Not surprisingly, most Energy Research and Development takes place in industrialized countries where both the public and private sectors are involved in the development of energy technologies. Given that most energy technologies are deployed through the marketplace, the predominant focus of Energy Research and Development is within firms. Still, governments have historically played an important role in the Research and Development of new energy technologies through direct financial support (e.g., gas turbines) as well as through policies that promote Energy Research and Development within firms. The rationale for government involvement in Energy Research and Development is multifaceted:
* Concerns about energy security dominated the energy policy of most countries after the oil crises of the 1970s and drove the large increases in public Energy Research and Development spending seen during the late 1970s. Although the decline of oil prices by the early 1980s led to cutbacks in this spending in many countries, the energy security issue, as well as the high costs of energy imports, still motivates governments to make investments in energy technology innovation.
* The global market for energy technologies is estimated to be in the range of several hundred billion dollars per year. In this context, government involvement in energy technology development is also motivated by substantial commercial and national economic competitiveness elements.
* Although new and improved energy technologies are crucial to a robust, efficient, and clean energy system, the long time scales for energy technology development and deployment often make it unattractive to private firms to embark on many forms of Energy Research and Development efforts on their own.
* It is also recognized that affordable and reliable energy services have a ‘‘public good’’ nature due to their intimate linkage with various aspects of human and economic development. At the same time, reducing the environmental implications of energy and other externalities of energy use is becoming paramount, especially with the expanding scale of the energy system worldwide and the emergence of problems such as climate change. Given the substantial social and environmental returns that may accrue from the widespread use of clean energy technologies, governments of most industrialized countries and many developing countries have traditionally funded appropriate Energy Research and Development efforts.
Along with public sector Research and Development investments (substantial in many countries), other government policies such as cost sharing, environmental regulations, and tax incentives provide stimulus for, and shape the priorities of, private sector investments in Energy Research and Development. Some policies, such as high taxes on energy and the commitment to expand and improve energy services, send a clear signal for demand for appropriate energy technologies, and this in turn creates an impetus for increased Energy Research and Development investment. Of course, government involvement in energy innovation goes well beyond R&D. Government also plays a role in promoting and assisting in the demonstration and deployment of such technologies.
The International Energy Agency (IEA) collects data on public sector Energy Research and Development expenditures by its member countries. Note that the IEA defines Research and Development expenditures in its data collection questionnaire as including funding for demonstration projects. Energy Research and Development spending patterns over time by the seven countries that accounted for more than 90% of the energy technology development expenditures between 1990 and 2000 as reported to the IEA. Two sets of patterns emerge clearly from these data. First, public Energy Research and Development spending rose sharply after the two oil shocks of the 1970s, peaking in 1980 and then, as oil prices dropped, declining sharply for a decade or so and then declining somewhat more slowly during the 1990s. Second, the United States and Japan continue to account for a major portion of the world’s Energy Research and Development. Also, Japan is the only major IEA country that has shown mostly increasing or stable Energy Research and Development expenditures over the past two decades or so.
