September 15, 2008
Going Green Means Going R&D
By Robert Atkinson
President, Information Technology and Innovation Foundation
Global warming may finally get the political attention and action it deserves. Indeed, it's hard to go a single day without reading something about the crisis and what we should do about it. But if we are going to effectively respond it is critical that public policy focus on the right thing, which is spurring radical technological innovation.
Unfortunately, too many environmental groups are actively encouraging Americans to believe that this problem can be solved if we all just change our behavior a bit: if we just take the bus a bit more; or install compact fluorescents; or even have a green Christmas by giving fewer gifts and reusing wrapping paper. The Sierra Club, for example, states that "We can make simple decisions on national, state, local, and personal levels that will reduce global warming pollution. The Sierra Club's network of activists and volunteers are dedicated to cleaning up our vehicles, buildings, and electricity grid to drastically cut carbon emissions and curb global warming."
While these exhortations appeal to our desire as Americans to individually contribute to the solution, they are in many ways worse than saying nothing, for they perpetuate the illusion that the world can solve this crisis through personal action, and by doing so, they hinder the development of a real consensus for a national commitment to green R&D.
In 1994, I co-authored a report for the former Congressional Office of Technology Assessment titled "Industry, Technology and the Environment." In the report we put forth a simple equation: Environmental damage = Population * per-capita GDP * cleanliness factor. In the case of global warming this means that if we want to see a reduction in carbon emissions of 50 percent below current levels by 2050 that we have to see a reduction of the product of population, per-capita GDP or the carbon intensity of economic activity by 50 percent.
But it's not that simple. According to the United Nations, global population is projected to grow 46 percent, from 6 billion to 8.9 billion by 2050. While slower population growth is desirable and policies to achieve it should be pursued, it does not seem likely to occur by 2050. (One implication of this is that rather than decry the negative population growth of nations like Japan and potentially some European nations, we should be welcoming them).
So given global population growth, this means that achieving the 50 percent goal will require a reduction of the other two factors by 66 percent at least, not 50 percent. But global GDP per-capita will continue to grow. Even assuming a conservative 2 percent annual growth rate (rates in China have been around 6 percent, while in the U.S. they have averaged around 3 percent for the last decade), this means that GDP per-capita will increase 129 percent by 2050. While some might argue that this is unsustainable or that somehow in order to save the environment we should slow down growth, try telling that to the average family in the developing world who would think living as well as even a low income American would be a wonderful thing.
Because of this projected growth in population and per-capita GDP, if we are to reduce CO2 levels by half by 2050, it means that all of the reduction has got to be on the cleanliness factor. This means that future technology has to be 85 percent cleaner than today's to meet that goal.
So how do we get there? One thing is clear: conservation alone cannot get us there. This is not to say that efficiency will not play a role. And in particular, as ITIF has shown, the transformation from an atom-based economy to a digital one has the potential to save considerable carbon emissions. For example, one study from Japan estimated that making the economy more digital, IT could cut carbon emissions by 40% by 2050. But even this will not be enough to get us where we need to go.
To get there that we need to develop radically cleaner technologies like fully electric cars, affordable solar cells, and large scale electricity storage devices. Unfortunately , the prevailing view in Washington, informed largely by the neo-classical economic doctrine, is that if we just get the prices right, the magic of the marketplace will lead to the development of the needed technologies. It's a comforting thought that appeals particularly to those who worry about government getting involved in technology development.
Unfortunately, it's wrong. Even if carbon were trading around $30 per ton (higher than its current price), gasoline prices would only increase by 30 cents per gallon. Does anyone really believe that if we increased the price of gas by 30 cents a gallon that a market for electric cars would magically emerge? Just look at Europe where gas taxes have been on the order of $3 to $4 per gallon. While these prices have led the Europeans to drive smaller and more fuel efficient cars, and take alternative modes (e.g., transit, bicycles, walking) more than we do, they have not created a market for electric vehicles.
The reason is simple. Electric cars are not good enough or cheap enough yet. Prices only work in changing consumer behavior when they have a choice of something else that meets their needs. Electric cars will only emerge when someone comes up with battery technology that is much better than today's. And this is true in many other areas of our economy. This suggests that while pricing carbon is needed, it is not enough.
Effectively addressing this crisis will require that the federal government develop a much more robust and effective global warming R&D initiative. This has to do several things. First, the federal government must invest much more. In 1980, around 10 percent of federal research dollars went to energy. Today, it is around just 1.7 percent. Getting back to 1980 levels would require expending federal energy R&D investments by an additional $11.4 billion per year.
Second, we should significantly increase the R&D tax credit for R&D related to C02 emission reductions. Recent energy legislation created a 20 percent flat credit for collaborative R&D related to energy (e.g., R&D spent by companies at federal labs, universities or in research consortia). Congress should increase this to 40 percent, as well as increase the Alternative Simplified Credit to 30 percent for energy-related R&D.
Third, we need to support new institutional approaches to supporting R&D in CO2 reduction technology. Congress took a step in this direction with the creation of ARPA-E, but has not yet funded it. But other approaches should be explored as well. For example, the Brookings Institution will soon be releasing a report calling for the creation of a national network of 20 to 30 "Energy Discovery Innovation Institutes" that bring together the private sector and universities, and funded at about $5 billion in total.
In the last five years, critical progress has been made in the global warming debate. Most people, even conservatives who had long fought the idea that the earth was warming due to man-made activity, now accept the fact. The next step though will be equally important: getting most Americans to realize that the only way to solve the problem is through support of a dramatically expanded and improved CO2 reduction R&D program.
Robert Atkinson is the founder and president of the Information Technology and Innovation Foundation, a Washington, DC-based technology policy think tank. He is also author of the State New Economy Index series and the book, The Past And Future Of America's Economy: Long Waves Of Innovation That Power Cycles Of Growth (Edward Elgar, 2005). He has an extensive background in technology policy, he has conducted ground-breaking research projects on technology and innovation, is a valued adviser to state and national policy makers, and a popular speaker on innovation policy nationally and internationally.
Before coming to ITIF, Dr. Atkinson was Vice President of the Progressive Policy Institute and Director of PPI's Technology & New Economy Project. While at PPI he wrote numerous research reports on technology and innovation policy, including on issues such as broadband telecommunications, Internet telephony, universal service, e-commerce, e-government, middleman opposition to e-commerce, privacy, copyright, RFID and smart cards, the role of IT in homeland security, the R&D tax credit, offshoring, and growth economics. His full bio is available at http://www.itif.org/index.php?s=staff.