Partners in Ingenuity: Case Studies on the Role of Government in Energy Technology Innovation

In the last half-century, American companies have developed the technologies and established the businesses that largely shape the world’s energy systems today. American energy leadership has benefited significantly from long-standing federal support for research and development (R&D) and decades of public-private partnerships that help drive innovation. Acting as a catalyst or instigator, government innovation investments quicken the cycles of discovery and invention.

As the American Energy Innovation Council (AEIC) outlined in its previous reports, Catalyzing American Ingenuity and The Business Plan, private-sector innovation cannot address the nation’s energy challenges on its own. Private markets generally do not exist for society-wide interests, such as ensuring long-term economic competitiveness, maintaining energy security, or protecting the environment. Moreover, 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 capture only a fraction of the value of their innovation. Markets will undoubtedly drive innovation, but they will do so more rapidly when public policy addresses these twin challenges.

The AEIC staff’s case studies on the federal government’s role in energy technology innovation, summarized in the staff paper Partners in Ingenuity: Case Studies of Federal Investments Enhancing Private-Sector Energy Innovation, illustrate that public-private partnerships are recurring components in the successful development and deployment of advanced energy technologies. They demonstrate that federal energy innovation investments have produced enormous benefits to the U.S. economy and underscore AEIC’s support for increasing such investments going forward.

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. This role commonly takes the form of lowering risks of new technology to the private sector, such as through seed grants, loans, and cost-sharing of demonstration projects; speeding diffusion of technical knowledge, such as through research partnerships; and standardizing information to help markets work better, such as through labeling and certification efforts.

Sometimes, the government plays the role of an instigator—creating new economic possibilities for private-sector activity. This role commonly takes the form of creating new knowledge that market participants lack incentives to pursue, such as through basic science and applied research, and driving demand for private-sector technology innovation, such as through direct procurement or performance standards.

In both of these roles, the government and private sector complement each other. The private sector translates ideas into products and markets; thus, feedback from private partners is critical for productive public-sector activities. Furthermore, these cases show that the dividing line between private-sector and government efforts often blurs. For example, public-private partnerships generally use cost-sharing, generating R&D efforts that neither party on its own would undertake. Similarly, government funding of R&D through national laboratories and universities invests many young scientists and engineers with skills that they subsequently take to the private sector. In some cases, the government has been the biggest or the sole customer of particular energy technologies, resulting in a collaborative effort with the private-sector vendor. Case studies summarized in this document include:

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

The paper can be downloaded here, and full text of the case studies can be accessed here.

The views expressed in this case are those of the AEIC staff and do not necessarily reflect the views of the AEIC principals.