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Catalyst for Energy Industry Innovation? Federal Funding, Says Council

The U.S. government's funding and partnerships with the energy industry have helped develop energy technologies much faster than the private sector could have done alone, leading to benefits sooner than may have been possible, according to the American Energy Innovation Council.

The Bipartisan Policy Center project's report, issued on Tuesday, outlines how the private sector and the government have partnered successfully to create, for instance, unconventional drilling technologies, electric vehicles, advanced diesel and energy efficiencies.

"Private markets generally do not exist for society-wide interests, such as ensuring long-term economic competitiveness, maintaining energy security or protecting the environment," the authors said. "The government can play the role of catalyst to private-sector innovation -- enabling the private sector to develop new technologies more rapidly than would otherwise occur."

Over the past half-century, U.S. companies have developed the technologies and businesses that "largely shape the world's energy systems today," said the report. Energy leadership "has benefited significantly from long-standing federal support for research and development (R&D) and decades of public-private partnerships that drive innovation.

"Acting as a catalyst or instigator, government innovation investments quicken the cycles of discovery and invention."

Exploration and production companies, and oilfield services operators may take the full credit for innovation, but the private sector cannot address the nation's energy challenges by itself.

In addition, "the private sector has tended to systematically under-invest in energy development R&D relative to the societal benefits that could be realized through such investment, because businesses and investors can only capture a fraction of the value of their innovation."

Markets undoubtedly drive innovation, said the researchers, but they do so more rapidly when public policy addresses the challenges.

Among the public/private investments cited that have led to U.S. energy innovation are:

  • Unconventional natural gas exploration;
  • Aeroderivative gas turbines;
  • Alternative vehicle technologies;
  • Advanced diesel internal combustion engines; and
  • Low-emissivity windows.

Regarding unconventional gas technology, researchers noted that combining horizontal drilling with hydraulic fracturing only became commonplace in the 1990s, "after years of federal support and further innovations."

Private efforts were aided by federal funding through basic science and research mapping; coordinating and complementing industry efforts; applied research and development; and tax credits.

The Energy Research and Development Administration, the precursor to the Department of Energy, launched the Unconventional Gas Research program. The Gas Research Institute initially was funded by a charge on interstate gas sales, as approved by the Federal Energy Regulatory Commission.

Successful public investments in energy innovation "pay back many multiples for the resources put in," said the report.

Federal spending in unconventional gas R&D was about $220 million from 1976 to 1992, and the tax credits Congress used to incentivize unconventional gas production were around $10 billion, but "unconventional gas now accounts for more than $30 billion in direct economic activity annually."

By hastening the development, the benefits are generated today, as opposed to several years from now.

Public investments in developing technology "is best undertaken as part of a vibrant R&D ecosystem with interactions across domains, rather than siloed and linear approaches."

ISSN © 2577-9877 | ISSN © 1532-1231

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