The heart of the book consists of a handful of necessarily terse reviews of five areas of successful innovation: agriculture; chemicals; life sciences; semiconductors, computers, and software; and the Internet. These are preceded by the usual editors’ introduction and a survey of energy technology, and followed by a discussion of venture capital firms. The result is several interesting reviews of developments that unfortunately lack appropriate skepticism about the application of their findings to the energy sector.
Important difference | The book’s critical deficiency is its neglect (let alone explicit recognition) of the gaping difference in potential between energy and the areas covered. Each of the examined technologies was susceptible to massive improvement with the aid of government support. In contrast, much energy technological advancement was privately developed, and the alternatives craved by the contributors have long histories of failed efforts because those options — e.g., solar, wind, biofuels — are depressingly difficult to improve dramatically from their current status. Where the other realms involved problems with solutions that were readily developed, energy is an area in which difficulties are periodically perceived when a supply shock occurs, and proposed answers fail when the shock dissipates.
The synfuels fiasco, noted in the book, is a clear example. On paper, synfuels looked so promising to optimists in the 1970s that it seemed a sure bet. However, when development efforts became intensive, the hopes were quickly dashed. Basically, government energy efforts faltered because they failed to produce fruitful results. The big oil companies are quite capable of developing and employing economically viable technologies such as improved exploration and drilling practices and the commercialization of a radically new way to produce natural gas. Electric-equipment makers had similar successes. Efforts in alternative energy could not produce similar results.
Another problem is that the contributors are overly enthusiastic about the interventions made, overly optimistic about regulation, and weak on energy experience. The book’s failure to provide discussants who could have introduced some helpful skepticism, therefore, is particularly troubling.
Success stories | The five technological success stories involve three models of government involvement. Agriculture and life sciences were nurtured by government support of university research efforts. The computer-related cases involve support at the start by national defense programs. As the chapter by Ashish Arora of Duke University and Alfonso Gambardella of Bocconi University shows, chemical developments were predominantly private, though the chapter stretches to conjecture that the 1911 government breakup of Standard Oil speeded the development of catalytic cracking by making independent the component (Standard Oil of Indiana) where the process was invented. The chapter eventually moves to two examples of government involvement in chemicals technology: the successful World War II development of economically viable synthetic rubber technologies and Jimmy Carter’s synfuels failure.
The agriculture chapter by graduate student Tiffany Shih and professor Brian Wright, both of the University of California, Berkeley, is the most problematic in the entire book. It too hastily deals with too many issues without any discrimination about their relevance to energy. The chapter’s subtext that biofuels are another application of agriculture and might thrive as did other crop research efforts is left tacit. The chapter begins by citing implausibly high estimates of the return on investment to public expenditures on agricultural research, hastily summarizes the data on worldwide expenditures in the area, and then reviews the history. Much space is devoted to an unsatisfactory discussion of intellectual property issues and then to a naïve discussion of regulatory problems.
Iain Cockburn of Boston University, Scott Stern of MIT, and Jack Zausner of McKinsey and Co. provide a coherent review of the status of life-science research with its mix of the National Institutes of Health, university, and private-sector participation. The main problem is neglect of the debate over the medical care system and particularly the thread that attacks the intellectual property rules for drugs that the chapter praises. As typical of the book, the comparison with climate change technology stresses organization over opportunities.
David C. Mowery of the University of California, Berkeley similarly well indicates that the development of semiconductors, computers, and computer software was speeded because of substantial national defense relevance. Shane Greenstein of Northwestern University nicely covers the movement of what is now the Internet from a defense application to a means of communication with the National Science Foundation and those it supported, and then to the widely employed system now used by millions around the world. Confidence is shaken by his repeatedly misnaming the Defense Advanced Research Projects Agency as the “Department of Advanced Research Projects Agency.” However, his fatal mistake was in his selection of examples of why minimizing government involvement is “fatuous”: he mentions antitrust efforts including the dubious Microsoft cases and the role of the infamously inept Federal Communication Commission.
The book’s critical deficiency is its neglect of the gaping difference in potential between energy and the areas covered.
Energy innovation | The survey of energy innovation by Richard G. Newell careens among many points. (At the time of the conference when these papers were first presented, Newell was a professor at Duke; he has since become director of the U.S. Energy Information Administration.) The chapter first gives an overview of the familiar points that energy has greatly increased in use and that government had little to do with this. He next surveys developments in five areas of energy and turns to examination of public policy.
The fossil fuel portion of Newell’s chapter is particularly peculiar. He starts by recognizing the substantial advances made in oil and gas exploration and development, without noting that they were made by the private sector. He characterizes the current situation in energy technology development as “mixed” because one expected technological advancement, thermal efficiency in conventional steam generation of electricity, has not improved; another technology called “fluidized beds” has not succeeded (probably because, as not noted, it was too costly); but gas-fired combined-cycle power plants have been a major advancement. In transportation technology, he praises efforts to improve automobile mileage and to promote ethanol — an effort that now even many environmentalists admit was ill-advised. The nuclear section is fuzzy. The treatment of renewables predictably advocates federal support. Similarly, the thermal efficiency subsection steps on its initial message that federal mandates were desirable by noting independent private response to higher energy costs. His view of pollution control observes that regulatory pressures were sufficient to induce innovation.
Newell’s policy sections are similarly problematic. The initial one observes the fluctuations in effort to bring about innovation without noting the panic over short-term conditions that typically sparked increased effort. He notes the lower percent of sales devoted to research and development in energy compared to other industries without mentioning the obvious point that the other industries examined in the book have better innovation prospects. He eventually gets to his most germane point, that clear, credible policy development will inspire technological development. Newell then turns to a survey of government efforts in energy research and development. Here review of the failures is followed by report of some small-scale successes.
Harvard’s Josh Lerner provided the last and best chapter, on the entirely different issue of venture capital firms. He nicely summarizes the history with examination of efforts in alternative energy. Unfortunately, he tarnishes his effort by gratuitously inserting a call for government support through precisely the procurement preferences, efficiency standards, and adoption mandates widely and properly decried in the energy literature.