How Government Money Can Do A Lot More Good Than Solyndra

What do the Boeing 707, the internet and nuclear fission all have in common?  They are some of the triumphs of government-funded research.  Public-private partnerships have led to breakthroughs across America’s wide range of industries and maintained our lead in several key fields including medicine, aerospace and computer technology.  Despite past success in innovation, we are however under investing in one of our most important sectors: Energy.  Innovation in this area is vital as we seek to insulate ourselves from the unpredictable fluctuations in world energy markets and maintain a competitive edge in emerging energy technologies that will power the future.

Energy represents a $5 trillion global industry, and demand is only increasing as developing countries push into the middle class.  Yet domestic research dedicated to energy innovation only accounts for a measly 0.5% of sales in comparison with the 20% and 10% of sales invested into R&D for pharmaceutical and aerospace firms, respectively.  When it comes to energy, venture capitalists and banks fail to invest in the high risk, high reward projects necessary to industry progress and instead focus on projects that incrementally develop or deploy existing technologies. (Note:  It is important to understand that Solyndra was not an example of energy innovation, but deployment and development of existing technology)

The benefits available from research present significant benefits to society including cheaper energy, less vulnerability to energy market shocks and job growth in an emerging industry.  Since the benefits for this type of research are widespread and enjoyed by everyone, it makes sense that the research should be subsidized by everyone.  The U.S. has a long history of innovation and being on the cutting-edge and our standard of living has improved dramatically because of breakthroughs in a variety of fields.

The U.S. shale gas explosion is a recent example of the benefits of government-funded energy research.  Beginning in the 70’s, the Federal Energy Regulatory Commission and the Department of Energy granted funds to such organizations as the Gas Research Institute and Mitchell Energy LLC whose contributions led to cost-effective methods of extracting shale gas.  Sustained research in hydraulic fracturing and horizontal drilling methods eventually led to the tipping point where it became cost-effective to employ the technology, revolutionizing the industry. The U.S., which as recently as 2008 anticipated natural gas shortages, is now experiencing record high levels of natural gas production and is exploring opportunities to export the commodity.

Similar victories are possible in other forms of energy production including renewables.  While not on-par with fossil fuels yet, solar and wind energy production hold potential for growth.  Increased and sustained R&D could guide the renewable energy industry to its tipping point sooner than later paving the path for energy independence and placing the U.S.at the head of the renewable energy revolution.  Continuing public-private partnerships in energy research are important because of the unknowable and risky nature of research investments and the fact that some of the research will hit dead ends.  By continuing to invest money in promising public-private ventures, we will continue to benefit from these periodic discoveries; some perhaps bigger than the internet.