Criticism of government involvement in the energy sector (i.e. the kind that hasn’t degenerated into partisan warfare and hackery) tends to focus on two main themes – it’s better to let the “free market” decide, or government has a poor track record in picking technology winners and losers.
Over at The Innovation Files (or policy dork heaven), Matt Stepp and Clifton Yin have crafted an insightful case study of carbon fiber innovation over the last two decades. It offers a thoughtful response to these criticisms leveled against government support of innovation, highlighting why we need that support, and how that support can be most effective.
First, the report makes the case that the free market, by itself, would not have driven the type of innovation and cost reductions we’re currently seeing in carbon fiber industry. One of the innate challenges in commercializing high volumes of carbon fiber (a super strong, super lightweight material), familiar to many in the clean energy industry, is that the complex manufacturing processes and large initial capital investments required to make carbon fiber (coupled with long-established issues around innovation spillovers, and the lengthy timeline for returns) have reduced the number of firms willing to enter this sector. Essentially, the risk of investing in this space has been too great for individual firms to bear (especially early-stage, emerging companies) given the uncertain demand, and expensive initial outlay of capital, despite the outsized potential rewards. This is a classic justification for government involvement in supporting new technologies.
Next, the report outlines the many measured steps that the government has taken to address this problem and support the growth of cheaper, stronger, more lightweight carbon fiber polymers:
- Funding for applied R&D addressing targeted research gaps that continues for an extended period (in this instance, over a decade)
- Public-private collaboration with emerging companies to facilitate testing the viability of these newly researched approaches
- Establishing a joint industry consortium to address cross-sector issues and facilitate technology-transfers
- Partnering with established companies to accelerate commercialization
- Building infrastructure such as testing facilities that can be used by multiple companies within the industry (especially those unable to afford their own testing facilities)
- Employment development programs that create human capital necessary to work on these innovations
This list of accomplishments is far from being a case of government picking a technology winner. Instead, it’s practically a compendium of best practices for government support of innovation, demonstrating a nuanced approach that engages industry and gives ample room for the market to take the lead.
Market research firms are now projecting the carbon fiber industry as a $26 billion industry by 2020, as the technology moves from the Boeing 787 Dreamliner to mass market components in fuel-efficient vehicles and wind turbines.
Certainly there are elements of truth in the criticisms of government involvement in industry – the free market is a powerful driver of economic growth and innovation, and in an environment of level playing fields, it makes sense for market forces to take the lead. And government has certainly been responsible for its fair share of failures in deploying new technologies. But to argue that this implies a need to eliminate all government programs in support of new technologies (as many do) or claim that all government investment in innovation is wasteful, takes these criticisms to illogical extremes.
We need a nuanced, calibrated and strategic approach to creating the next century’s technologies – and this case study is a good reminder of how that process can take place.