Why Energy Companies Invest Next to Nothing in Innovation


Don't pay attention to those oil company ads that claim they're devoting time and resources towards working on clean energy solutions -- just look at the graph below. The chart, which Climate Crocks reminds us of today, shows just how little the energy sector spends on research and development compared to other innovation-based industries. 0.3%. That's practically nothing -- we'll never see the same sort of advances in the clean energy sector that we have in the information tech or pharmaceutical industries until that number goes up. And unfortunately, having the president ask nicely in the State of the Union probably won't do the trick.And nor will $151 government programs providing retrofitting incentives and tiny, $27 million 'mini-sun-shot' programs aimed at bringing down the price of solar -- the administration's latest efforts to prod solar along. This is chump change compared to what biotech firms or big pharma dump into innovation. So the question is, how do you get oil, coal and other energy companies to seriously invest in new green research and development on their own?

For electric generation especially, it's an extremely tricky question to answer for primarily one reason -- coal is so damn cheap. Unlike, say, tech companies, who are constantly trying to provide a better-functioning smart phone than their competitors, utilities have zero reason to demand innovation so as long as coal remains universally the cheapest way to generate electricity.

Of course, we all know that the cost of coal doesn't include the very, very expensive negative externalities it bestows upon local environments, and the globe: asthma-inducing pollution, gutted mountaintops, contaminated streams and rivers, and, of course, greenhouse gas emissions that are warming the world. But industry doesn't have to pay for any of that -- as of now, the market could care less (for the most part) whether energy is clean or dirty.

Which is why Eric Spiegel, CEO of Siemens USA told the Washington Post that

"his company is held back by the United States' reluctance to pass a carbon tax or make permanent the solar tax credit. "If you don't do anything on carbon and you don't have renewable energy standards or investment tax credit, every utility company would go out tomorrow and build coal," he said."

And that's why 50% of our power still comes from coal and why there have been so few radical innovations in clean energy in over 30 years. It's also why it's so tough for many to admit that the free market isn't going to solve this problem alone -- that unharnessed, the free market would have us burning coal until we exhausted the supplies, caring less about such things as the global average temperature of the world. Which is why advocates desperately seek to provide the market with clear signals -- a price on carbon, a flat-out carbon tax, a renewable energy standard, or distinct, permanent tax breaks for renewables -- that would steer it in the right direction.

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