watson - innovation policy - how - should priorities be chosen tips-spru nov07
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8/8/2019 Watson - Innovation Policy - How - Should Priorities Be Chosen TIPS-SPRU Nov07
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Sussex Energy GroupSPRU - Science and Technology Policy Research
Innovation policy:(How) Should Priorities be Chosen?
Jim WatsonSussex Energy Group
TIPS/SPRU Workshop, Berlin, 27-28 November 2007
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Sussex Energy GroupSPRU - Science and Technology Policy Research
Innovation Policy
How Should Priorities be Chosen?
1 Rationales for public support
2 Why make choices?
3 How might choices be made?
4 Conclusions
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Sussex Energy GroupSPRU - Science and Technology Policy Research
Rationales for public support
for low carbon innovation
Traditional market failures:
Social returns from R&D cannot be fully captured by privatefirms, so they will tend to under invest
Environmental externalities (particularly social cost of carbon)justify market support for deployment
System failures
The need to build capacity and skills, and develop new networks(e.g. micro-generation installers; electricity network R&D)
Lock-in of existing technologies, institutions create passivebarriers to innovation (e.g. centralised infrastructure)
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Sussex Energy GroupSPRU - Science and Technology Policy Research
But should government stay out
of technology choice?
A prime consideration must be to create the right framework which
will reward the best, most cost-effective technologies andencourage their development. This means a policy that is not aboutpicking winners, but which allows the market to provide appropriateincentives.
Interdepartmental Analysts Group: Long Term Reductions in Greenhouse Gas Emissions in the UK. February 2002
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Sussex Energy GroupSPRU - Science and Technology Policy Research
Why make Choices?
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Sussex Energy GroupSPRU - Science and Technology Policy Research
Why make choices?
1. Failures as learning
Picking winners is a great idea if it can be achieved
Perhaps avoiding picking losers is more accurate this leads to anunderstandable aversion to overt priority setting
But failure is a learning process learning by doing not learningby speculating (e.g. CCS costs and performance is uncertain untilyou build a full scale plant)
Processes of review must be in place to avoid dependency; allowsupport to be withdrawn as likelihood of success diminishes
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Sussex Energy GroupSPRU - Science and Technology Policy Research
Why make choices?
1. Failures as learning
Uncertainty over the economies of scale and learning-by-doing
means that some technological failures are inevitable. Technologicalfailures can still create valuable knowledge, and the closing oftechnological avenues narrows the investment options andincreases confidence in other technologies.
Stern Review Report, Chapter 16
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Sussex Energy GroupSPRU - Science and Technology Policy Research
Why make choices?
2. Governments vs markets
The idea that government cannot pick winners and that the market
is better placed to make choices is a caricature Government have backed failures in the past (supersonic
passenger aircraft, fast breeder reactors)
Government spending has also had positive outcomes, e.g.
Cost reductions in global PV market
CCGT technology (source of UK carbon emissions reductions)
Market mechanisms are predisposed to pick options that are
nearer to commercial readiness e.g. the UKs RenewablesObligation and wind power
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Sussex Energy GroupSPRU - Science and Technology Policy Research
Why make choices?
3. Resource Constraints
0
100
200
300
400
500
600
700
800
1 9 7 4
1 9 7 6
1 9 7 8
1 9 8 0
1 9 8 2
1 9 8 4
1 9 8 6
1 9 8 8
1 9 9 0
1 9 9 2
1 9 9 4
1 9 9 6
1 9 9 8
2 0 0 0
2 0 0 2
2 0 0 4
S p e n
d i n g
( 2 0 0 4 s )
Conservation Oil & Gas Coal RenewablesNuclear Power & Storage Other
Source: IEA
UK Energy R&D Spending
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Sussex Energy GroupSPRU - Science and Technology Policy Research
Why make choices?
3. Resource Constraints
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1974 1979 1984 1989 1994 1999 2004
S p e n
d i n g
( 2 0 0 5 $ )
UK USA Japan France Germany
Source: IEA
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Sussex Energy GroupSPRU - Science and Technology Policy Research
But data from IEA dont cover everything. Some UK funding notincluded in these figures, e.g.
Funding for agencies like the Carbon Trust Funding for technology deployment (e.g. 1bn on Renewables
Obligation by 2010; new Environmental Transformation Fund)
Also misses out private sector funding: US and EU data show falls in private sector funding for energy
R&D since late 1980s; also falling patent activity
Multinationals are key in many areas of energy system, but can
their spending be analysed accurately?
Why make choices?
3. Resource Constraints
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Sussex Energy GroupSPRU - Science and Technology Policy Research
How might choices be made?
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Policy analysis of economics of low carbon technologies isimportant, but often neglects financial risks
Stage of development of different technologies can influence typeof mechanism that is most appropriate
Diversity is a good strategy, but how should it be put intopractice?
Industrial policy has been out of fashion in the UK since the 1970s,but it is often a factor in other countries decision making
How might choices be made?
Four issues
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Sussex Energy GroupSPRU - Science and Technology Policy Research
How might choices be made?
Need to consider costs and risks
Old windOld hydro
New offshore wind New CoalNew Nuclear
Old Gas
New GasNew onshore wind
Old nuclearOld coal
DTI 2000 mixDTI 2010 mix
DTI 2020 mix
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14 0.16 0.18 0.20
Risk (standard deviation)
G e n e r a t i n g
C o s t
( p / k W h )
Source: Awerbuch, Jansen et al, 2005
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Sussex Energy GroupSPRU - Science and Technology Policy Research
How might choices be made?
Experience curves can bring costs down
Source: Watanabe et al, 2000
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Sussex Energy GroupSPRU - Science and Technology Policy Research
How might choices be made?
Experience is sometimes unhelpful
0
500
1000
1500
2000
1965 1970 1975 1980 1985 1990 1995 2000
C a p
i t a l
C o s t s
( $ 1 9 9 6 / k W )
CCGT Conventional Coal
Source: Watson, 1997
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Sussex Energy GroupSPRU - Science and Technology Policy Research
How might choices be made?
Stage of development is important
Stage 1 (R&D) Stage 2 (earlydemonstration)
Stage 3 (refinement& cost reduction)
Stage 4 (earlycommercialisation)
F u n
d i n g
Current Policy Framework Ideal Profile
Source: Carbon Trustvalley of death
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Sussex Energy GroupSPRU - Science and Technology Policy Research
Stage 1 (R&D) Stage 2 (earlydemonstration)
Stage 3 (refinement& cost reduction)
Stage 4 (earlycommercialisation)
P o s s
i b l e M e c
h a n i s m s
Current Policy Framework Ideal Profile
Capital grants
Performanceincentives
Performanceincentives
(e.g. carbonprice)
How might choices be made?
Stage of development and funding
R&D funding
Tax breaks
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Sussex Energy Group
SPRU - Science and Technology Policy Research
How might choices be made?
Diversity in practice Diversity seen almost universally as a good idea, but what does it
mean?
Variety (number of options in a portfolio) Balance (relative shares of these options)
Disparity (how different options are from each other)
Resource constraints may mean supporting all options is notdesirable or possible
Technologies might interact and should not be considered inisolation from each other
In the UK, risk that new nuclear programme will divert politicaland economic resources from other options
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Sussex Energy Group
SPRU - Science and Technology Policy Research
How might choices be made?
Energy policy & industrial policy
In the past the steam engine, the internal combustion engine, themicro-processor transformed not just technology but the way oursociety has been organised and the way people live.
Now we are about to embark, I believe, on a comparabletechnological transformation to low carbon energy and energyefficiency and this represents an immense challenge for Britain, butit is also an opportunity.
Gordon Brown, 19 th November 2007
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Sussex Energy Group
SPRU - Science and Technology Policy Research
How might choices be made?
Energy policy & industrial policy
[T]he first programmes of the 1 billion public/private EnergyTechnologies Institute will be focused on R and D in offshorewind, in wave and tidal stream energy, and the new 370 milliondomestic environmental transformation fund will help bring thesetechnologies to the marketplace, creating businesses and jobs.
Gordon Brown, 19 th November 2007
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Sussex Energy Group
SPRU - Science and Technology Policy Research
Conclusions
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Sussex Energy Group
SPRU - Science and Technology Policy Research
Pricing carbon and is necessary but not sufficient should becomplemented by technology-specific measures
Energy R,D,D & D funding needs to be increased and rebalanced(Manhattan Project comparisons are perhaps simplistic)
These prescriptions mean that government needs to take morerisks (e.g. risks of being captured by lobbies, risks of failure)
To deal with these increased risks, the following may help:
Plural institutions to guard against policy capture by lobbiesand to deal with complex issues
More transparency in process of priority setting More systematic evaluation of current / past policies with
willingness to cut funding to losers
Conclusions
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Sussex Energy Group
SPRU - Science and Technology Policy Research
Conclusions
How is UK policy doing? Still too much emphasis on EU emissions trading scheme, but
increasing number of specific measures (e.g. on CCS)
Significant increases in funding for R&D and deployment, but stillquestion of valley of death
Government still very risk averse and obscured by pickingwinners debate. Would rather analyse costs of new technologyprogrammes than implement them.
Complex, plural institutions though unclear how they all fittogether or where gaps are
Lack of transparency on selection process though somepriorities clear (CCS, offshore renewables, nuclear?)
Evaluations are hidden or missing; support to new industriescut before they have got going
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Sussex Energy Group
SPRU - Science and Technology Policy Research
Thanks
http://www.sussex.ac.uk/sussexenergygroup
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