perspectives). How do we select among CCS, nuclear, and wind and solar power?

• Other states and countries are subsidizing some solutions—Germany today, and Spain in the past, are among a number of countries and states that have spent vast sums subsidizing renewables, so perhaps California might consider investing in other sources.

Does this method work particularly well compared to other methods of encouraging private R&D?

California has a long history of mandating technology change first. The first Environmental Protection Agency was here, so California has the right to set its own smog standards, fuel efficiency standards, etc. Thank goodness, because our smog standards were earlier, and more stringent.

We also have a history of programs to push the technology. California mandated electric cars in 1990, and participated in a partnership beginning in 2000 to encourage fuel cell buses, with both federal and state funding. What does economics literature say about the success for technology still far in the future? Are affordable solar panels near enough that private R&D is a good investment?

Are there other methods that would be more successful, such as funding research hubs, or giving grants to various R&D projects? Is there not yet enough history to choose among methods? (Presumably most or all work better than the current alternative of underfunding R&D.)


It is clear that U.S. governmental and private investment in energy R&D is too small. David Popp’s Innovation and Climate Policy discusses how to increase private investment, but insufficient information is provided about what economists know about encouraging R&D.

Of all the reasons to subsidize and mandate renewables, many listed in the previous post, the need to encourage private R&D makes the most sense. However, it seems to me important to treat a number of questions in more detail. These include:
• How much of our goal is to push R&D? to meet local needs vs global needs?
• How do we choose between CCS, nuclear, solar, wind and other clean energy technologies?
• Is this method of encouraging R&D likely to be most fruitful, or are there better alternatives?

Lightly edited for clarity

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