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Oh technology policy, how could I ever leave you?

Posted by Evan Herrnstadt on April 28, 2009

I’m checking in (but don’t call it a comeback*) because there was a big announcement by Obama at the National Academy of Sciences yesterday.  By now you all should know I can’t resist a good R&D policy post:

The president laid out an ambitious plan to invigorate the country’s pipeline for innovation, from grade-school classrooms to corporate, government and academic research laboratories.

Mr. Obama’s plan includes fulfilling commitments dating from the Bush administration to double the budgets of the National Science Foundation, the science office of the Department of Energy and the National Institute of Standards and Technology.

But he is also seeking increases in direct federal investment in medical and energy research, and he would make permanent what has been a sporadic research and experimentation tax credit offered to companies that push beyond the quest for quarterly profits to pursue breakthroughs.

Obviously the increased NSF, DOE, and NIST budgets are really important.  I’ve discussed in the past that some of that money will probably go to increasing the incomes of R&D labor, and today N-Greg-Mankiw cites a kind of quick and dirty paper by Goolsbee to poo-poo this).  This is due to the extremely inelastic supply of highly-skilled labor.  You can’t just see increased salaries and decide to be a particle physicist.  At the same time, at least some of the extra funding is going to go toward funding research that was shelved to lack of money and also toward equipment to increase the quantity of quality-adjusted R&D.  In addition, Ryoo and Rosen (JPE 2004, sorry but it’s gated) find that the choice of an engineering career path is plausibly a combination of static (cobweb) and rational expectations models.  The decision to become an engineer is determined jointly by current career prospects, and tempered by the assumption that others will behave similarly.   That is, a spike in engineering income will result in more freshman choosing engineering, but this enrollment surge will be dampened by the subtle understanding that more of their classmates will also choose engineering and drive down wages in the future.  I would guess, however, that the first-order effect will dominate due to its notably lower informational demands.  Thus, we can expect that of the youths who are deciding between studying physics and a field likely unaffected by the income shock, say ethnic studies, this short-term income spike associated with new NSF/DOE/NIST $$$$ will likely draw some of them toward the hard sciences.

So beyond the fun in the skilled labor market, I think that Obama’s decision to pursue a permanent R&E tax credit is outstanding.  Certainty is always really important for firms and organizations.  There’s just the whole planning/budgeting aspect that yearns for a more reliable policy.  However, it’s also important because a tax credit can grant firms the ability to maintain an unambiguously higher rate of R&D.  Of course, some firms will substitute away (i.e. R&D is cheaper, so do the same amount or slightly more and shift the money saved into other parts of your business), but the income effect will stand as well.  In general it is often forgotten that you can’t just decide to do a bunch of R&D one day.  There is capital that must be invested to expand R&D, whether in terms of facilities, equipment, support staff, or skilled R&D labor.  Thus, knowing for sure that you’ll be able to count on tax credits for R&D done in the future, you’re more likely to invest in the fixed costs necessary to carry out a higher level.

So yeah.  Obama.  R&D $.  Woo!


Posted in Stimulus, Technology Policy | 3 Comments »

Kyoto and climate-friendly patents

Posted by Evan Herrnstadt on February 6, 2009

Gernot Wagner over at EnvEcon does a nice job outlining a very interesting paper I was too lazy busy to post on.  It basically looks at patent rates for climate-related technologies as a share of total innovation, and compares it across countries based on their Kyoto ratification history (EU + Japan vs. US + Australia).  The authors (Antoine Dechezleprêtre, Matthieu Glachant, Ivan Hascic, Nick Johnstone, and Yann Ménière) find that Annex I Kyoto-ratifying nations saw climate-friendly innovation at rates higher than that of Annex I nations that did not ratify (or ratified late, i.e. Australia).  Gernot is rightly cautious to claim causation — patent activity could easily be endogenous due to pre-existing/shifting tastes for green technology.  I’d love to see a difference-in-differences analysis, though that would probably require more data than is available, as well as a pretty sophisitcated lag structure given the delayed nature of patent activity.  This figure is pretty convincing though:


Still, a similar endogeneity claim could be made — perhaps the ratification of Kyoto reflected changing environmental tastes in those countries, which could also lead to more green patenting.  At any rate, this is valuable analysis, and Gernot sums it up nicely here:

The most important point, of course, is that green tech innovation doesn’t just magically happen. It takes deliberate government policy to spur it: make low-carbon innovation pay, and get out of the way. There’s plenty of entrepreneurs looking for the next big energy breakthrough — and to make a buck in the meantime.

Indeed, although we shouldn’t ignore the value of directly subsidizing basic energy research.

Posted in Climate Change, Technology Policy | Leave a Comment »

Intellectual Infrastructure

Posted by Evan Herrnstadt on December 9, 2008

The NY Times’ Dot Earth blog has a post today discussing the need for investment in “intellectual infrastructure”:

So far the focus seems to be mainly on rebuilding physical infrastructure: insulating leaky low-income housing, building wind turbines, improving the clunky electrical grid and the like. These are, by almost any measure, logical starting points for an effort to cut America’s energy bill and carbon dioxide emissions while restoring prosperity.  But for such an initiative to be green at a scale sufficient for the atmosphere to notice, my sense is it will need to focus just as much on rebuilding the country’s intellectual infrastructure.

Andrew Revkin makes several good points that I’d like to elaborate on a bit:

1.  We need scientists and engineers to perform R&D to really transform our economy.  Unfortunately, you can’t just grab a bunch of random people, stick them in a lab, and expect great things to happen.  Research indicates that the labor supply for scientists and engineers is at least somewhat inelastic, meaning that more money is likely to go to more equipment and high salaries, but will not necessarily result in more actual R&D output.  Thus, we need to begin encouraging today’s students to take paths that will train them in hard sciences and engineering subjects.  There are a lot of policy suggestions here, such as a government pledge to college freshmen to fund graduate study in certain fields if they meet academic benchmarks.  There are more preference-changing actions that can be taken as well.  I particularly liked this line from the post (specifically from Barack Obama’s recent appearance on Meet the Press):

We want to invite kids from local schools into the White House. When it comes to science, elevating science once again, and having lectures in the White House where people are talking about traveling to the stars or breaking down atoms, inspiring our youth to get a sense of what discovery is all about.

Sadly, Mr. Wizard passed away roughly a year ago — let’s keep his memory alive by making science cool again.

2. If you look at Revkin’s first graph, it is quickly evident that non-defense energy R&D spending has generally plummeted from the Carter days of solar panels on the White House.  There is no paucity of federal money laying around for R&D, as you can see in the doubling of NIH funding between 1998-2003.  Now it’s never easy to reappropriate funds, especially from something like health research, but we ought to seriously reconsider our funding priorities intensive to R&D, as well as extensive total R&D funding decisions.

3. The Pentagon receives more than half of all federal basic research outlays.  As we know, cutting defense spending is a politically tricky situation.  However, a nice back-door solution might be to earmark (gasp!) some funds to defense contractors performing energy-relevant basic research (e.g. material science, metallurgical engineering).  Defense is already looking for ways to improve energy efficiency in their operations for obvious reasons.

4. Basic research is crucial.  Why does it seem really unbelievable that some day we might get our energy largely carbon-free?  Because no one has figured out how.  And funding late-stage development is not the way to uncover the transformational technologies we need.  First, private firms ought to be funding a nearly-optimal level because the returns are largely appropriable.  Second, the government can fund failed pie-in-the-sky research over and over because, well, it’s the government.  Clearly, Congress is not concerned about turning a profit (surplus).  However, it must be clear that the viability of any entity designed to encourage basic research is not to be evaluated by strict metrics related to success rate.

These days, Obama seems to be playing Santa Claus in the minds of everyone left of conservative.  I guess you can add my wish list to the pile.

Posted in Education, Energy Technology, Technology Policy | 1 Comment »

New technologies: “I gar-on-tee!”

Posted by Evan Herrnstadt on July 1, 2008

Yesterday the DOE announced three solicitations for a total of up to $30.5 billion in loan guarantees for energy technology.  Up to $18.5 billion will go to nuclear power, $10 billion to renewables and efficiency, and $2 billion to “front end” nuclear, such as uranium enrichment.  For those unaware, a loan guarantee essentially means that the federal government co-signs at least a portion of a loan, an implicit subsidy.  With this backing, lenders will lower interest rates, knowing that total default is very unlikely.

The economic justification for loan guarantees is the classic informational asymmetry which plagues most credit markets.  A potential borrower may have private information and expertise that the lender cannot match.  In the case of a new technology, lenders can look at a firm’s fundamentals and history, but in the end most emerging energy technologies are bound to either look extremely risky or be so unfamiliar that an accurate assessment of default risk cannot be made.  Basically, loan guarantees aim to mollify this information gap to help finance the move from pilot to full commercial scale.

Projects associated with energy loan guarantees have had a mixed levels of success.  In the past the federal government funded loan guarantees for large portions of coal gasification and ethanol plants and geothermal facilities.  The coal project defaulted on its loan and the DOE sold the facility; it runs at a net profit and the revenues are paying off part of the DOE’s initial investment.  All three ethanol plants defaulted; one is now a major producer after much refinancing.  Four of the eight geothermal defaulted, but one of the success stories (based in California) has expanded to other states and overseas.

So are loan guarantees justified in the present case?  The category that strikes me as odd is nuclear.  Nuclear power in the United States already receives massive implicit subsidies in the form of the Price-Anderson Nuclear Indemnification Act.  Also, most private utilites have very good credit and probably don’t need the government’s backing to get a reasonable interest rate.  On the other hand, nuclear technologies face a unique level of regulatory risk, so perhaps guarantees are somewhat justified.  Renewables are quite defensible, assuming the guarantees go to small upstart firms, or even more established firms looking for a stonger toehold (e.g. Tesla Motors, which has applied for past DOE guarantee programs).  Energy efficiency seems like perhaps a good fit as well, as many advances must simply be made by building large facilities in which to manufacture more energy-prudent products and materials.

On the whole, it seems that past projects under loan guarantees were riskier than average, i.e., it wasn’t just an information asymmetry keeping them down.  On top of the nature of the projects, federal support brings out the potential for moral hazard.  A firm whose debt is backed by the government has incentive to take riskier actions than would normally be optimal.  However, in the case of energy demonstration, it might be worth dealing with these issues simply to show that a full-scale version of a technology is commercially viable.

H/T: Daniel Hall.

Posted in Technology Policy | 1 Comment »

Education policy and energy R&D

Posted by Evan Herrnstadt on June 30, 2008

In the run up to America’s first comprehensive piece of climate litigation, the idea of government R&D subsidies has been bandied around quite a bit.  As images of the Manhattan Project and the Space Race have been invoked, much of the debate has centered around how much money the feds should be throwing at energy R&D.  In this rush to find a magic number, a major question has been overlooked.  That being, does increasing R&D funding actually increase the amount of R&D performed? Read the rest of this entry »

Posted in Education, Green Collar Jobs, Technology Policy | 1 Comment »

Many happy returns!

Posted by Daniel Hall on June 26, 2008

Joshua Gans suggests one possible benefit of McCain’s battery prize — the U.S. can have its cake and eat it too:

One real possiblility is that someone outside of the US invents this (perhaps quicker because they have to race with US based researchers who get a prize kick). In that case, the US can send whomever does it a thank you card. They have put competitive pressure on them and haven’t spent a cent!

Posted in Prizes, Technology Policy, Transportation | Leave a Comment »

Assault the battery

Posted by Daniel Hall on June 24, 2008

There’s a fair amount of skepticism in the econoblogosphere about McCain’s proposed $300 million prize for an auto battery. Tim Haab wonders:

But, why does the government have to provide the incentive? Shouldn’t markets do that? What am I missing?

Well, one potential reason, and something we’ve mentioned here before, is that much economic research finds that the existence of knowledge spillovers means that the socially optimal level of R&D investment is (conservatively) two to four times the level of actual investment. In other words, we as society get more than we pay for when we fund R&D.

Other commenters argue that the prize is unnecessary on more practical grounds. Tom Lee says:

But if someone were to invent a better [battery] they’d already be poised to make a huge amount of money through its commercialization. Offering prizes for innovation isn’t always a terrible idea — for pharmaceuticals with a limited market of potential users it can make sense due to the huge costs associated with developing and testing a new drug. But everyone in the developed world needs better energy storage technology, and they need it right now. … So sweetening the pot is unnecessary. Anyone who has a good idea about how to build a better battery is already working on the problem.

I’ll admit this argument sounds pretty convincing. Given the price of oil there’s a strong existing incentive to develop better batteries. Still, the possibility of knowledge spillovers lurks in the background…

Which brings us to a comment from a Free Exchange blogger, who argues that the structure of a prize doesn’t fit the problem:

The question is, will the prize induce an increase in research activity? Where batteries are concerned, this seems highly unlikely. Prizes are better suited to areas where there is not yet a clear market application for a discovery…

I can think of one arena where better energy storage could be put to very good use, and yet simultaneously lacks a clear market signal: electricity. The grid is still essentially a regulated environment. Energy storage would greatly increase the attractiveness of many renewable generation technologies which are inherently intermittent, but the “market” for such an innovation is a fragmented patchwork of regulatory agencies.

I suspect that energy storage for the grid might be a socially desirable spillover from McCain’s auto battery prize. This means that his proposal is less bad than many seem to think — but also less good than either a direct prize for grid-based energy storage, or a reform of our transmission policies.

Posted in Electricity, Prizes, Technology Policy, Transportation | 4 Comments »

From whence innovation?

Posted by Daniel Hall on January 14, 2008

I have been sitting on this post for almost two weeks now, trying to work out a satisfactory (and clever) way to do a back-of-the-envelope calculation that would help me get a rough handle on the degree to which innovation gets spurred by regulation versus emerging from the rigors of the competitive market. Alas, I haven’t come up with anything yet, so I’m choosing to post a more qualitative discussion for now.

The Free Exchange blogger who first alerted me to Arik Levinson’s VoxEU post I discussed two weeks ago goes a bit too far when discussing the implications of this research:

This finding is key for three reasons. First, it demonstrates that regulations are an effective way to generate innovation. Second, it shows that tighter regulations can be consistent with continued output growth. And finally, it reveals that tighter regulations in developed countries need not lead to massive leakage of production and pollution to places with loose pollution rules.

Well, that sure sounds nice — regulations are good for you! — but it’s not necessarily what this research implies. The problem with claiming that “regulations are an effective way to generate innovation” is that Levinson isn’t trying to disentangle cause and effect; indeed, he notes early in his post the inherent challenges facing those who set out to conduct causal analyses. Levinson’s research shows that technological improvement (innovation) has accounted for 60% of the decline in U.S. manufacturing emissions from 1972 to 2001. (The rest is due to changes in what we consume and changes in where things are made.) But how or why this technological innovation has occurred is a much different question than assessing its relative contribution to total reductions.

Environmental regulations may be driving technology innovation, but Levinson’s analysis doesn’t shed light on whether or to what extent this is the case. Companies have private incentives to reduce emissions to a degree as well — for example, efficiency improvements that save companies money are a big part of the reason why there is a secular trend towards a more energy-efficient economy. This question — does regulation induce innovation? — is an important and interesting one, but it needs a more direct treatment before we jump to an answer.

Enter reader Tidal, who comments that:

I think it rather important to note that he does not consider CO2 as a manufacturing emission. US CO2 emissions have risen quite dramatically over that time frame, albeit with falling “intensity” vs. GDP. Granted, there have been fewer incentives for US manufacturing firms to reduce CO2 over the same period.

This is where I hoped to develop some type of numerical back-of-the-envelope estimate of the reduction in CO2 emissions and compare it to the pollutants that Levinson is looking at. What is going on with CO2 emissions over the same time period, and can it tell us something about how much unregulated emissions may have improved (or worsened) on their own?

Read the rest of this entry »

Posted in Pollution, Research, Technology Policy | 5 Comments »

President signs energy bill

Posted by Daniel Hall on December 19, 2007

From the Washington Post:

President Bush on Wednesday signed into law legislation meant to reduce U.S. reliance on foreign oil by raising fuel-efficiency standards for automobiles, ordering a massive increase in the use of biofuels and phasing out sales of the ubiquitous incandescent light bulb popularized by Thomas Edison more than a century ago. …

The bill’s centerpiece is the boost in the minimum fuel-efficiency standard for passenger vehicles, the first to be passed by Congress since 1975. It requires new auto fleets to average 35 miles a gallon by 2020, a 40 percent increase from today’s 25-mile average. By 2020, the measure could reduce U.S. oil use by 1.1 million barrels a day, more than half the oil exported by Kuwait or Venezuela and equivalent of taking 28 million of today’s vehicles off the road. …

For farmers and agribusiness, it is a windfall, providing more support than perhaps even the farm bill. It doubles the use of corn-based ethanol — despite criticism that corn-based ethanol is driving up food prices, draining aquifers and exacerbating fertilizer runoff that is creating dead zones in many of the nation’s rivers. …

Not everyone was happy at the end of a year of haggling and lobbying. To secure passage for the bill, congressional leaders dropped a tax package that would have reduced breaks for the biggest oil and gas companies and extended breaks for wind and solar projects.

Green Car Congress has superb summaries of the bill’s provisions on CAFE standards and the biofuels mandate. Mike Giberson highlights the notable provisions affecting the electric power sector. My co-blogger previously mocked some of the bill’s more minor provisions. I will note that in my view one of the bill’s most valuable and least-discussed features is the more than $6.5 billion in energy research, development, and demonstration (RD&D) funding the bill appropriates for the next decade, including $1 billion for renewable energy programs and $2 billion for carbon capture and sequestration RD&D, both spread over the next 5 years.

Posted in Government Policy, Technology Policy | 1 Comment »

The interplay between an emission price and technology policy

Posted by Daniel Hall on December 15, 2007

I think we have been fairly clear here at CT about our thoughts on the role of technology policy within climate policy. It’s a somewhat nuanced position; I’d summarize it thusly:

The government should support energy technology R&D, and particularly fundamental research (i.e., basic and applied research as compared to development and deployment activities). The principal rationale for such support is that there are spillovers — large, broadly-dispersed societal benefits — associated with research that cannot be captured privately by firms; thus, there are large under-incentives for firms to invest in the socially optimal level of R&D. At the same time, the core feature of any approach to reducing greenhouse gas emissions should be an emissions pricing policy: a carbon tax or a cap-and-trade program. Such a policy is the most cost-effective approach when fundamental change must be made to complex and disaggregated systems such as the energy infrastructure. Further, a pricing policy will itself boost private sector R&D by increasing the returns to innovation, particularly in areas such as development and deployment where there are fewer market failures. Thus, R&D policy is a necessary complement, but not a substitute, for an emissions pricing policy.

Although those are my words, I think my co-bloggers would broadly agree with the sentiments. There are certainly other thinkers out there, however, who put much more emphasis on the role of technology R&D — they feel that it should be the core of climate policy and that emissions pricing policies are peripheral, unnecessary, or perhaps even counter-productive. In general I feel that these thinkers are underestimating the innovation that will occur under a pricing policy and overestimating its transaction costs. However, there are certainly better arguments for such an emphasis than others. Paul Klemperer gives one of the best I have read at VoxEU:

Developing countries are not going to give up the immediate aspirations of their (often growing) populations for climate-change benefits that are largely in the future. Worrying about preserving the environment for our great-grandchildren is a luxury developing nations do not have. …

[M]ore R&D into clean energy is probably the highest priority of all. Finding a clean energy source that is cheaper than those currently available is the only politically-plausible way of curbing continuing growth in developing nations’ emissions.

Further, he makes two insightful comments about why the rich world should develop new nuclear and CCS power facilities:

First, whether we like it or not, China (and India and others) are going to continue to develop nuclear energy. So unless the West continues to develop it too, the safety and storage and handling issues will be resolved in environments with less democratic accountability than in Europe and the US, and with more pressure to take shortcuts than in richer countries.

Second, China (and India and others) will continue to exploit their enormous coal reserves. So we urgently need research and development on lower cost Carbon Capture and Storage (CCS) technologies to remove coal plants’ emissions. The UK government is right to subsidise a demonstration CCS plant. It should probably subsidise several. It is also right to insist that the technology chosen is one that can be retrofitted to traditional plants. China is building one such plant every five days.

I agree that the rich world’s governments should be researching technologies now that the developing world can use tomorrow. But I wish he would have been more clear that an emissions pricing policy still has an important role to play, and technology policy cannot go it alone. For example, there are practical limits to how quickly R&D investment can be ramped up: an immediate doubling of energy R&D dollars might do less to stimulate new innovation than serve to push up salaries in a field that requires long training. Further, the reality is that private sector R&D investment is always going to be far larger than government R&D; Professor Klemperer, however, is quick to see private disincentives for R&D at every turn:

Businesses know that when an innovation is sufficiently important, the innovator gets little of the benefit: the developers of drugs for AIDS, and of vaccines for Anthrax and bird flu were threatened with compulsory licenses in many countries (including in the United States) until they “voluntarily” licensed their innovations cheaply.

An emissions pricing policy, however, is exactly the opposite of government appropriation of private research! Rather, it signals to businesses that emissions reductions are genuinely valuable, and there is profit to be made if they can find better ways to reduce.

I think it’s perfectly reasonable to increase government support for R&D out of a desire to subsidize long-term reductions in the developing world. But such reasoning should strengthen, not diminish, our resolve to have an emissions price as the central feature of climate policy.

Posted in Cap and Trade, Carbon Tax, Climate Change, Technology Policy | 1 Comment »

Federal technology policy and the developing world

Posted by Evan Herrnstadt on December 7, 2007

Yvo de Boer, executive secretary of the UN Framework Convention on Climate Change called for a redirection of investment and aid dollars toward climate-friendly technologies. That’s not particularly new, but the most interesting bit was his statement that “Over 50 percent of this energy investment will have to go to developing countries.”

The importance of transferring technology to the developing world must be kept in mind as we go forward designing energy technology policy. If this 50 percent figure is truly necessary, achieving it right now seems fairly daunting. Much of the debate about energy technology centers on issues such as whether ARPA-E is better than an Energy Technology Corporation. However, there should probably be more discussion of helping poorer nations develop without horribly exacerbating our current carbon crisis; in effect, instead of aiding their ascent up the development ladder, we might need to build a new parallel ladder which relies on cleaner technologies. Obviously the Clean Development Mechanism is a good move in that direction. Still, I’m wondering how much R&D money actually goes into innovation and developing appropriate technologies for developing economies. Perhaps our federal technology policy should pay more attention to this goal.

Posted in Technology Policy | Leave a Comment »

The Hayek club

Posted by Daniel Hall on December 5, 2007

There’s an interesting discussion going on in the blogosphere about what might constitute a conservative response to climate change. This got started by Jim Manzi’s argument at the American Scene against a carbon tax (actually any emissions pricing policy, whether a carbon tax or cap and trade), and in favor instead of a surge in technology development funding. Ryan Avent has responded at Gristmill (and on his own blog) that we can and should price carbon, and notes that it is odd that Manzi, a conservative, is arguing for an “approach to emissions reduction that favors the wisdom of central planning over market allocations,” (i.e., technology development over an emissions pricing policy).

Manzi has written a subsequent post that clarifies his reasons for opposing a carbon tax, and they essentially boil down to this: “It’s complicated! We won’t get it right!” To defend his opposition to a Pigouvian carbon tax he invokes Ronald Coase:

Ronald Coase’s lecture upon receiving the Nobel Prize in economics is very instructive. When discussing one of the two papers for which he won the award, The Problem of Social Cost, he had this to say:

I was exposing the weaknesses of Pigou’s analysis of the divergence between private and social products, an analysis generally accepted by economists, and that was all. … Pigou’s conclusion and that of most economists using standard economic theory was, and perhaps still is, that some kind of government action (usually the imposition of taxes) was required to restrain those whose actions had harmful effects on others, often termed negative externalities. What I showed in that article, as I thought, was that in a regime of zero transaction costs, an assumption of standard economic theory, negotiations between the parties would lead to those arrangements being made which would maximise wealth and this irrespective of the initial assignment of rights. … I tend to regard the Coase Theorem as a stepping stone on the way to an analysis of an economy with positive transaction costs. The significance to me of the Coase Theorem is that it undermines the Pigovian system. Since standard economic theory assumes transaction costs to be zero, the Coase Theorem demonstrates that the Pigovian solutions are unnecessary in these circumstances. Of course, it does not imply, when transaction costs are positive, that government actions (such as government operation, regulation or taxation, including subsidies) could not produce a better result than relying on negotiations between individuals in the market. Whether this would be so could be discovered not by studying imaginary governments but what real governments actually do. My conclusion; let us study the world of positive transaction costs.

Manzi goes on then to claim that what with transaction costs being so large an emissions pricing policy just won’t work. I think he overplays many of of the practical difficulties, but since Ryan’s post anticipated many of these arguments I’ll leave you to read it.

I want to object rather to Manzi’s disingenuous intellectual sophistry in ignoring the actual message of Coase’s quote. Read the rest of this entry »

Posted in Cap and Trade, Carbon Tax, Climate Change, Technology Policy | 5 Comments »

More lessons from health care innovation

Posted by Evan Herrnstadt on November 15, 2007

Update: at the risk of making our comments obsolete, I’ve changed the title of this post to reduce the amount of spam our blog will be receiving in the future.  Ah, blog and learn I suppose.

As I established in my post earlier today, the NIH is clearly effective in spurring basic health research and provides a good example for energy. However, basic research is only part of the story. Tyler Cowen notes in regard to health innovation, that “companies must work very hard to translate basic research into usable applied forms and the U.S. is a clear world leader in this regard.” Apply this to energy. Say we successfully pour a whole ton of money into basic research through the DOE, or “NIE”, or whatever. The esoteric theoretical physics and chemistry underlying many of our favorite energy technologies are not directly sending current into my house. No, the ideas actually have to be developed into commercial technologies, and this needs to happen through some sort of technology transfer. Read the rest of this entry »

Posted in Technology Policy | 7 Comments »

Energy and the NIH model

Posted by Evan Herrnstadt on November 15, 2007

Tyler Cowen addresses Jonathan Cohn’s now much-discussed TNR article about innovation in health care. Tyler boils down Cohn’s article to its essentials, and I’m extremely lazy not one to reinvent the wheel, so I’ll kind of use his post as a jumping-off point.

This is not to imply that I didn’t read Cohn’s beatifying account of public health care innovation. I briefly considered adopting NIH-worship as my new religion, but decided against it. However, I also wondered whether we can apply the good parts of health care innovation to energy technology. And if so, should we? Read the rest of this entry »

Posted in Technology Policy | Leave a Comment »

I know it was a rhetorical question, but…

Posted by Evan Herrnstadt on November 14, 2007

…the answer has always been defense.

To piggyback on Rich’s and Matt Yglesias’ posts, here is a graphic comparing Department of Defense Federal R&D to DOE Federal R&D for the postwar era up to the start of the Iraq War. Keep in mind that this is not total Defense spending, and it includes any and all energy R&D, not just carbon-friendly activities. However, be aware that there are surely some spillovers into energy technology from other departments and agencies such as NASA and DoD:

DOE vs. DoD

Note that the overall peak real funding for energy R&D was topped by defense R&D by 1960.

A friend once told me an anecdote relating to the portion of the graph right around 1980, where energy R&D drops and defense R&D skyrockets. His acquaintance began working at one of the National Laboratories around this time. On his tour of the grounds, he noticed a lot of solar energy equipment stacked near a dumpster. He asked what it was all about. The response? “That’s the renewable energy program. President Carter made us spend a certain amount of our funding on it.” Oh, that crazy Jimmy — who needs renewable energy when we have all this oil and coal?

Posted in Government Policy, Technology Policy | Leave a Comment »

A question of priorities?

Posted by Rich Sweeney on November 14, 2007

This is a telling graphic. 2007 spending on energy R&D vs. spending in Iraq. Via Matthew Yglesias.

Read the rest of this entry »

Posted in Technology Policy | 2 Comments »

“She turned me into a Newt!”

Posted by Daniel Hall on November 13, 2007

Newt Gingrich has an interview in Salon in which he talks about his new book and his environmental philosophies. Here are a couple interesting bits:

What do you think are the most important environmental issues today?
My highest focus is on biodiversity because if you follow strategies that maximize the health of plants and animals on the planet, you’ve almost certainly got a very healthy environment in general. Second, there is a significant challenge in carbon-loading of the atmosphere, and third, there is a tremendous challenge with water around the planet, and how to develop it as a renewable resource, and how to protect it.

What do you think that the U.S. should do about global warming right now?

I think we should have a billion-dollar tax-free prize for a hydrogen engine that can be produced at a commercially available price. I think that we should have a substantial prize for developing the first engine that can be mass produced that gets 100 miles or more to the gallon of fuel. I think that we should have a substantial research program under way for dramatically better ethanol products than corn or cane sugar.

We should have a 100 percent tax write-off for investment in the technology needed to make composite-material cars…

Do you think that we should adopt a cap and trade system for carbon emissions?

I think that we’d get results dramatically faster if we adopted large tax credits for non-carbon systems, including nuclear power. …

Newt seems to be a big fan of increased energy technology R&D… great! On the other hand, he doesn’t seem to believe that pricing emissions will work — he wants to subsidize non-carbon technologies, but shies away from endorsing a cap-and-trade program that would internalize the externality from GHG emissions. This is problematic because subsidies won’t encourage any conservation or efficiency — they will make non-carbon technologies relatively more attractive for producers, but subsidizing energy will lower costs and lead to more consumption. There is also a knowledge problem here: it is difficult for regulators to know ex ante which technologies to subsidize and by how much, and so they inevitably pick winners. Pricing emissions, on the other hand, doesn’t require foreknowledge of which technologies will work. The price signal alters incentives and behavior throughout the entire chain of supply and demand and hence finds the lowest cost emissions reductions.

Posted in Cap and Trade, Climate Change, Government Policy, Technology Policy | Leave a Comment »

Drive for the prize

Posted by Daniel Hall on November 11, 2007

Today’s New York Times has an article about one of CT’s recurring topics, innovation prizes. Apparently the series of challenges has produced results more quickly than expected:

The purpose of the Darpa races has been to help build robot vehicles for the United States military by the middle of the next decade. Progress, however, has been so dramatic that the impact is likely to be felt soon and far more broadly, in the commercial automotive world and elsewhere.

I think the article illustrates the importance of harnessing research universities — with their mixture of academic experts, young fresh thinkers, and some healthy competitive rivalry — for the innovation process:

Not surprisingly, perhaps, robot personality quirks can mirror the individual styles of their human designers. And in this third annual race, sponsored by the Pentagon and now called the Darpa Urban Challenge, the leading machines also reflected a very human rivalry between two leading computer science and engineering schools.

From the West Coast, the Stanford Racing Team was led by Sebastian Thrun and Michael Montemerlo. Mr. Thrun heads the Stanford Artificial Intelligence Laboratory, and Mr. Montemerlo is a senior researcher at the lab. Before coming to Stanford, both scientists were robotics researchers at Carnegie Mellon University, where they worked with William L. Whittaker, a legendary roboticist known as Red. Mr. Thrun and Mr. Whittaker were Mr. Montemerlo’s thesis advisers.

From the East, Mr. Whittaker was one of the first people to propose vehicle races as a way to advance robotics. He has designed robots for tasks like clearing mines and exploring Mars.

Posted in Prizes, Technology Policy | Leave a Comment »


Posted by Daniel Hall on November 3, 2007

One of my blog colleagues and I were laughing the other day about how we are threatening to become known as the technology policy blog: we have been insistent — perhaps even obnoxious — in our repetition of the point that there are strong economic arguments for subsidies for technology R&D, given the inherent knowledge spillovers. I have recently been reflecting on another reason, less economic and more political, that we should have strong support for energy R&D: the credibility of long-term commitments made by governments, particularly democratic institutions.

To reduce greenhouse gas emissions it is vital that one way or another the government place a price on GHG emissions. Such a price will encourage the development and deployment of more climate-friendly technologies. The optimal path for such a price is to start at some lower level and gradually rise through time along a stable trajectory (essentially at the discount rate). Political reality will dictate that the price is not too high in the near-term — it is hard to imagine, for example, that we would tomorrow accept a carbon tax of $100 per tonne of CO2 emissions (the rough equivalent of a $1/gallon gas tax increase and more than a doubling of the price of coal-fired electricity). But eventually this may be indeed where we need to go.

The problem is that the people that will be making the promises to take us there someday — whether through tightening a cap or raising a tax — will not be the ones actually paying the piper down the road. Thus companies will inevitably face a kind of regulatory risk that will likely deter them from investing in even the privately optimal level of R&D — let alone the socially optimal level (remember those spillovers). This disincentive will be particularly strong in the early phases of any price-based program, as companies wait to see how society responds to higher energy prices and whether there is truly a broad-based commitment to remain on a path towards deeper emissions cuts.

This problem should be somewhat smaller in nations that have a history of credible and stable governments, and it can be lessened by establishing regulatory regimes that have clear goals and long time horizons.  But I suspect part of this credibility gap is inherent to democratic institutions — we can promise companies till we are blue in the face that there will be a carbon price of $100 per tonne CO2 in 2050, but they are far less likely to believe us today than in 2048.

Technology R&D subsidies therefore function as a signaling mechanism on the part of government — a near-term pledge that they are serious about their long-term commitments.

Of course, in the case of some governments, a still-necessary pre-condition is the establishment of any kind of long-term commitment to be serious about. Until then, the credibility gap will remain very large indeed.

Posted in Technology Policy | Leave a Comment »

Michael Bloomberg, economist

Posted by Daniel Hall on November 2, 2007

As reported (and rejoiced over) elsewhere, the New York City mayor will be calling for a national carbon tax in a speech later today. His full speech will apparently call for four key measures to address climate change: a price on emissions (preferably a carbon tax), more funding for energy-related R&D, an end to agricultural subsidies for biofuels, and an increase in CAFE standards. I’ll bet you could get most economists solidly behind at least three of those four proposals (and some would support all four). Excerpts from his prepared speech below the jump: Read the rest of this entry »

Posted in Biofuels, Cap and Trade, Carbon Tax, Climate Change, Technology Policy, Transportation | 1 Comment »


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