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Laurence L. Delina, Transforming U.S. Energy Innovation edited by Laura Diaz Anadon, Matthew Bunn and Venkatesh Narayanamurti, Science and Public Policy, Volume 43, Issue 5, October 2016, Pages 728–730, https://doi.org/10.1093/scipol/scw010
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In terms of average annual investment for sustainable energy, China’s US$80 billion investment is almost equal to that of the USA (US$34 billion) and Europe (US$46 billion), combined. China does its energy innovation using socialist policies in which the government provides the majority of the support, if not all of it. Anadon, Bunn and Narayanamurti argue that, if the USA is to catch up in the energy innovation game, a similar stance with federal government support has an important role to play and extend this position to include a broad discussion about accelerating the U.S. energy innovation.
Why use government support and regulation to spur innovation? Or a better question: why are markets and private firms inadequate to drive the necessary innovation in the energy sector? This volume’s introduction provides an array of responses. First, current markets distort the prices of energy services, which do not reflect the negative environmental and social problems associated with their production and consumption. Second, the investment cost of innovation—the research, development and demonstration (RD&D) aspect in particular—is tilted. Since other actors can simply free-ride on innovations produced by the primary actors, there is less investment in energy innovation that benefits the wider society. Third, the current energy infrastructure (pipelines, transmission systems, and grids) are shaped around the incumbent energy technology. In an innovated energy system, this infrastructure may no longer be relevant. For instance, an emerging preference for distributed and decentralized systems does not necessarily require heavy investment in transmission systems and grids. Pipelines may also become stranded assets as the need for oil and gas is diminished in favor of solar and wind energy. Fourth, ‘valleys of death,’ or aspects of innovation that are perceived to be too risky for investment, are less attractive to private investors. Since private companies seek profits first, they have limited incentive to support large-scale demonstrations of new energy technologies.