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Posted by: Michael Mandel on April 23
We all know that one of the biggest problems going forward is how to meet the energy needs of the world, while still reducing the emissions of greenhouse gases. This is the elephant in the living room, where our current course leads to disaster, one way or another, if nothing changes.
The question, then, is how optimistic should we be about the possibility of technological change bailing us out. On his blog, Paul Krugman writes:
Athabasca tar sands have finally become a significant oil source, but even there it’s much more expensive — and environmentally destructive — than anyone seemed to envision in the early 70s.
You might say that this is my answer to those who cheerfully assert that human ingenuity and technological progress will solve all our problems. For the last 35 years, progress on energy technologies has consistently fallen below expectations.
I agree with Paul on the past 35 years, and in fact the past 50 years—progress on energy technologies has been an utter black hole.
However, I disagree with Paul that the failures of the past 50 years necessarily imply failures in the next 50 years. Let me make one simple point: We simply have not been spending enough on energy R&D over the past two decades to know whether progress is possible.
Two facts: First, take a look at this chart.
The share of GDP going for federal R&D on energy, environment, and natural resources has been steadily falling over time, under both Democrats and Republicans, despite our energy worries. And that little bump up at the end is mostly imaginary, since it represents Bush's proposed spending, not what will actually be passed.
Second fact: in the private sector, the situation isn't much different. The biggest energy companies are the oil companies, of course, and they are much more into exploration for oil and gas, rather than the development of alternatives.
Take ExxonMobil, which according to its latest annual report "invested $3.5 billion in research and development over the past five years." That sounds like a lot of money--but of course over the same period the company had $90 billion in capital and exploration expenditures, $160 billion in profits, and an absolutely stunning $1.6 trillion in sales. Compared to the size of the company, and the size of the oil markets, ExxonMobil's spending on R&D was tiny. To put it another way, Intel--a much smaller company--spent $26 billion on R&D over the same 5-year period.
To answer Paul, I will say that we are entitled to be pessimistic about the progress of energy technology after we've spent a few years boosting our investment in energy-related intellectual capital.
See also Tyler Cowen's response to Krugman here.
Update: According to the latest(!) data from the NSF, in 2003 private companies did $2 billion worth of energy R&D. (Table 10 here). That's out of a total R&D spend of $204 billion. Not much there there.
Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.