Government Actions and Innovation in Clean Energy Technologies Lessons from Case Studies Environmental Technology Council Brown Bag Margaret Taylor w/Greg Nemet, Cyrus Wadia, Tyler Dillavou, Michael Colvin, and Dorothy Thornton Goldman School of Public Policy Univ. California Berkeley October 6, 2005

Today’s Road Map 1. Clean energy technologies 2. How policy can affect innovation in clean energy technologies 1. Literature review 2. The innovation process 3. Research approach at Berkeley 4. Some insights to date 5. A model?

Clean energy technologies

 Traditional Power Generation  Control Emissions  Pre-Combustion: Fuel Switching/Cleaning  Post-Combustion: Pollution Control  Reduce Power Demand  More Efficient End-Use Technologies  More End-Use Technologies Ind. of Fossil Fuels  Alternative Power Generation  Centralized  Distributed Menu of Clean Energy Technologies

How policy can affect innovation in clean energy technologies

Innovation in “Environmental” Technologies  The innovation process is different in technologies that help maintain the public good of a clean environment  Private investment incentives are particularly weak  Government role in promoting innovation is relatively strong  Government affects innovation, both directly and indirectly  Regulation  Research funding  Financial incentives (tax credits and other subsidies)  Facilitation of technology transfer…

 Mainstream Innovation Literature  Dates back to Schumpeter (1942)  Lays out definitions of processes relevant to innovation  Tackles issues of measurement – including both inputs to innovation (R and D expenditures) and outputs of innovation (patents, experience curves)  Observation of learning curve, the result of learning-by-doing  Theme of policy as inducement mechanism for innovation  Theme of demand-pull (necessity is the mother of invention) vs. technology-push (build a better mousetrap…) in driving innovation Literature Review  Environmental Technology Literature  Much shorter history  Theme of “Devil-is-in-the-details": Role of regulatory stringency, flexibility, uncertainty, etc. in driving innovation

Who? Sources of Innovation in the U.S. Outsiders Power Co’s Architect and Engineering Firms EPRI Universities Associations Government System Vendors The Innovation Process in Clean Energy Technologies

Inventive Activity Adoption and Diffusion Learning by Doing What? The development of a new technical idea First commercial implementation of an invention Process by which an adopted technology enters widespread use Improvements that occur as a result of post- adoption modifications of an innovation by users The Innovation Process in Clean Energy Technologies

Regulation/ Tax Credits Define Market Size and Growth Rate RD and D Funding Facilitating Knowledge Transfer: Conferences Publications Collaborations Inventive Activity GOVERNMENT Adoption and Diffusion Learning by Doing The Innovation Process in Clean Energy Technologies

Regulation/ Tax Credits Define Market Size and Growth Rate RD and D Funding Facilitating Knowledge Transfer: Conferences Publications Collaborations Inventive Activity GOVERNMENT Adoption and Diffusion Learning by Doing Technology Push Demand Pull The Innovation Process in Clean Energy Technologies

Research approach at Berkeley

What are the Best Environmental Policies re: Innovation?  Complexity of the government role and the innovation process makes general policy prescriptions difficult  Design details matter: stringency, flexibility, uncertainty, implementation issues, etc.  Approach: study a number of cases systematically to arrive at generalizable findings  Integrate insights from the past using complementary and repeatable quantitative and qualitative methods  Help inform models

Research Methods Patents Research Lab Activity Expert Interviews Activity in Technical Conferences Experience Curves Learning Curves Inventive Activity Adoption and Diffusion Learning by Doing Outcomes of Innovation

 Traditional Power Generation  Control Emissions  Pre-Combustion: Fuel Switching/Cleaning  Post-Combustion: Pollution Control  Reduce Power Demand  More Efficient End-Use Technologies  More End-Use Technologies Ind. of Fossil Fuels  Alternative Power Generation  Centralized  Distributed Solar water heating Large-scale wind power, solar thermal electricity Photovoltaics SO 2 * and NO x control (akin to CCS) * Performed at Carnegie Mellon University Menu of Clean Energy Technologies – Cases

Some insights to date…

RD and D Funding Inventive Activity About Public RD and D…

RD and D Funding Inventive Activity About Public RD and D…  Experts say RD and D important and, in many cases, can point to specific technological improvements  In STE, Sandia helps w/cost-cutting research  Patents, as a metric of commercially-relevant invention, say RD and D not enough without market-creating policy

Patents in SO 2 Control 1887–1997 No Federal R and D

Some Federal R and D Patents in SO 2 Control 1887–1997

CAA Regs + R and D Patents in SO 2 Control 1887–1997

Public R and D vs. Patents for Pollution Control SCR (NO x ) FGD (SO 2 )

Regulation/ Tax Credits Define Market Size and Growth Rate Adoption and Diffusion About Market-Creating Policies…

Regulation/ Tax Credits Define Market Size and Growth Rate Adoption and Diffusion About Market-Creating Policies…  Policies (and politics) can create and destroy markets for – and incentives for innovation in – clean energy technologies  California has helped the initial growth of clean energy industries through policy commitment in the past  Policy uncertainty is a disincentive to innovation  Implementation matters  Unclear whether cap-and-trade beneficial to innovation – stringency seems most important

SCR U.S. Tech. Loser Cum GWe Capacity – Coal-Fired Japan Stds 1973 German Stds 1984 Regional Ozone 1994 (NE States) NSPS 1998 (U.S.) SCAQMD 1135 (CA) U.S. Cum GWe Capacity – Wet Scrubbers CAA 1990 CAA 1977 NSPS 1979 FGD U.S. Tech. Winner

World Market for Wind Power Cumulative MWe Capacity (log-scale) Year Wind Power Online 1978 NEA - PURPA - ETA 1978 ITC 1981 ISO TX RPS 1992 PTC

Facilitating Knowledge Transfer: Conferences Publications Collaborations Learning by Doing About Learning-by-Doing and Knowledge Transfer…

Facilitating Knowledge Transfer: Conferences Publications Collaborations Learning by Doing About Learning-by-Doing and Knowledge Transfer…  Importance of niche markets:  Technology costs tend to fall while performance improves, once commercially implemented  Government plays a key role in facilitating knowledge transfer  Utility deregulation tends to inhibit R and D collaboration

Optimal Government Actions to Promote Environmental Innovation Time Government Dominant Innovation Stage Boom in Patents (Invention) Boom in Diffusion First Mover Market Failure Learning by Doing Technology Push R and D FundingFacilitate Knowledge Transfer Demand Pull Standards: Steady (Expectation of Increasing Stringency) Incentives: Volatile (Expectation of Expiring/Wrangling) Certainty