Two decades of global energy RD&D data shows greening trend but fossil fuel spending still in billions
By Fang Zhang and Amy Myers Jaffe
In a sign that private capital might pile in if governments were to dedicate more public funding to clean energy research, development and demonstration, Microsoft Corporation co-founder Bill Gates announced recently that his climate-oriented fund, Breakthrough Energy, would co-invest up to $1.5 billion in joint projects with the US federal government, when and if Congress passes its giant infrastructure bill. The gesture underscores the importance for a broader public and private sector effort to jumpstart clean energy research, development and demonstration (RD&D) spending which has been generally flat in recent years. According to a new survey of global RD&D trends by Climate Policy Lab, published in Wires Climate Change, global clean energy spending has been averaging around $12 billion a year since 2010, a significant increase since earlier decades but still far from the needed levels to help the world achieve the kind of technology innovation and cost reductions needed to enable the restriction of global carbon emissions to net zero by 2050. The International Energy Agency estimated in its Net Zero by 2050 report that unlocking the next generation of low-carbon technologies would require upwards of $90 billion in demonstrations alone by 2030 as well as huge increases in global public RD&D spending.
Evidence is that public money spent on energy RD&D has paid off over the years and contributed to the decline in costs for renewable energy. For example, the levelized cost of solar energy has fallen by 82 % since 2000 and is now commercially competitive against other fuels in many geographies. Our comprehensive review of global public RD&D spending shows that major economies are pivoting towards higher spending on clean energy innovation and reducing spending on fossil fuel-related technologies. As the Glasgow climate talks approach, now is the time for governments to consider how to leverage past successes to hasten even greater progress.
Global government energy RD&D spending increased by 138% between 2000 and 2018, reflecting increasing attention to national security, global competitiveness, and rising environmental and climate concerns. Total government energy RD&D received an extraordinary boost during the financial crisis in 2009 as several governments, including the US and China, included energy and climate related RD&D in their stimulus programs. Only a handful of countries, including China, Germany, South Korea, and the UK, sustained the higher level of energy RD&D public expenditure once the economic stimulus prompted by the 2009 financial crisis had wound down.
Our analysis reveals that, generally speaking, the global public energy RD&D portfolio is decarbonizing. Global public clean energy RD&D totalled $12 billion in 2018, representing around 44% of total energy RD&D spending. Our data shows that the share of public energy RD&D investments going into fossil fuels research peaked in 2009, dropping from 18% in 2009 to only 6% in 2018. The share of nuclear energy RD&D spending also decreased to 25% in 2019 compared with 34% in 2008. Clean energy, including energy efficiency and renewable energy, now account for over 34% of total government energy RD&D as of 2018, a higher percentage than either fossil fuels or nuclear energy.
Our survey results highlight how the geographical composition of public RD&D investments is also shifting, with China and India emerging as major players in energy innovation research. China has surpassed Japan to become the second largest government RD&D investor. India has surpassed France and Germany to become the third largest investor. In 2018, the Chinese and Indian governments spent US$ 2.8 billion and US$ 2.6 billion in non-fossil fuel energy RD&D respectively. The US and China are competing for first place in clean energy government (non-SOE) RD&D depending on whether or not nuclear is included. China edges the US out for non-nuclear clean energy. If nuclear is included in “clean”, the US edges China out. “Cross-cutting” technologies could change the clean energy picture considerably because this category may include clean energy, but the two countries do not provide consistent and detailed breakdowns so comparisons are not possible. The US includes “smart grid” in cross-cutting, for example.
Once spending data from state owned enterprises (SOEs) is tallied into global public energy RD&D totals, it strongly tilts the balance of global RD&D spending towards higher total investment in nuclear and fossil fuels innovation. This observation highlights how one important policy step urgently needed is for governments to undertake a critical assessment of RD&D budgets of state-owned enterprises (SOEs).
Our survey found that SOEs make up a significant share of public spending on energy research, development, and demonstration but that upwards of 55 percent of monies spent are going to fossil fuel-related projects. Data available from Brazil, Russia, India, Mexico, China, and South Africa suggest that state owned energy enterprises account for $17.7 billion in RD&D spending, or roughly 67.7 percent of all public energy research, development and demonstration dollars spent in those countries in 2015. While some of the fossil fuel spending might include research, development and demonstration related to carbon capture and sequestration, much of the allocation of funding is for technologies related to fossil fuel production and use due to path dependencies in RD&D SOE ecosystems.
The International Energy Agency’s net zero scenarios pathway undercuts justification for increases in future investment by state or private oil companies in new oil and gas field development. IEA argues in its net zero report that future oil and gas upstream spending should focus on existing resources. This means it will be harder for companies to use IEA’s published scenarios as justification for business as usual. If newly found oil reserves aren’t likely to be needed in the next two decades, then technology innovation to enable that success is also superfluous. Some national oil companies are already recognizing this. The recent announcement by PetroChina that will pivot out of oil and aim for a near net zero emissions energy portfolio by 2050 demonstrates that SOEs could become a powerful force for energy innovation. PetroChina aims to replace oil investments over time with capital allocation towards hydrogen, carbon sequestration (CCS) and renewable energy. Other important SOEs like Saudi Aramco, ADNOC of the United Arab Emirates and Russia’s Gazprom are also starting to position themselves with investments into renewable energy, CCS, and hydrogen.
As countries consider their climate strategies and ambitions for nationally determined commitments (NDC) to be presented at Glasgow, more urgency is needed on developing solutions to reach net zero. While the tide is finally turning towards clean energy in government energy RD&D investments, the level of commitment still does not reflect a strong urgency to achieve net zero in response to the climate crisis. In addition to including major increases in RD&D spending as part of upcoming government stimulus in the largest economies, additional reforms of state energy sectors is needed. The laggardness of state-owned enterprises to transition to clean energy innovation points to a major challenge for governments to reform these firms so that their capital investment is aligned with the larger national pledges to achieve net zero targets in the 2050s and 2060s.
To read the full global survey, click here:
https://wires.onlinelibrary.wiley.com/doi/full/10.1002/wcc.734
Fang Zhang is an Assistant Professor at Tsinghua University School of Public Policy and Management.
Amy Myers Jaffe is the Managing Director of Climate Policy Lab and a Research Professor at The Fletcher School, Tufts University.