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Limiting the Magnitude of Future Climate Change (2010)

Chapter: 5 Fostering Technological Innovations

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Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
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CHAPTER FIVE
Fostering Technological Innovations

Any successful strategy to significantly reduce greenhouse gas (GHG) emissions will require actions not only to deploy low-emission technologies that are available now but also to foster innovations on new technologies, many of which have not yet been invented, commercially developed, or adopted at a significant commercial scale. Indeed, a study by the Pew Center on Global Climate Change (Alic et al., 2003) concluded that “large-scale reductions in the GHGs that contribute to global climate change can only be achieved through widespread development and adoption of new technologies.” Accordingly, much interest in recent years has focused on ways to foster innovation and, in particular, on the role that governments can and should play in that process.


Although research and development (R&D) is a major element of the innovation process, there is growing recognition that technological change requires more than just R&D. Rather, “technological innovation is a complex process involving invention, development, adoption, learning and diffusion of technology into the marketplace. Gains from new technologies are realized only with widespread adoptions, a process that takes considerable time and typically depends on a lengthy sequence of incremental improvements that enhance performance and reduce costs” (Alic et al., 2003).


What strategies and policies can most effectively foster technological innovations that help reduce future GHG emissions, both domestically and globally? To answer this question, this chapter explores the ways in which technological innovations can affect future GHG emissions, the nature of the technology innovation process and the factors that influence it, and the roles of government and the private sector in bringing about desired innovations and changes in technological systems.

THE ROLE OF TECHNOLOGICAL INNOVATION

As discussed in Chapters 2 and 3, GHG emissions depend strongly on the types of energy sources and technologies that are used to provide the goods and services that society seeks. Technological innovations can thus affect GHG emissions in many different ways. For example, new or improved technologies can

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×
FIGURE 5.1 A model projection of the future price of CO2 emissions under two scenarios: a “reference” case that assumes continuation of historical rates of technological improvements, and an “advanced” case with more rapid technological change. The absolute costs are highly uncertain, but studies clearly indicate that costs are reduced dramatically when advanced technologies are available. SOURCE: Adapted from Kyle et al. (2009).

FIGURE 5.1 A model projection of the future price of CO2 emissions under two scenarios: a “reference” case that assumes continuation of historical rates of technological improvements, and an “advanced” case with more rapid technological change. The absolute costs are highly uncertain, but studies clearly indicate that costs are reduced dramatically when advanced technologies are available. SOURCE: Adapted from Kyle et al. (2009).

  • enable a device—whether a vehicle, machine, or appliance—to use energy more efficiently, thereby reducing its energy use and GHG emissions per unit of useful product or service (such as a vehicle mile of travel).

  • create or utilize alternative energy carriers and chemicals that emit fewer GHGs per unit of useful product or service (e.g., renewable energy or new fertilizers).

  • create alternative means of meeting needs, in ways that are less GHG-intensive, for instance, by using substitute products or materials, by changing agricultural practices, or by making broader systems-level changes such as replacing vehicle and air travel with teleconferencing, or using Internet-based delivery services in lieu of traveling to a store.

Efforts to stimulate technological innovation must be broad enough to affect this full range of possibilities and may also encompass innovations in social and institutional

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×

systems that help reduce energy demand and GHG emissions (for instance, through innovations in urban planning and development). Figure 5.1 shows one estimate of how technological innovations can reduce the future cost of GHG emissions reduction. In this modeling study, a “business as usual” case—which assumes a continuation of historical rates of technological improvements—is compared to a case with more rapid technological change. The cost of meeting a stringent emissions-reduction requirement is reduced dramatically when “advanced technologies” are available.

THE PROCESS OF TECHNOLOGICAL CHANGE

Technological innovation is a component of the broader process of technological change, which involves a number of stages (Figure 5.2). Different terms are used in the literature to describe these stages, but four commonly used descriptors are

Invention:

Discovery; creation of knowledge; new prototypes.

Innovation:

Creation of a commercial product or process.

Adoption:

Deployment and initial use of the new technology.

Diffusion:

Increasing adoption and use of the technology.

The first stage is driven by R&D, including both basic and applied research. The second stage—innovation—is the term often used colloquially to describe the overall process of technological change. But, as used here, innovation refers only to the creation of a commercially offered product or process; it does not mean the product will be adopted or become widely used. That requires the product to pass successfully through the last two stages—adoption and diffusion. Those two stages are inevitably the most critical to reducing GHG emissions. Large-scale change also must be considered from a “systems” perspective, because the success of any new technology is often dependent upon many other technological and nontechnological factors.


Rather than being a simple linear process, the different stages of technological change are highly interactive, as depicted in Figure 5.2. Technological innovation is stimulated not only by support for R&D but also by the needs and opportunities that emerge from the experience of early adopters, and from the knowledge and experience gained as a technology diffuses into the marketplace. Thus, “learning by doing” is often critical to the adoption and diffusion of new technologies by helping to improve their performance and/or reduce their cost (a process commonly characterized as a learning curve).

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×
FIGURE 5.2 Stages of technological change and their interactions. The processes of adoption and diffusion typically involve a continuing series of inventions and innovations that require new research and development. SOURCE: Rubin (2005).

FIGURE 5.2 Stages of technological change and their interactions. The processes of adoption and diffusion typically involve a continuing series of inventions and innovations that require new research and development. SOURCE: Rubin (2005).

Each stage of the process requires different types of incentives to promote the overall goal of technological change. An incentive that works well at one stage of the process may be ineffective—or even counterproductive—at another. In particular, the widespread adoption and diffusion of a new technology may require addressing social and institutional issues that affect the nature and pace of technological change (see earlier discussion of this topic in Chapter 3).

The Essential Role of Markets

In the U.S. economy, most production is by private firms and most output is sold to purchasers in the private sector. The existence of a market is thus critical to the adoption and diffusion of a new technology—and thus to the process of technological innovation. This is true even in cases where the government is the primary customer—for instance, in the procurement of military technology. Indeed, government procurement has been a critical tool for enabling new technologies to enter the market (jet aircraft and electronic computers are two prominent examples). Some technological innovations create new markets or expand existing ones, as exemplified by cell

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×

phones and other electronic devices. While R&D may play a critical role in the development of such innovations, R&D alone is not sufficient; there must also be a market for the technology.


A major challenge in reducing GHG emissions is that few if any markets exist for many of the needed low-emissions technologies. What utility company, for example, would want to spend money on carbon capture and storage if there is no requirement or incentive to reduce emissions? How many individuals would willingly buy a more fuel-efficient automobile costing far more than a conventional vehicle in order to reduce their carbon footprint? Costly actions by firms or individuals to reduce GHG emissions provide little or no tangible value to that firm or person. Only government action that requires or makes it financially worthwhile to reduce GHG emissions can create sizeable markets for the products and services that enable such emissions reductions. Government actions to create or enhance markets for GHG emissions-reducing technologies are thus a critical element of the technological innovation process.

The Influence of Government Policies

Different policy measures influence technological innovation in different ways. Table 5.1 shows a set of commonly employed technology policy options (including several that were discussed in Chapter 4) that help create markets by providing voluntary incentives for technology development, deployment, and diffusion. It also lists policy options to impose mandatory regulatory requirements, which may be economy-wide or targeted to certain sectors. Studies have documented the ability of regulatory policies to stimulate innovations that reduce GHG emissions; for instance, energy-efficiency standards for appliances such as refrigerators (Rosenfeld and Akbari, 2008), emissions and fuel economy standards for automobiles (Lee et al., 2010), and new source performance standards for power plants (Taylor et al., 2005). These policies create or expand markets for lower-emission technologies by imposing requirements on manufacturers and industrial operations. The policy options outlined in Table 5.1 are revisited later in the chapter in considering current needs for fostering technological innovation.


Major technological changes in the U.S. energy system and other sectors will be needed to reduce GHG emissions significantly, and this will require an infusion of financial and human resources to support each phase of the process depicted in Figure 5.2. Resources that are critical for technology innovation include money for R&D and people with the requisite training, skills, and creativity to innovate. Below we review current U.S. resources in these areas and estimate the magnitude of new

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×

TABLE 5.1 Policy Options That Can Influence Technology Innovation

“Technology Policy” Optionsa

Regulatory Policy Options

Direct Government Funding of Knowledge Generation

Direct or Indirect Support for Commercialization and Production

Knowledge Diffusion and Learning

Economy-wide Measures and Sector or Technology-Specific Regulations and Standards

  • R&D contract with private firms (fully funded or cost shared)

  • R&D contracts and grants with nonprofits

  • Intramural R&D in government laboratories

  • R&D contracts with consortia or collaborations

  • R&D tax credits

  • Patents

  • Production subsidies or tax credits for firms bringing new technologies to market

  • Tax credits, rebates, or payments for purchasers and users of new technologies

  • Government procurement of new or advanced technologies

  • Demonstration projects

  • Loan guarantees

  • Monetary prizes

  • Education and training

  • Codification and diffusion of technical knowledge (e.g, via interpretation and validation of R&D results; screening; support for databases)

  • Technical standards

  • Technology/industry extension programs

  • Publicity, persuasion, and consumer information

  • Emissions tax

  • Cap-and-trade program

  • Performance standards (for emission rates, efficiency, or other measures of performance)

  • Fuels tax

  • Portfolio standards

a Based on CSPO and CATF (2009).

financial and “human capital” resources needed to support a major initiative on GHG-related technological innovation. In addition, accelerating technological innovations that reduce GHG emissions will require a variety of policy drivers—to promote R&D, to help commercialize and bring new technologies to the marketplace, and to establish and expand markets for low-GHG technologies. Thus, we also review below current U.S. policies available to support these objectives. Based on the findings from this review, we suggest additional policy measures that are most needed.

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×

RESOURCES CURRENTLY AVAILABLE FOR TECHNOLOGY INNOVATION

This section presents current and historical data on funding for R&D in the United States, especially energy-related R&D, and examines trends in workforce training and employment data related to R&D. Where appropriate, comparisons are drawn with other (nonenergy) industries, and with other industrialized countries, to provide additional perspectives on resources currently devoted to or needed to support technological innovations that reduce GHG emissions.

Federal Funding for Energy-Related R&D

According to the National Science Foundation (NSF), federal spending for nondefense R&D in fiscal year (FY) 2008 totaled $55.9 billion (equivalent to $46.2 billion in FY 2000 dollars, the base year used by NSF to report historical trends) (NSF, 2008). Of this, energy R&D accounted for $1.2 billion (FY 2000 dollars), or 2.6 percent of the total. This is a sharp decline from FY 1980, when the budget authority for energy R&D totaled $6.8 billion—approximately 25 percent of all federal (nondefense) R&D spending that year (Figure 5.3). Contrast this to the trend in federal R&D devoted to health over the same period of time (FY 1980 to FY 2008), which grew from $7.0 to $24.2 billion (from about 25 percent to 52 percent of all federal nondefense R&D spending).


The decline in federal energy R&D spending—both in absolute terms and as a percentage of all federal nondefense R&D—reflects the decline in energy as a national priority after the 1970s. In large part this reflects the sharp drop in world oil prices and the increased availability of natural gas supplies in the 1980s and 1990s. During this period, the U.S. economy also underwent structural shifts away from energy-intensive heavy industries toward light industries and service sectors that reduced the national energy needs for economic growth. However, the reemergence of energy as a national priority in recent years has not yet been reflected in a rebalancing of federal R&D spending. By way of illustration, it would require a 20-fold increase in the FY 2008 level of federal energy R&D spending to equal federal health R&D spending, a sixfold increase to equal federal space R&D spending, and a fivefold increase to equal federal “general science” R&D spending.


Recently there has been some increase in energy-related funding. Figure 5.4 shows Department of Energy (DOE) budget authority for R&D (excluding support for basic energy sciences) from FY 1980 through the FY 2010 budget request (Gallagher and Anadon, 2009). The column labeled “ARRA” shows the funding appropriated in the 2009 American Recovery and Reinvestment Act, which (unlike the annual budget fig-

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×
FIGURE 5.3 Federal R&D budget authority by budget function: 1980-2008 (in billions of year 2000 dollars). Over the past decade or so, expenditures for energy R&D have dropped, and they are much lower than for other key areas of science and technology. SOURCE: NSF (2008).

FIGURE 5.3 Federal R&D budget authority by budget function: 1980-2008 (in billions of year 2000 dollars). Over the past decade or so, expenditures for energy R&D have dropped, and they are much lower than for other key areas of science and technology. SOURCE: NSF (2008).

ures in the other columns) appropriated funds to be spent over the next 2 to 5 years. Indeed, the FY 2010 budget request (last column) was devised to complement funds provided by ARRA. Note too that the ARRA provides funding for a new programmatic initiative, ARPA-E (Advanced Research Projects–Energy), as well as $3.4 billion for various clean coal projects.


Figure 5.4 shows that, on an annual basis, total federal energy R&D spending has begun to grow in the past few years, but it is still well below (roughly half) its 1980 level. The figure also illustrates the shifting of priorities within the federal energy R&D budget over time. For example, funding for research on nuclear fission fell from about $1.5 billion (FY 2000 dollars) in 1980 to nearly zero in 1998, before beginning to rise again in 2002. Other categories of spending also experienced wide fluctuations during this 30-year period.


It is also instructive to benchmark U.S. government spending on energy R&D against that of other industrialized countries. To account for the different sizes of national economies, Figure 5.5 (developed from data published by the International Energy

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×
FIGURE 5.4 DOE budget authority for energy R&D: FY 1980 to FY 2010 request (in millions of year 2000 dollars). Although annual federal R&D spending for energy has begun to grow in the past few years, it is still well below its 1980 level. SOURCE: Gallagher and Anadon (2009).

FIGURE 5.4 DOE budget authority for energy R&D: FY 1980 to FY 2010 request (in millions of year 2000 dollars). Although annual federal R&D spending for energy has begun to grow in the past few years, it is still well below its 1980 level. SOURCE: Gallagher and Anadon (2009).

Agency [IEA]) shows government energy R&D spending as a share of gross domestic product (GDP), comparing the United States and Japan from 1974 through 2008 (IEA, 2009a). Both countries increased federal energy R&D spending in response to the oil shocks of the 1970s, then decreased funding in the 1980s when the crisis subsided. The reduction in U.S. spending, however, came earlier and was larger and more prolonged than in Japan.


Since around 1990, Japan’s energy R&D spending as a share of its GDP has remained at about 0.08 to 0.10 percent. In contrast, U.S. spending as a share of GDP continued to fall until about 1997, eventually leveling off at between 0.02 and 0.03 percent. It is noteworthy that, from 1992 to 2007, Japanese government spending on energy R&D also exceeded U.S. federal spending on an absolute basis (measured in 2008 prices and exchange rates), even though the GDP of Japan is about a third that of the United States. Other governments that spend a larger share of their GDP on energy R&D than

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×
FIGURE 5.5 U.S. and Japanese government energy R&D spending as a percent of GDP: 1974-2008. For the past three decades, the U.S. percentage spending has been considerably lower than that of Japan. SOURCE: IEA (2009a).

FIGURE 5.5 U.S. and Japanese government energy R&D spending as a percent of GDP: 1974-2008. For the past three decades, the U.S. percentage spending has been considerably lower than that of Japan. SOURCE: IEA (2009a).

the United States include (for the period 2005-2008) Finland, Korea, France, Canada, Denmark, Norway, and Sweden (IEA, 2009a). These data suggest that energy R&D is less of a national priority in the United States than in many other industrialized nations.

Private-Sector Funding of Energy-Related R&D

The level of private-sector funding of energy-related R&D is much more difficult to determine. The IEA estimates the total worldwide spending on energy-related R&D by private firms at between $40 and $60 billion per year, although it notes that this spending is “only partly related to clean energy” (IEA, 2009b). Although firms report R&D spending for tax purposes, they are not required to report the purpose of such spending. However, some insights are available from surveys conducted periodically by the NSF, which reports that in 2007 energy-related R&D funding by U.S. industry totaled approximately $5.3 billion.


A widely used indicator of the intensity of R&D spending by industry is the ratio of R&D spending to sales. In 2006-2007, the average ratio for all U.S.-based companies (in the top 1,400 global R&D performers) was 4.5 percent, while firms in 11 research-

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×

intensive U.S. industries spent an average of 6.5 percent (Table 5.2). Four industries showed especially high percentages: pharmaceuticals and biotechnology (16.7 percent), software and computer services (10.6 percent), technology hardware and equipment (9.6 percent), and heath care equipment and services (7.8 percent).1 For industries where R&D spending has a high probability of being energy-related—oil/gas production and oil equipment, services, and distribution—the ratio of R&D spending to sales was in the range of only 0.2 to 2.2 percent (Table 5.3). R&D spending by the top firms identified as utilities (among the top 1,400 global R&D performers) averages ~0.7 percent of sales. Note that no U.S.-based firms in the electricity production industry are included among this list (Table 5.4).


How does this compare to R&D spending by the U.S. electricity industry? The most recent information we were able to locate was from the Government Accountability Office (GAO, 1996). This study showed that, based on data collected from 80 companies of the 112 largest operating utilities, their spending for R&D was reduced from about $708 million in 1993 to about $476 million in 1996.2 (Spending had been level in real dollars for the previous 10 years.) In 1994, utilities on average devoted about 0.3 percent of their revenues to R&D. The GAO interviewed utility R&D managers who reported that, due to deregulation, utilities were shifting the focus of their R&D from collaborative projects benefiting all utilities to proprietary R&D, and that companies were shifting from long-term advanced technology R&D (e.g., advanced gas turbine and new fuel cells) to short-term projects that would be profitable and provide a near-term competitive edge. In fact, the R&D managers at the nation’s two largest utilities, Pacific Gas & Electric and Southern California Edison, said that their advanced technology R&D programs had been eliminated.


Of course, not all energy-related R&D undertaken by private industry occurs just within the energy-producing industries; indeed, U.S. utilities have historically relied upon the companies from which they purchased equipment to undertake R&D. For example, General Electric, a major supplier to the utility industry, spent $3 billion on R&D in 2007-2008, which represents 2 percent of its sales and 12 percent of its profits. The company was ranked 17th in the United States and 43rd in the world in terms of R&D spending. However, because of the complexity of corporate structures and business

1

These figures are based on data for total R&D spending by the top 1,400 firms in the world, of which 536 firms were based in the United States (DIUS, 2009). To be included in this list, a firm had to spend at least $36 million in R&D. To avoid distortion due to a small number of firms in an industry, the data in Table 5.2 include only industries in which there are 10 or more U.S.-based firms included in the list.

2

The 112 largest investor-owned public utilities accounted for over 93 percent of all nonfederal utility R&D spending and were responsible for about three-quarters of all electricity sales.

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×

TABLE 5.2 Year 2007-2008 R&D Spending by Industry for U.S.-Based Firms Included in the List of the Top Global Companies Ranked by R&D Investment

 

R&D Investment (millions)

Sales (millions)

R&D/Sales (%)

All U.S.-based companies composite (536 companies)

$209,026

$4,622,394

4.5

Industry sectors reporting data for 10 or more U.S.-based firms (number of U.S. companies)

 

 

 

Pharmaceuticals and biotechnology (80)

$50,410

$302,159

16.7

Software and computer services (72)

$29,712

$279,566

10.6

Technology hardware and equipment (134)

$51,833

$540,022

9.6

Health care equipment and services (36)

$6,831

$87,093

7.8

Automobiles and parts (19)

$20,617

$529,056

3.9

Electronic and electrical equipment (34)

$4,204

$111,187

3.8

Aerospace and defense (17)

$9,553

$287,064

3.3

Chemicals (28)

$5,949

$222,893

2.7

Household goods (11)

$3,227

$131,401

2.5

Industrial engineering (20)

$4,411

$182,367

2.4

General industrials (13)

$6,745

$284,779

2.4

Total these sectors (464 companies)

$193,492

$2,957,588

6.5

Percent of all U.S.-based companies for which data are reported (86.6%)

92.60%

64.00%

 

NOTE: Includes only industries listing 10 or more U.S. firms, and R&D spending is worldwide spending by these U.S.-based companies. SOURCE: Compiled from the U.K. Department for Innovation, Universities & Skills, the 2008 R&D Scoreboard (2009).

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×

TABLE 5.3 R&D Investment by U.S. Firms in the Oil and Gas Production and the Oil Equipment, Services, and Distribution Industries Included in the 2008 List of the Top 1,400 Global Companies Ranked by R&D Investment

 

R&D Investment (million)

Sales (million)

R&D/Sales (%)

Oil and gas productiona

$1,536

$741,138

0.2

Oil equipment, services, and distributionb

$1,905

$85,009

2.2

aExxon Mobil, Chevron, and ConocoPhillips

bSlumberger, Baker Hughes, Halliburton Weatherford International, Smith International, BJ Services, FMC Technologies, Grand Prideco, and McDermott International.

SOURCE: Same as Table 5.2.

TABLE 5.4 R&D Spending by All Firms Identified as “Utilities” in the 2008 List of the Top 1,400 Global Companies Ranked by R&D Investment.

 

R&D (million)

Sales (million)

R&D/Sales (%)

Total all firms

$2,670

$413,416

0.6

Korea Electric Power, South Korea

$644

$31,127

2.1

Electricité de France, France

$548

$87,192

0.6

Vattenfall, Sweden

$174

$22,225

0.8

Hydro-Quebec, Canada

$101

$12,497

0.8

Iberdrola, Spain

$95

$25,539

0.4

Taiwan Power, Taiwan

$64

$12,391

0.5

Energie Baden, Germany

$58

$21,652

0.3

Enel, Italy

$42

$62,423

0.1

Total for eight Japanese firmsa

$942

$138,369

0.7

aTokyo Electric, Kansai Electric, Chibu Electric, Khushu Electric, Tohoku Electric, Chugoku Electric, Electric Power Research, and Shikoku Electric.

SOURCE: Same as Table 5.2.

units, there is no clear way to determine the energy-related portion of that total R&D spending. GAO cites an estimate (from a study of the Electric Power Research Institute) that in 1988 all U.S. manufacturers spent $200 million on electricity-related R&D (GAO, 1996).

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×

Overall, these data suggest that the current rate of R&D spending by U.S. energy industries is far below that of other industries whose products and profits depend more strongly on the ability to innovate. This suggests that transforming the U.S. energy sector will require a significant increase in private-sector R&D spending to develop and commercialize new low-emissions technologies. In general, the level of private-sector spending on R&D is motivated mainly by its value to a firm’s profitability. Thus, substantial increases in energy-related R&D expenditures will occur only if government policies create conditions under which firms anticipate that such spending is likely to yield attractive financial returns in the foreseeable future.

Workforce Available to Support Technological Innovation

Accelerating the pace of technological change to reduce GHG emissions will require a skilled workforce in all stages of the technological change process depicted in Figure 5.2 (i.e., not only for the development but also for the diffusion of new technologies). Chapter 6 discusses the overall employment impacts of policies to reduce GHG emissions. This section focuses on one of the key human resources needed to support a vigorous, sustained effort in technology innovation: the supply of scientists and engineers working in industry, universities, government laboratories, and other venues to invent and bring to commercial readiness a host of new technologies.

R&D Scientists and Engineers in Industry

The NSF publishes information on the number of R&D scientists and engineers employed by various industries. Table 5.5 shows these data for 2004, the latest year for which they are available. In that year, industry employed a total of 1.1 million R&D scientists and engineers. Seventy-five percent were employed by only five industries: computer and electronic products; professional, scientific, and technical services; transportation equipment; information (including telecommunications and software); and chemicals. All of these five industries (except transportation) had more than 100 R&D workers per 1,000 employees, or more than 10 percent of the workforce. For the computer and electronic products industry, 20 percent of the workforce was in R&D. The average across all industries was 7.1 percent.


For utilities (the only energy-producing industry for which NSF provides data), R&D employees constitute only 0.3 percent of the labor force—a very low level relative to other U.S. industries. This is consistent with the comparatively low level of R&D funding

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×

seen earlier. To match the average R&D workforce for all U.S. industries, the utilities industry alone would need to employ an additional 19,000 R&D scientists and engineers.


As noted earlier, R&D relevant to the utility industry also is performed in other industries that service and supply technology to utility firms. Unfortunately, however, data are not readily available to obtain a comprehensive picture of this broader energy R&D workforce, or of other segments of the economy responsible for GHG emissions. Nonetheless, the qualitative conclusion that emerges from available data is that the energy sector does not appear well positioned at present to undertake a major program of technological innovation to reduce GHG emissions. Additional personnel with science and engineering training will be needed.

Engineering and Science Graduates

The NSF publishes data on the number of graduates from U.S. colleges and universities majoring in different disciplines (NSF, 2008). Figure 5.6 shows the trends in undergraduate (B.S.) and graduate (M.S. and Ph.D.) degrees in fields of science and engineering (S&E)3 and compares this to the trends in total non-S&E degrees over this period. All data are normalized to the total U.S. population in a given year to give a better picture of the relative popularity of different degree programs. Undergraduate degrees in non-S&E fields (as a percentage of the U.S. population) have risen significantly since 1985. In contrast, the percent of undergraduate degrees in all S&E fields has been relatively flat over the past four decades. The trend in total graduate degrees (M.S. plus Ph.D.) over the past two decades for S&E fields has been roughly constant since 1970, while for non-S&E fields there was steady and sizeable growth. Figure 5.7 shows further details for the S&E category, displaying the separate degree trends for science and engineering fields. While the percentage of B.S. degrees in science fields has grown significantly over the past two decades, the percentage for engineering fields has declined by nearly 50 percent since its high in the mid-1980s.


Sustained progress in technological innovations to reduce GHG emissions is likely to require increasing numbers of engineers and scientists in a variety of disciplines. This will require reversing some of the historical trends displayed in Figure 5.5. Actions by both the private sector and the public sector will be needed to achieve that end. Direct and indirect support for technological innovation also will require the training of large numbers of industrial workers who may not require a college degree but who

3

The S&E fields included here are biological and agricultural sciences; earth, atmospheric, and ocean sciences; mathematics and computer sciences; physical sciences; and engineering. See NSF (2008) for details of the subfields included in each category. The non-S&E figures include psychology and social sciences.

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×

TABLE 5.5 Employment of R&D Scientists and Engineers for Companies, Listed by Industry, That Perform Industrial R&D in the United States

Industry

R&D Scientists and Engineers (thousands)

R&D Scientists and Engineers as Share of Total Domestic Employment (%)

Software

93.7

39.4

Scientific R&D services

44.7

27.4

Architectural, engineering, and related services

41.4

26.4

Communications equipment

49.9

23.8

Semiconductor and other electronic components

97.4

23.7

Computers and peripheral equipment

45.1

18.3

Pharmaceuticals and medicines

79.9

17.0

Navigational, measuring, electromedical, and control instruments

74.6

16.6

Computer systems design and related services

74.5

15.4

Other information

22.0

11.5

Other computer and electronic products

6.2

11.3

Wholesale trade

15.5

10.0

Machinery

62.6

9.4

Resin, synthetic rubber, fibers, and filament

9.4

9.4

Other professional, scientific, and technical services

13.5

8.9

Motor vehicles, trailers, and parts

89.2

8.6

will need advanced (post-high school) training offered in community colleges and other institutions.4

4

The American Wind Energy Association reported that, at the end of 2008, it was able to identify over 100 educational institutions that are offering or developing programs that focus on wind or renewable energy. These programs ranged from certificate programs and 2-year associate degrees that focus on wind technician training, to bachelor’s and graduate degrees that benefit a range of areas specific to the wind industry (AWEA, 2009).

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×

Industry

R&D Scientists and Engineers (thousands)

R&D Scientists and Engineers as Share of Total Domestic Employment (%)

Medical equipment and supplies

13.9

6.6

Aerospace products and parts

37.9

6.1

Basic chemicals

10.6

5.9

Other chemicals

18.6

5.7

Electrical equipment, appliances, and components

19.4

5.6

Other miscellaneous manufacturing

7.9

5.5

Newspaper, periodical, book, and database

4.8

4.6

Health care services

6.0

3.8

Plastics and rubber products

14.1

3.3

Fabricated metal products

15.7

3.3

Paper, printing, and support activities

14.6

3.1

Finance, insurance, and real estate

22.3

2.6

Other transportation equipment

7.0

2.4

Broadcasting and telecommunications

10.9

1.6

Food

11.7

1.3

Construction

0.8

0.5

NOTES: Data recorded on March 12, 2004, represent employment figures for the current year. Data recorded in January 2005 represent employment figures for the previous year. The method used to assign industry classifications has changed; industry-specific estimates for 2004 are not directly comparable with previous years. Detail may not add to total because of rounding. Excludes data for federally funded R&D.

SOURCE: National Science Foundation Division of Science Resources Statistics, Survey of Industrial Research and Development: 2004.

Key Findings on Available Resources

Fostering technological innovations to reduce GHG emissions on a large scale will require widespread efforts to develop and deploy low-emissions technologies. A vibrant and sustained R&D program, especially focused on low-emissions energy production and utilization technologies, is a cornerstone of that process, along with the availability of a skilled R&D workforce. In this regard, a review of current U.S. resources devoted to such efforts, in both public and private sectors, presents cause for concern.

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×
FIGURE 5.6 Trend in U.S. undergraduate (B.S.) and graduate (M.S. plus Ph.D.) degrees granted as a percentage of the total population. The science and engineering (S&E) fields include biological and agricultural sciences; earth, atmospheric, and ocean sciences; mathematics and computer sciences; physical sciences; and engineering. Non-S&E includes all other degrees. The trend in total graduate and undergraduate degrees in S&E as a percentage of the U.S. population has been roughly constant since 1970. SOURCES: Based on data from NSF (2008); U.S. population data from U.S. Census Bureau (2000, 2007).

FIGURE 5.6 Trend in U.S. undergraduate (B.S.) and graduate (M.S. plus Ph.D.) degrees granted as a percentage of the total population. The science and engineering (S&E) fields include biological and agricultural sciences; earth, atmospheric, and ocean sciences; mathematics and computer sciences; physical sciences; and engineering. Non-S&E includes all other degrees. The trend in total graduate and undergraduate degrees in S&E as a percentage of the U.S. population has been roughly constant since 1970. SOURCES: Based on data from NSF (2008); U.S. population data from U.S. Census Bureau (2000, 2007).

Federal Support for Energy-Related R&D

Federal funding for energy-related R&D has declined dramatically over the past several decades, both in absolute terms and relative to other national R&D priorities such as health and space exploration. The United States also lags behind other leading countries in the fraction of national resources devoted to energy-related R&D. To achieve parity with health-related federal R&D spending (as was the case in 1980), energy-related R&D would have to be increased 20-fold over recent (FY 2008) levels—an increase of $23 billion per year (in constant FY 2000 dollars). To achieve parity with

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×
FIGURE 5.7 Breakdown of S&E trend in U.S. undergraduate (B.S.) and graduate (M.S. plus Ph.D.) degrees granted as a percentage of the total population, showing the separate trends for science fields and engineering fields. The trend in undergraduate science degrees as a percentage of the U.S. population has been rising over the past two decades but the percentage for undergraduate engineering degrees has fallen significantly since the 1980s. SOURCE: Based on data from NSF (2008).

FIGURE 5.7 Breakdown of S&E trend in U.S. undergraduate (B.S.) and graduate (M.S. plus Ph.D.) degrees granted as a percentage of the total population, showing the separate trends for science fields and engineering fields. The trend in undergraduate science degrees as a percentage of the U.S. population has been rising over the past two decades but the percentage for undergraduate engineering degrees has fallen significantly since the 1980s. SOURCE: Based on data from NSF (2008).

federal funding for space-related R&D would require a sixfold increase—roughly an added $7 billion per year. Even a return to 1980 levels of energy-related R&D would require an additional $5 billion per year in federal funding relative to FY 2008 levels.


Although such increases are large relative to recent budgets, they are likely to represent only a portion of the total (government plus private sector) R&D investment needed in the decades ahead. It is important to keep in mind, however, that the potential returns from R&D are very large. For example, Figure 5.1 suggests that having more advanced technology choices available to control GHG emissions could greatly reduce the carbon price needed to control emissions. If the United States is to reduce its GHG

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×

emissions to attain the budget targets discussed in Chapter 2, even a small reduction in future carbon prices as a result of R&D investments would significantly reduce the total cost of achieving these targets.


This report does not attempt to recommend the structure or priorities of a federally supported R&D agenda to limit the magnitude of climate change, because detailed assessments of such R&D needs have been developed in many other recent studies by the National Research Council and other organizations (e.g., American Physical Society, 2008; DOE, 2009; NRC, 2009a; PCAST, 2008; IEA Technology Roadmaps5). Those efforts represent a strong starting point for further deliberations and planning. What is emphasized in this report is the urgent requirement for substantially increased federal resources for R&D to reduce GHG emissions. Substantial additional R&D funding from the private sector also is critical, and federal policies will be needed to bring this about.


Although federal R&D funding cannot by itself ensure that energy-saving and GHG-reducing technologies will achieve widespread use in an economy, it nonetheless plays a critical role in the overall process of technological change. Federally funded basic R&D provides the starting point for many (if not most) significant energy-related innovations, and federally funded assistance for technology development often is the catalyst for turning technological innovations into practical products that are sought in the marketplace (NRC, 2001). And while the level of federally funded R&D is extremely important, it is also important that funding be relatively stable over time—not only to attract and retain a high-quality R&D workforce but also to avoid the disruptive “boom and bust” patterns of past federal energy R&D spending, which causes the private sector to question the long-term market potential and value of pursuing new product development.

Private-Sector Support for Energy-Related R&D

Private-sector funding of energy-related R&D is also critical for achieving the innovations needed to reduce GHG emissions on a large scale. Here too, however, the current picture for U.S. industries appears rather bleak. A widely used indicator of innovative activity is the ratio of R&D spending to industry-wide sales. For U.S.-based energy companies, this ratio is far below that of other leading technology-based industries, suggesting a major shortfall in the ability of the U.S. energy industry to bring about the technological innovations that are needed. Transforming the U.S. energy industry

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×

in a carbon-constrained world will clearly demand a significant increase in private-sector R&D.

Workforce to Support Technological Innovation

Achieving major innovations to reduce GHG emissions will require a workforce with a broad range of skills. The ability to innovate will especially require increasing numbers of engineers and scientists in a variety of disciplines. As a percentage of the total workforce, however, limited data suggest that U.S. energy industries currently have far fewer R&D workers than the average for all U.S. industries. The percentage of U.S. graduates in engineering also has declined significantly in the past two decades. Actions by both private and public sectors will be needed to reverse these trends.

ASSESSMENT OF CURRENT U.S. INNOVATION POLICIES

As noted earlier, achieving and accelerating technological changes that reduce GHG emissions on a significant scale will require policies not only to promote and sustain a vigorous program of R&D but also to establish and expand markets for low-GHG technologies and to help commercialize and bring new technologies to the marketplace. Table 5.1 listed some of the “technology policy” options available, along with regulatory policies, to help achieve these ends. This section briefly assesses the actual state of current U.S. policies related to these objectives to identify any major deficiencies or limitations that must be addressed to foster needed technological innovations.

Overview of Current Policies

The federal government has many programs, policies, and measures aimed at encouraging the commercialization and deployment of technologies that reduce, avoid, or capture and sequester emissions of GHGs. A recent report by the Committee on Climate Change Science and Technology Integration (CCCSTI) (DOE, 2009) identified more than 300 such policies and measures, which it grouped into nine categories of “deployment activities”: tax policy and other financial incentives; technology demonstrations; codes and standards; coalitions and partnerships; international cooperation; market conditioning including government procurement; education, labeling, and information dissemination; legislative acts of regulation; and risk mitigation.6 The

6

The CCCSTI was a cabinet-level committee created in February 2002 to coordinate climate change science and technology research. At the time the above report was released, the Secretary of Energy was

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×

comprehensive taxonomy and lists developed in the CCCSTI report underscore just how many different federal policies can impact innovation related to the reduction of GHGs, and the importance of choosing policies that will have the intended impacts.


Current U.S. policies that directly or indirectly support technological innovation have contributed to the progress made to date in decreasing the demand for some types of energy services (such as lighting and refrigeration) and in enabling increased use of some low-carbon energy supplies (such as wind and solar power). However, there are critical areas in which current policies and actions are inadequate or absent.

Limitations of Current U.S. Policies

As catalogued in detail in the CCCSTI report, current U.S. policies have gaps in certain technology areas or market sectors that are important to reducing GHG emissions. Many of these policy gaps result in a lack of clear market signals regarding commercial opportunities for companies to invest in new technologies and related R&D to enhance their competitive advantage. Table 5.6 summarizes an array of policies deemed by Brown and Chandler (2008) as unfavorable (those that place clean energy technologies at a competitive disadvantage) or as ineffective (those with design flaws that undermine their intended outcomes).


At present, market incentives for low-GHG technologies are driven primarily by state-or regional-level policies, such as renewable-energy portfolio standards, with federal R&D assistance at the earlier stages of development, as previously discussed. Without such regulatory requirements or an explicit price on GHG emissions, however, low-GHG technologies must compete in markets that do not value low emissions. Thus, the most critical need at this time is for federal policies that create or expand markets for low-GHG emissions technologies on a level playing field. As discussed in Chapter 4, we suggest that a portfolio of strategies, including an appropriate price on GHG emissions together with strategically targeted complementary policies, is the most effective way to foster innovation and markets for new technologies.7


The existence of policies does not imply or guarantee their effectiveness. For example,

Chair of the CCCSTI, the Secretary of Commerce was Vice Chair, and the Director of the White House Office of Science and Technology Policy was the Executive Director.

7

We note that market dynamics may not prove effective in certain cases. For example, the regulated power supply industry faces limited opportunities to garner returns on R&D investments because public utility commissions rule on rate cases and set prices and returns on investments that are generally less than the profits sought in competitive industries. Thus, additional incentives or mechanisms may be needed to achieve the desired outcomes.

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×

TABLE 5.6 Examples of Policy Impediments to Clean Energy Technologies

Unfavorable Fiscal Policies

Tax subsidies

Oil and gas depletion allowances allow owners to claim a depletion deduction for loss of their reserves.

 

 

The link between federal transportation funding and vehicle miles traveled rewards the growth of transportation energy use.

 

Unequal taxation of capital and operating expenses

The federal tax code discourages capital investments in general, as opposed to direct expensing of energy costs.a

 

Unfavorable tariffs

Utilities impose tariffs (e.g., standby charges, buyback rates, and uplift fees) on small generators seeking to connect to the grid.b

 

Utility pricing policies

Unfavorable electricity pricing policies present obstacles for an array of clean energy technologies; these include the regulated rate structure, lack of real-time pricing, and imbalance penalties.

 

 

In traditionally regulated electricity markets, electric utilities face little incentive to promote energy efficiency or distributed generation, because utility company profits are a function of sales. California and a few other states have decoupled utility profits from energy sales. Fourteen states have enacted decoupling in natural gas markets and six states have in electricity markets.

Ineffective Fiscal Policies

Examples

The Internal Revenue Service has yet to establish guidelines that clarify the eligibility criteria and spell out procedures for claiming tax credit for fuel cells authorized in the Energy Policy Act of 2005.

 

 

Tax credits intended to promote the purchase of hybrid electric vehicles and residential photovoltaic systems have limited value because of the Alternative Minimum Tax, which sets a floor for tax liability.

 

 

Many states have property tax laws that provide incentives for landowners to develop their forestland for higher use rather than leave the forest standing or continue timber production.

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×

Fiscal Uncertainty

Fiscal incentives

Limited-duration tax policies such as production or investment tax credits.

 

Fiscal penalties

Utilities may be penalized for promoting energy efficiency due to reduced sales, if the energy efficiency program and impacts are not accounted for in rate rulings or other fiscal measures (e.g., return on assets vs. sales).

Unfavorable Regulatory Policies

Performance standards

Exempting existing facilities from strict emissions requirements placed on new plants discourages technological progress and capital stock turnover.

 

 

Emissions standards that are input based rather than output based discourage process improvements that would result in lower emissions.

 

Connection standards

The ban on private electric wires crossing public streets penalizes local generation of electricity, which could reduce transmission losses and increase overall efficiency.c

Ineffective Regulations

Regulatory loopholes

Federal Corporate Average Fuel Economy standards credit vehicles for flexible fuel (E-85 capability) regardless of how they are fueled after purchase or their fuel mileage.

 

 

Zoning for low-density urban development contributes to sprawl and locks in dependence on cars rather than multiuser transit.

 

 

Several clean energy technologies, such as carbon capture and hydrogen, are challenged by inadequate regulatory frameworks.

 

Burdensome permitting processes

Regulatory uncertainty—regarding whether or not GHG will be regulated or how current technologies will fare under new regulatory processes—impedes rational investment decisions.

 

 

Multiple agency reviews and approvals required for most energy facilities slow down the process and place an undue burden on the developer.

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×

Regulatory Uncertainty

Lack of modern and enforceable building codes

Building codes that are not enforced are based on outdated technology or allow trade-offs that mitigate use of existing technology discourage adoption of clean energy technologies.

Unfavorable Statutes

State procurement policies

When state agencies cannot contract over more than one fiscal year, they are unable to take on capital improvements that are cost-effective in the long run.d

 

Uncertain property rights

Property rights for subsurface and above-surface areas are unclear. In some cases, particularly coalbed methane, geologic storage of carbon dioxide, and wind energy, property rights for these areas must be defined to provide investment certainty.

a U.S. tax rules require capital costs for commercial buildings and other investments to be depreciated over many years, whereas operating costs can be fully deducted from taxable income (26 USC § 168). Since efficient technologies typically cost more than standard equipment, this tax code penalizes efficiency.

b For example, small generators hoping to connect to the grid in the mid-Atlantic area must undergo a review at a cost of $10,000 to the generator before being allowed to tap into the PJM (Pennsylvania, New Jersey, Maryland) grid interconnection (Sovacool and Hirsch, 2007)

c Bans on private wires and metering rules have historically inhibited the installation of distributed generation (DG) systems in the United States (Alderfer et al., 2000; Mueller, 2006; Sovacool and Hirsh, 2007).

d Energy service companies deliver energy-efficiency upgrades to industrial, commercial, and government facilities through energy-saving performance contracts with an energy service company—a business that develops, installs, and finances projects to improve the energy efficiency and maintenance costs of facilities. Increasingly, this contracting mechanism is being used by government agencies to upgrade the efficiency of government-owned buildings. But many state constitutions prohibit the obligation of funds in advance of their being appropriated, which can prohibit multiyear contracting with energy services companies.

SOURCE: Based on Brown and Chandler (2008).

the production tax credit is often cited as a key policy instrument for stimulating investments in clean energy technologies, such as wind turbines. However, in the United States there is a history of enacting such policies for relatively short durations, followed by reauthorization after the policy has expired. This “on again, off again” behavior creates strong market uncertainty and causes abrupt changes in business investments and R&D (Wiser et al., 2007). Thus, stability in the policy environment is an important factor in sustaining a climate of technology innovation. This is essential to encourage consistent corporate investments over the long lead times needed for commercial success.

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×

As noted earlier, U.S. government investments in energy-related R&D programs have been very low compared to R&D in other areas such as health and space. Private-sector R&D in energy industries also is extremely low compared to the national average for all industries, and especially low compared to innovative industries such as information technologies or biotechnology. Expanding direct R&D programs for low-emissions energy production and utilization, as well as other areas related to GHG emissions reductions, is also a critical element of a comprehensive policy.


As seen earlier, current levels of R&D workers in energy industries also are significantly below industry-wide averages, and the downward trend in percentages of U.S. graduates in key professional fields such as engineering is not encouraging. Thus, expanded education and workforce development efforts are likewise crucial elements of any innovation strategy. There is a need for increased financial support across the educational spectrum. Alignment of program strategies in research organizations and government agencies that support education and workforce development—including but not limited to NSF, the U.S. Department of Agriculture, DOE, and the Departments of Interior, State, and Defense—may offer significant synergies and leverage in this regard. Greater efforts to not only attract but also retain innovation scientists would help address the trend of foreign nationals obtaining advanced degrees in the United States and then emigrating for future employment.


Even with new innovations, the pace of technological change can be slowed by the prevalence of long-lived assets (especially in the energy sector) and the potential for technology lock-in (Grübler, 2004). Policy approaches necessary to transform the landscape of long-lived assets at the appropriate speed and scale are discussed in Chapter 4.


As described earlier, residential and commercial buildings represent one of the key sectors with major opportunities for innovations that help limit GHG emissions. Institutional barriers such as the “principal agent” problem have been reported in detail (Popp et al., 2009) and were discussed in Chapter 4 of this report. Alignment of incentives to support technology innovation, together with improved community development planning in general, would enable significant reductions in U.S. energy demand and associated GHG emissions, with high effective returns (e.g., low abatement costs). Policies to support early commercialization and large-scale adoption are also lacking in a number of critical areas, such as carbon sequestration and non-CO2 GHG reductions. These deficiencies must be dealt with effectively through the range of policy measures outlined above and elaborated earlier in Chapter 4.


The items highlighted above are not intended to be a comprehensive list of the limitations in current U.S. policies affecting technological innovation. They do, however,

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×

represent what we believe are some of the most crucial issues that must be addressed to create an effective policy environment for innovations needed to reduce GHG emissions. Many of these items also have been identified in other recent studies (e.g., NSB, 2009). The following section presents a number of recommendations based on the findings and conclusions of this chapter.

KEY CONCLUSIONS AND RECOMMENDATIONS

A critical component of any climate change limiting policy is technological change that replaces current GHG-intensive technologies with low-GHG technologies. In many cases this requires advanced technologies that have not yet been invented, commercially developed, or adopted at a significant commercial scale. Given the magnitude and rate of technological changes needed to limit future climate change, there is an immediate need to adopt policies to accelerate technological innovation throughout the U.S. economy. Such policies also will enhance the competitive position of the United States as a developer and marketer of technologies to address climate change.


The process of technological change involves the stages of invention, innovation, adoption, and diffusion. The first two stages encompass the traditional domain of R&D, while the latter stages require markets for new or advanced technologies. Because these stages are highly interdependent, policies to promote technological innovation need to be comprehensive and not focused solely in one area.


Direct federal support for R&D and the training of a skilled R&D workforce are especially critical for fostering technological innovation. The Federal Budget is a powerful and tangible statement of the nation’s priorities. Comparing across different policy areas, we find that federal R&D spending on energy in FY 2008 was approximately one-twentieth of federal R&D spending on health, one-sixth of federal R&D spending on space, and one-fifth of federal R&D spending on general science. Comparing across time, we find that energy R&D spending in FY 2008 accounted for approximately 2.6 percent of total federal (nondefense) R&D spending, a 10-fold decline from its peak of approximately 25 percent in FY 1980. Comparing internationally, we find that U.S. spending on energy R&D as a share of GDP is considerably lower than that of several other leading industrialized countries.


The 2009 American Recovery and Reinvestment Act provided a significant one-time increase in federal energy R&D expenditures, but we have not yet seen the type of sustained changes in federal R&D spending that would indicate energy to be a high national priority. While recommendations for desired levels and priorities for federal energy R&D spending are outside the scope of this study, we do find that the level and

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
×

stability of current spending do not appear to be consistent with the magnitude of R&D resources needed to address the challenges of limiting climate change. In regard to the private sector, compared to other U.S. industries, the U.S. energy sector currently spends very little on R&D relative to income from sales and employs very few R&D workers. Substantial increases in private-sector investments in R&D will be needed to foster innovation and technological change.


Creating and expanding markets for low-GHG-emissions technologies are also critical to spur innovation. Table 5.1 identifies a wide range of policy options, in addition to traditional R&D spending, that the federal government can use to help spur technological innovation and expand markets for low-GHG-emissions technologies. Creating some form of substantial and sustained carbon-pricing system (discussed in Chapter 4) is likely to be of the utmost importance in stimulating the development and deployment of new technologies and approaches to reducing GHG emissions.

Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
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Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
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Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
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Suggested Citation:"5 Fostering Technological Innovations." National Research Council. 2010. Limiting the Magnitude of Future Climate Change. Washington, DC: The National Academies Press. doi: 10.17226/12785.
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Climate change, driven by the increasing concentration of greenhouse gases in the atmosphere, poses serious, wide-ranging threats to human societies and natural ecosystems around the world. The largest overall source of greenhouse gas emissions is the burning of fossil fuels. The global atmospheric concentration of carbon dioxide, the dominant greenhouse gas of concern, is increasing by roughly two parts per million per year, and the United States is currently the second-largest contributor to global emissions behind China.

Limiting the Magnitude of Future Climate Change, part of the congressionally requested America's Climate Choices suite of studies, focuses on the role of the United States in the global effort to reduce greenhouse gas emissions. The book concludes that in order to ensure that all levels of government, the private sector, and millions of households and individuals are contributing to shared national goals, the United States should establish a "budget" that sets a limit on total domestic greenhouse emissions from 2010-2050. Meeting such a budget would require a major departure from business as usual in the way the nation produces and uses energy-and that the nation act now to aggressively deploy all available energy efficiencies and less carbon-intensive technologies and to develop new ones.

With no financial incentives or regulatory pressure, the nation will continue to rely upon and "lock in" carbon-intensive technologies and systems unless a carbon pricing system is established-either cap-and-trade, a system of taxing emissions, or a combination of the two. Complementary policies are also needed to accelerate progress in key areas: developing more efficient, less carbon-intense energy sources in electricity and transportation; advancing full-scale development of new-generation nuclear power, carbon capture, and storage systems; and amending emissions-intensive energy infrastructure. Research and development of new technologies that could help reduce emissions more cost effectively than current options is also strongly recommended.

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