Energy R&D Investment Patterns in IEA Countries: An Update

Transcription

1 Pacific Northwest National Laboratory/Joint Global Change Research Institute Technical Paper Energy R&D Investment Patterns in IEA Countries: An Update Paul Runci October 6, 25 Key Findings In most industrialized countries energy R&D investment has fallen sharply in real terms from peak levels in the early 198s. Since the mid-199s, aggregate energy R&D levels have stabilized or grown moderately in several key countries, including the U.S., Japan, and although even in these countries investments remain far below their historic high levels. Historically, nuclear energy R&D programs have accounted for a majority of aggregate public sector funding for energy R&D in IEA countries. Nuclear (fission) energy R&D programs have experienced the largest investment declines since the early 198s. Japan is the only industrialized country in which public sector support for nuclear energy R&D has grown consistently and in which current funding levels exceed those of the early 198s. The federal governments of United States and Japan are the dominant public sector supporters of energy R&D, currently and historically. The combined funding of the U.S. and Japanese governments exceeds by approximately 5% the combined support of the other nine industrialized countries surveyed in this report. Measured as a percentage of GDP, however, energy R&D investment in the U.S. ranks fifth among the eleven countries surveyed, while Japan ranks first. Governments are acting selectively in the allocation of more limited energy R&D resources, directing funds to specific, emerging technology areas. The U.S. and japan are the only industrialized countries with large, broad-based energy R&D portfolios. With a growing focus on technology deployment, particularly in Europe, a full array of policy instruments including tax incentives, deployment subsidies, portfolio standards, and regulations is being used to accelerate the use of new, non-fossil energy technologies. 1. Introduction This paper presents an overview of energy R&D investment trends in selected industrialized countries. 1 These countries, while few in number, account for a majority of the world s energy R&D; consequently, their investment decisions in this regard have a 1 The countries included in this survey are:,,,,, Japan, the,,, The United Kingdom, and The United States. These countries collectively represented approximately 95% of industrialized country energy R&D investment in 23, the most recent year for which data are presented. 1

2 large influence on the future availability of new energy technologies. 2 The paper uses data gathered annually by the International Energy Agency (IEA) from its member countries regarding R&D activities in each of several major program areas: conservation, fossil fuels, renewable energy, and nuclear fission and fusion Aggregate Trends in IEA Countries Public and private energy R&D investments in most IEA countries declined steadily between 198 and before stabilizing and remaining essentially flat in subsequent years. In many cases, government energy R&D investments peaked in the early 198s after a tumultuous decade of oil supply interruptions, high petroleum prices, and perceptions of vulnerability associated in part with high levels of energy import dependence. Thereafter, a decade of low petroleum prices and oversupply alleviated the sense of urgency that had helped previously to spur high R&D investment levels. At the same time, structural changes in the energy industries often grouped under headings such as deregulation, liberalization or privatization entailed an implicit transfer of R&D responsibility from public to private sector. Other factors, including changing perceptions of nuclear power have also played key roles in some countries in shaping energy R&D investment patterns. Many European countries experienced some of the most dramatic reductions in government energy R&D beginning in the mid-198s, as shown in Figure 1. Among Europe s historic major sponsors of energy R&D, the largest investment declines between respective peak years in the early 198s and 23 occurred in the United Kingdom (-95%), (-73%), (-82%), (-76%), and (-55%). 4 Large investment cuts in the nuclear and fossil energy R&D areas account for more than 9% of the overall decline in energy R&D funding. However, the remaining major program areas renewable energy and conservation energy R&D have also experienced significant cuts in many of the countries included in the survey. Japan is the sole remaining sponsor of a major nuclear fission R&D program, while Japan and the US are the only countries that have made significant new investments in conservation and energy efficiency since 199. In both countries, conservation R&D programs have more than doubled since. 2 J.J. Dooley, Unintended Consequences: Energy R&D in a Deregulated Energy Market, Energy Policy vol. 26, no. 7 (June ), Most of the data presented here have been converted to 24 US dollars using purchasing power parity deflators provided by the Organization for Economic Cooperation and Development (OECD); where noted, data are presented in 23 purchasing power parity US dollars using OECD deflators. 4 International Energy Agency (IEA), Energy R&D Database, available from 2

3 Figure 1a. Total Government Energy R&D Investment in Selected IEA Countries, millions, $ US (24) Finland Japan Norway Switzerland US As Figure 1a shows, Japan s energy R&D investments have grown by approximately 2% in real terms since 199, led mainly by the continued growth of its nuclear fission R&D program. Also, while U.S. energy R&D investments have been volatile, consistently growing investment in the substantial basic energy research program has played a major role in masking decline in other government energy R&D programs. Even though aggregate U.S. energy R&D investment fell by 14% between 199 and 24, basic energy R&D grew by more than 2% (to $1.2 billion) in that period. Controlling for nuclear energy R&D investments, as shown below in Figure 1b, energy R&D investment rates in many countries have remained relatively flat on average since the mid-198s (with the exceptions of the US and Japan). A comparison of figures 1a and 1b also shows, however, nuclear energy R&D has historically accounted for the majority of energy R&D activities in industrialized countries since the early 197s. 6 5 Figure 1 shows a summary, by country, of investment trends in each of five major energy R&D program areas: conservation, fossil energy, renewables, nuclear fission & fusion, and power and storage technologies. 6 International Energy Agency (IEA), Energy R&D Database, available from 3

4 Figure 1b. Total Non-Nuclear Government Energy R&D Investment in Selected IEA Countries, millions, $US * Japan Despite increasing overall energy R&D investments in a few countries, the ratio of energy R&D to gross domestic product declined significantly between and 23 in each of the IEA countries surveyed. As shown in Figure 2, Japan invests a significantly larger share of GDP in energy R&D than other industrialized countries; the U.S., despite its high energy R&D expenditures relative to other countries, now devotes roughly the same fraction of GDP to energy R&D as do major European countries. US 4

5 Figure 2. Public Sector Energy R&D as a Share of Gross Domestic Product, %.2%.15% 24.1%.5%.% Japan Norway Switzerland US Figure 3 shows aggregate trends across all countries surveyed in each of the four major energy R&D program areas (conservation, fossil, renewables, and nuclear). Each major investment area has followed a downward trajectory since the early 198s although nonnuclear R&D has become more stable at lower levels of investment since the mid-199s. Nuclear energy R&D again exhibits the sharpest decline among the four major program areas. As mentioned earlier, the consistent growth in the U.S. government s basic energy science program to its current level of $1.2 billion partially offsets the decline in nuclear R&D investment across the industrialized world. The basic energy science program, which is a unique feature of the U.S. government energy R&D program, is not shown in Figure 3. 7 and 24 values are missing for and Finland, which have been omitted from this figure. 5

6 Figure 3. Aggregate Trends in Government Energy R&D Investment by Program Area, millions $ US 23 (PPP) Investment in Major Energy R&D Program Areas Conservation Fossil Renewables Nuclear Public sector investments in individual program areas paint a more complex picture of long-term energy R&D trends. As the following sections discuss, the patterns of investment and disinvestment in individual program areas reflect shifts in energy and environmental policy, changing economic and resource constraints, and evolving expectations regarding future energy markets. 3.1 Conservation R&D 8 Conservation R&D programs have fared better than other program areas in several countries, although this trend is subtle in some cases. Throughout the 199s and into the current decade, conservation R&D investment was dominated by strong growth in the U.S. and Japan, as Figure 4a shows. 8 The IEA category Conservation energy R&D includes the following sub-categories: industrial, residential, commercial, transportation, and other conservation. 6

7 Figure 4a. Public Sector Conservation Energy R&D, millions $ US Japan US Conservation R&D investments in,,, and the followed a more modest upward trajectory from the early 199s to the present. As Figures 4a and 4b show, no clear pattern or trajectory is observable in conservation R&D investment since the mid 198s in countries other than the U.S. and Japan. Government investments have changed dramatically from year to year in many countries. These major shifts suggest that a linkage between conservation research programs and major policy domains (e.g., technology, energy, and environmental policies) are not firmlyestablished. 7

8 Figure 4b. Public Sector Conservation Energy R&D, -23 (excluding U.S. and Japan) 12 1 millions $ US Fossil Energy R&D 9 As Figure 5 shows, investment in fossil energy R&D has experienced sharp declines in virtually every IEA country included in this survey. While the U.S. has historically been the largest investor in fossil R&D, funding fell by 74% from a 198 high of $1.7 billion to $451 million in 24. Fossil R&D fell even more sharply in (96%), the United Kingdom (96%), and (81%). Japan s fossil energy R&D program recently rebounded sharply after a protracted decline of more than 8% from the early 198s to The IEA Fossil Energy R&D category includes the following sub-categories: enhanced oil & gas; refining, transportation, and storage; oil shale & tar sands; other oil & gas; coal production, preparation, and storage; coal combustion; coal conversion; other coal. 8

9 Figure 5. Public Sector Fossil Energy R&D, millions $ US Japan US The decline in fossil energy R&D may be attributed to several factors. Funding for fossil R&D programs rose sharply during the 197s and into the 198s in response to the oil supply shocks of and -8. When oil prices fell in the mid-198s and consumer confidence rose regarding the sustained availability of cheap oil, R&D investments subsided. From this perspective, government fossil energy R&D investments in the high-investment years of the 197s-8s are anomalous; the long decline since then could be viewed as a protracted return to historic levels of R&D support. Recent increases in fossil energy R&D budgets are consistent with the observed increases in world petroleum prices over the past three years. Also, where aggregate energy R&D funding levels have fallen throughout the IEA countries, there has been increasing competition among R&D program areas. Since fewer public resources are being devoted to energy R&D in total, fossil programs must compete more directly with emerging, alternative, and demand side technology programs (e.g., renewable energy and conservation programs). Moreover, growing concerns in western countries regarding energy import dependence, energy security, and global climate change have given greater impetus to efforts to develop viable alternatives to fossil fuels. The deregulation and restructuring of the energy industries has also played some role in the waning investments in fossil energy R&D as they have in other energy R&D areas. With the liberalization and privatization of many state oil, coal, and gas enterprises, 9

10 governments have likewise placed more responsibility for related R&D expenditures in the hands of private firms Renewable Energy R&D 11 Compared with other energy R&D program areas, renewable energy has fared well in recent years. Although the historical apex of renewable energy R&D investment occurred in the early 198s following the OPEC oil supply shocks, investments in several countries (e.g., the U.S.,,,,, and ) began to rise again in the mid-199s and, in many cases, continue to grow. As Figures 6a and 6b shows, discerning more definitive transnational investment trends in the IEA data is problematic. Until the early 199s, renewable R&D investment was dominated by the United States, whose investment level at its peak exceeded those of all other IEA countries combined. Since the 199s, investments in wind programs have been a major driver of investment growth in Europe, although there is some evidence that a large percentage of this funding has been directed to deployment programs rather than R&D activities in the strictest sense. 12 Growth in European renewables R&D and deployment programs has also been spurred by legislation at the national level in several countries (e.g.,,,, U.K.) promoting the adoption of renewable energy technologies for electric power production. Also, legislation adopted by the European Union in set an EU-wide target of 12% renewable electricity generation by 21, creating incentives for renewable technology deployment across Europe J.J. Dooley, Unintended Consequences: Energy R&D in Deregulated Market. Energy Policy vol. 26, no. 7 (June ), The IEA Renewable Energy category includes the following sub-categories: wind; ocean; biomass; geothermal; large hydro (>1 MW); small hydro (<1 MW). 12 See for example Thomas B. Johannson and Wim Turkenburg, Policies for Renewable Energy in the European Union and Its Member States: An Overview, Energy for Sustainable Development Vol. VIII, No. 1 (March 24) 13 European Commission, Energy for the Future: Renewable Sources of Energy White Paper for a Community Strategy and Action Plan COM (97) 599 final (26/11/97), 1. 1

11 Figure 6a. Public Sector Renewable Energy R&D millions $ US Japan US Figure 6b. Public Sector Renewable Energy R&D (without U.S. and Japan) millions $ US 24 11

12 3.2.1 Wind Energy Growth in the European Union The impressive growth of the European wind industry warrants special mention here as a unique case of rapid energy technology deployment. Investments in wind energy R&D and additions to installed wind capacity in Europe have accelerated over the past decade in response to EU and national legislation regulating energy-related air emissions and due to rising awareness of global environmental problems such as global climate change. Subsidies have played a major role in many European countries in stimulating the use of wind energy and facilitating its competitiveness with conventional fuels for electric power production. At the same time, the commercial-readiness of wind technologies in the 199s and the availability of high-quality sites for wind power production have also been important enabling factors. As Figures 7a and 7b show, there is an apparent correlation between cumulative investment in wind R&D and wind technology deployment. Compared with one another, all but one of the countries shown () maintained the same rank in both wind R&D investment and wind technology deployment. Figure 5a shows the cumulative wind R&D investments of selected EU countries between and 23, while Figure 5b shows growth in installed capacity over the same period. Figure 7a. Cumulative Government Investment in Wind R&D, Selected EU Countries Millions, 23 $ US (PPP)

13 Figure 7b. Cumulative Installed Wind Capacity in Selected EU Countries, Total MW Installed The correspondence of cumulative wind R&D investment with technology deployment offers some evidence suggesting that aggregate energy R&D expenditures are an important element in successful technology diffusion, regardless of the timing or even the year-to-year consistency of R&D investments. As Figure 7c shows, the year-to-year patterns of wind energy R&D investment in the EU varied widely between and 23, revealing no apparent correlation with deployment patterns. While the overriding pattern of energy R&D disinvestment in IEA countries has given many observers cause for concern regarding the availability of future technological options to address energyrelated problems, this finding suggests that future augmentation of R&D investment levels could build on previous investments to yield shorter-term and long term payoffs. 14 Data for this graph were obtained from the European Commission, "Wind Power: The Facts," (Feb 24) available from 13

14 Figure 7c. Annual Public Sector Wind Energy R&D Investments in Selected EU Countries Millions, 23 $ US (PPP) Nuclear Energy R&D 15 Whereas renewable energy has been, relatively, the success story in energy R&D, nuclear R&D represents the most dramatic decline. As Figure 8 shows, nuclear R&D in the US and Europe began a precipitous decline from its peak in the early 198s, when fission R&D constituted the majority of public energy R&D investments in industrialized countries. Several factors have contributed to this decline. Major nuclear accidents, such as those at Three Mile Island in and Chernobyl in played key roles in catalyzing public opposition to nuclear power for the long term. Other environmental concerns, such as those surrounding waste disposal, compounded the problems of public perception and cost-effectiveness of nuclear power. Energy industry deregulation, abundant gas resources, and the introduction of natural gas turbines for electric power production beginning in the mid-198s transformed the economic and operational characteristics of 15 The IEA nuclear category includes the following sub-categories: nuclear LWR; other converter reactors; nuclear fuel cycle; nuclear supporting technologies; nuclear breeder; nuclear fusion. 14

15 natural gas, spurring a dash to gas in the U.S. and Europe. Siting, permitting and financing new nuclear plants became all but impossible in most industrialized countries, considering widespread perceptions of high risk, and the growing attractiveness of alterative energy sources, such as gas and renewables. With few exceptions, shrinking nuclear fission R&D portfolios placed greater emphasis on safety, safeguards, and waste disposal technologies and dwindling emphasis on new reactor design. Nuclear power phase out plans in several European countries including,, and the U.K. offer an explanation for observed cuts in reactor design research. In many countries (e.g., the U.S., U.K.,,, and the ), nuclear fusion programs now account for the largest single share of nuclear energy R&D investment although these programs have also experienced major funding reductions. Figure 8. Government Nuclear Energy R&D millions $ US Finland Japan Norway Switzerland US As Figure 8 also shows, there is one major exception to the long-term trend in nuclear R&D investment in industrialized countries. In real terms, Japan s total expenditure on nuclear energy R&D has grown by almost 4% over the past 3 years. Japan s nuclear program has continued to grow even though the government s investments in new reactor designs (such as breeder reactor technologies) and in nuclear fusion have declined over the past decade. Leading the long-term growth in Japan s nuclear program have been investments in technologies to support the operation of the current reactor fleet and research on the nuclear fuel cycle. Nuclear power is used to generate approximately 28% 15

16 of Japan s electricity and is viewed as vital to that nation s energy security considering its near total dependence on foreign energy resources. 4. Summary In the aggregate, public sector energy R&D investments in industrialized countries have declined sharply over the past two decades from their peak levels in the early 198s. In large part, this downward trend may be attributed to a combination of forces common to almost all industrialized countries: the liberalization and deregulation of the energy industries; the fading memory of acute energy crises such as those of the 197s; comparatively low, long-term energy prices; and a rethinking of the role of the state in the governance of energy and other key industries. As Summary Table 1 shows, the largest declines in energy R&D sponsorship occurred between 198 and 199, after which the rate of decline in aggregate government energy R&D investment slowed across the countries surveyed. Since the mid-199s, government energy R&D investments have stabilized at levels close to those of the early 197s, prior to the first world energy crisis. Summary Table 1: Aggregate Percentage Change in Major Public Sector Energy R&D Program Areas, -23 and All 11 Countries w/o US, Japan All 11 Countries w/o US, Japan Conservation -2% -42% +788% -36% Fossil -78% -77% -68% -64% Renewable -75% -56% -5% -14% Nuclear -91% -83% -88% -63% Aggregate -65% -8% -53% -65% More nuanced investment patterns are found in individual energy R&D program areas. For example, conservation R&D programs have grown in several countries over the past decade or longer, and renewable energy R&D and deployment programs, most notably in the wind technology area, have also expanded significantly. The deployment of wind technologies in several European countries including,,, the 16

17 U.K. and the began a rapid climb in the late 199s that continues to the present. Policy instruments favoring the use of renewable energy over conventional fuels have played the most important role in spurring these developments. Legislation at both the national and EU levels, subsidies and tax incentives for the adoption of renewable technologies, and ecotaxes on the use of fossil fuel have all been invoked by European governments to encourage the aggressive deployment of renewable energy technologies, particularly for electric power production. These measures have been implemented in part to address mounting concerns regarding energy import dependence and energy security, but primarily to respond to perceived environmental risks associated with fossil fuel use such as global climate change. The deepest cuts in energy R&D investment have occurred in the fossil fuel and nuclear energy R&D program areas. With the exception of Australia, fossil programs declined in each of the countries included in this survey, in some cases (such as the U.K.,, and Japan) by more than 9% from their peak levels. The consistent decline in fossil R&D programs can be attributed in part to the macro-level drivers mentioned above. As government energy R&D budgets have contracted in total, resources have been concentrated on next generation energy technologies (e.g., renewables), efficiency and conservation programs, and less on fossil fuels. Nuclear energy R&D investment has also fallen precipitously across the industrialized world, with the exception of Japan. The perceived risks of nuclear technologies and waste management, and the availability of cheaper and easier options for power production made siting, permitting, and financing new nuclear plants exceptionally difficult in the U.S. and Europe. Government nuclear energy R&D investments have reflected the pessimism and uncertainty surrounding the industry s future. In conclusion, while the overall level of energy R&D investment in industrialized countries has clearly diminished since the peak years of the early 198s, a stabilization of public investment has occurred over the past decade. Governments appear to be acting more selectively in the allocation of their more limited energy R&D resources, directing funds to specific, emerging technology areas. Moreover, with a growing focus on technology deployment outside the U.S., a full array of policy instruments including tax incentives, deployment subsidies, portfolio standards, and regulations is being used to accelerate the use of new, non-fossil energy technologies. 17