Memorandum submitted by the Tyndall Centre
for Climate Change Research
It is now widely accepted that global climate
change presents a substantial threat to modern societies. According
to the Royal Commission on Environmental Pollution, cuts in greenhouse
gas emissions of 60% are needed over the next 50 years to mitigate
its impact. These cuts cannot be achieved by making small changes
to the current energy system. Radical change is requiredchange,
which must bring forward new infrastructures, new incentives and
cleaner, more efficient patterns of energy use.
The decision by the Science and Technology Committee
to launch an enquiry into non-carbon energy research, development
and demonstration (R,D&D) is timely and welcome. As part of
the government's review of energy policy, the Chief Scientific
Adviser has recently completed a review of energy research. Public
funding for the development and deployment of non-carbon technologies
has an essential role to play in the transition to a more sustainable
energy system. The enquiry provides an important opportunity to
reappraise public and private R&D activities in this field,
to examine the form it should take in the future and the priorities
it should reflect.
1. THE TYNDALL
The Tyndall Centre is a national UK centre for
trans-disciplinary research on climate change. It is dedicated
to advancing the science of integration, to seeking, evaluating
and facilitating sustainable solutions to climate change and to
motivate society through promoting informed and effective dialogue.
The Centre was constituted in October 2000 and
launched officially on ninth November 2000. It is the result of
a unique collaboration between nine UK research institutions and
three of the UK Research CouncilsNERC, EPSRC and ESRC.
It draws additional support from the UK Government's Department
of Trade and Industry. The Centre has its Headquarters in the
School of Environmental Sciences at the University of East Anglia
in Norwich, but it also has regional offices at UMIST in Manchester
and at the University of Southampton. Tyndall Centre activities
have three key elements:
integrated, trans-disciplinary research
on climate change;
wide engagement with national and
international stakeholders; and
education and opinion-shaping
The Tyndall Centre aims to deliver tangible
outputs and to develop partnerships between researchers on the
one hand, and governments, businesses, civil society and households
on the other. It is active in both the UK and in emerging parallel
initiatives around the world, such as the European Climate Forum.
Its research addresses both climate change mitigation and adaptation
policy objectives with a particular emphasis on integrated assessment.
Most importantly, its research applies across a range of scales
in space and timefrom the domestic to the global, and from
the present through the coming centuries.
This submission is based on research conducted
under the second of the Tyndall Centre's four research Themes:
Decarbonising Modern Societies . Work under the Theme is examining
a range of options for reducing carbon emissions in the short,
medium and long term, including new technologies and socio-economic
policy and change. Theme two uses a range of methods including
scenario analysis, technology modelling, integrated assessment,
multi-criteria evaluation and citizen participation approaches.
The overall aim is to provide integrated visions of different
possible trajectories for a 60% reduction in carbon emissions
in the UK by the 2050s.
The submission identifies a number of key issues
for the future of non-carbon energy R&D in the UK:
That publicly funded R&D is an
essential component of the UK's contribution to climate change
That there is a need to rebalance
and expand energy R&D spending by the DTI and other departments
and agencies to reduce the proportion spent on nuclear fusion.
This would allow increased funding for other technologies, particularly
alternative long-term possibilities such as hydrogen and carbon
That the current shortfall of UK
skills must be tackled in key energy areas, for example in electricity
distribution engineering and in nuclear decommissioning;
That there is a need to rebuild the
UK's R&D capacity to reverse the decline of core institutions
such as corporate and public laboratories, and to better co-ordinate
the activities of these institutions; and
That non-carbon energy R&D programmes
should be co-ordinated with appropriate market enablement programmes
to encourage technology deployment.
2. UK ENERGY
R&DA DRAMATIC DECLINE
Public funding for energy R&D in the UK
has declined dramatically over the past decade or so (see Annex).
International Energy Agency (IEA) figures show that annual funding
was typically several hundred million pounds during the 1970s
and 1980s. Funding has recently declined to around £50 million
per year or less, representing as little as 10% of the annual
budgets of the late 1980s.
It is difficult to interpret the IEA data with
accuracy since it might exclude R&D carried out through research
councils, State-owned companies (eg BNFL) and other government
agencies. In the context of the Committee's enquiry, it is also
hard to establish the proportion of the budget devoted to non-carbon
energy. For the purposes of this submission, we have focused on
renewable energy technologies, nuclear technologies (both fission
and fusion), research on hydrogen (to the extent that it is produced
by renewable energy sources) and R&D on carbon sequestration
(to remove and store carbon dioxide produced from the burning
of fossil fuels).
Bearing in mind these difficulties, Table one
seeks to summarise the current extent of non-carbon energy R&D
by the UK government and its agencies:
CURRENT PUBLIC SUPPORT FOR NON-CARBON ENERGY
R&D IN THE UNITED KINGDOM
|2001 (£m) International Energy Agency
||2000-01 (£m) Energy Research Review
|New and Renewable||7.00
|*It is unclear from the raw data what is contained within the "other" category in the UK's submission to the IEA. From the historical detail, it is likely that it includes research on nuclear decommissioning and perhaps on hydrogen and fuel cells.
|Source:Report of the Chief Scientific Adviser's Energy Research Review Group; International Energy Agency.
As the Table shows, there is a considerable discrepancy between
the figures reported by the UK government to the IEA, and the
spending identified by the Chief Scientific Adviser's review of
energy research. In particular, the IEA figures underestimate
public support for nuclear technologies by the UK government.
One reason is that these do not include spending by Euratom on
the UK government's behalf.
Whilst the overall steep decline in publicly funded energy
R&D in the UK mirrors the trend in many other countries, the
UK situation is particularly severe for two reasons. First, the
magnitude of the decline is bigger than in any other member country
of the IEA. Second, the UK budget is now comparable to that of
EU Member States with smaller economies (eg Spain, Denmark and
Norway) rather than the leading economies of France and Germany.
The decline of publicly funded energy R&D in the UK has
been mirrored by a similar decline in key private sector companies.
Following the privatisation and deregulation of UK energy industries,
corporate spending within privatised companies has fallen significantly.
For example, the gas infrastructure company Lattice spent £14m
on R&D in the 15 months to March 2002. This company inherited
most of the R&D functions of British Gas, a company that routinely
spent at least £70m per year on R&D when it was State-owned.
As a result of such significant cuts, corporate R&D centres
now employ a fraction of the staff they employed a few years ago.
Of course, the magnitude of national R&D budgets is only
a partial indicator of successful technological development. There
are numerous examples of government R&D programmes that have
failed to achieve their aims of new commercial energy technologies.
Examples include the fast breeder nuclear reactor and, more recently,
US government efforts to develop advanced cleaner coal technologies
for electricity generation. It is often the case that these failures
are a result of governments trying to create a market for a new
technology where no demand existsthe upshot is that firms
become dependent on government support, and there is little prospect
of a move towards subsidy-free commercialisation in the medium-term
On the other hand, there is also a wealth of evidence from
the UK and abroad that a critical mass of public support is necessary
to maintain a viable skills base for new technology development.
The idea, which partly drove the pronounced fall in UK energy
R&D expenditurethat governments should pull out and
leave almost everything to the marketis equally flawed.
Without government spending, the UK would not have been able to
take a leading role in international climate change negotiations.
UK carbon dioxide emissions have fallen significantly since 1990
as a result of the dash for gas, which saw the construction of
a large number of highly efficient combined cycle gas turbine
(CCGT) power stations. It is often argued that the CCGT is a privately
developed technology, which owes only a small debt to public R&D
support. In reality, developments in CCGT efficiency and environmental
performance have only been possible due to technology transferred
from multi-billion dollar government development programmes for
military jet engines.
3. THE CASE
As the DTI has pointed out , a strong rationale for increased
public funding of R&D in areas such as sustainable energy
is that the potential social return is much larger than the private
returns appropriable to individual companies. The DTI proposes
that evidence of one or more market failures should be supplied
in order to make a case for public support of a given technology.
As recent research on the economic benefits of publicly funded
research shows, the market failure approach assumes that the creation
of new scientific and technical knowledge is the main benefit
of public research . In practice, public research creates many
other important benefits, including:
Training of skilled graduates and other personnel
Supporting new professional networks and stimulating
co-operation and collaboration
Expanding the capacity for technological problem
Producing new instrumentation and methodologies
Creation of new firms and industries
Provision of social knowledge relevant to innovation.
All of the above benefits underpin innovation, but often
in an intangible, complex and long-term manner. The simple linear
model, where research is seen to produce economically useful information
which firms then exploit, underestimates the benefits of public
R&D by dwelling on the direct and more easily measurable contributions.
One topical illustration of this has already been mentionedthe
development and commercialisation of CCGT technology in the electricity
industry. In addition to these benefits, public research creates
three types of strategic value for the innovation process:
Capabilitycreating the skills needed to
take advantage of scientific information.
Varietyhelping to generate diverse options
to counter the market's tendency for path dependency and lock-in
(ie the tendency for competing firms to home in on a limited set
of technological options, making it increasingly costly for other
options to be used).
Capacitya quantitative idea that combines
capability and variety in an expression of the size of the investments
needed to ensure high levels of innovation.
At the present time, there is a particularly strong rationale
for non-carbon energy R&D to create and develop skills in
the UK. It is becoming increasingly apparent that there is a systemic
skills shortage in many parts of the UK energy system. Specific
examples with relevance to non-carbon energy include shortages
in nuclear technologies, and in electricity distribution engineering.
The former issue has explored in some depth by a recent report
of the DTI nuclear skills group . With respect to the latter,
anecdotal evidence suggests that the expansion of distributed
generation sources will pose difficulties for electricity distribution
companies in the near future. Whilst it is possible to integrate
these generators into existing electricity networks, a large expansion
may require a considerable expansion of skilled personnel to enable
infrastructure investment by distribution companies.
Another problem with the market failure and linear approaches
to investments in R&D is that they encourage policy-makers
to focus too much attention on the problem of international free
riders, where one country's R&D becomes exploited by firms
elsewhere. What this overlooks is that scientific or technical
knowledge requires substantial capabilities on the part of the
user. It also downplays the international nature of many R&D
activities. To be able to innovate at the cutting edge, firms
and countries need to invest in R&D so that they have the
capabilities to make use of the latest international developments.
This analysis suggests that, in addition to public sector
investments, government policy should be explicitly aiming to
encourage private-sector investments in R&D. Overall, UK industry
in the energy sector seems to have a relatively poor record in
such investments, and in bringing new energy technologies to market.
Wind power is an obvious example. Whilst UK firms were involved
in the early stages of development, more consistent policy support
in other countries has meant that manufacturers in countries such
as Germany and Denmark dominate the world market .
The case of the Japanese R&D programme for solar photovoltaic
(PV) technology reinforces this point. Significant R&D support
for PV technology has been provided by the Japanese government
for around 20 years. A recent evaluation of this programme has
identified a consequent virtuous cycle of private sector R&D
funding (which has been consistently larger than the public budget)
leading to an increase in installed capacity, production volumes
and a reduction in unit price. Although the market for PV technology
is still largely underpinned by public subsidies in Japan, Germany,
the USA and elsewhere, costs have fallen a long way (in Japan,
a 95% fall in production costs occurred between 1974 and 1994).
Furthermore, Japanese companies are now among the world leaders
in this field.
4. IS THE
Having made the case for public support for non-carbon energy
R&D, it is important to evaluate how limited government funds
should be spent. In principle, the government should not get too
involved in the business of "picking winners". A diverse
portfolio of basic research, development, demonstration, and technologies
should be supported to allow for the large uncertainties associated
with future directions of technical change as well as rapidly
shifting market conditions. It is, however, equally important
that this need for diversity does not lead to a dilution of public
R&D effort because it is thought to be a good idea to do a
bit of everything. The UK cannot compete with the big-budget programmes
in the USA and Japan in all areas, and some prioritisation is
Within this tension between picking winners and excessive
dilution of scarce financial resources, it should be recognised
that some technological failures are inevitable. Allowing technological
failures is not a simple matter for policy makers since it leaves
them open to criticism for wasting public money. It is often tempting
to try and back those technologies that will offer the best prospects
of immediate returns, whilst ignoring those that are uncertain
or speculative. It could be argued that some failures are inevitable,
and perhaps even desirable, within an adventurous and ultimately
successful research programme. After all, one of the key aims
of government R&D funding is to support those technologies
that are too risky, speculative or long term to be funded by the
market. It is encouraging to note the launch of a new Adventure
Fund by the Engineering and Physical Sciences Research Council
(EPSRC), which reflects this philosophy.
One of the most controversial elements of the UK government's
non-carbon energy R&D portfolio is nuclear fusion . In many
ways, this technology illustrates the dilemmas facing policy makers.
The case of fusion shows how advocates of speculative technologies
can secure indefinite public funding despite a persistent lack
of commercial results. Nuclear fusion continues to account for
around 50% of UK energy R&D spending across all technologies
(not just non-carbon ones). It has also continued to attract large
amounts of public support in many other countries. A recent article
in The Economist noted that the US government alone has devoted
at least $17 billion to fusion development since 1951. According
to the article's author, the main return on this investment is
a "new universal constant . . . the number 30, a figure that
has for the past half century or so been cited . . . as the number
of years it will take before fusion power becomes a commercial
Whilst the US government has now downgraded its commitment
to fusion and pulled out of international efforts to build a new
research reactor, the DTI has signalled every intention to continue
its support for fusion. This policy was endorsed by a recent interdepartmental
review, which concluded that fusion's position should be further
protected by moving it from the DTI's energy R&D budget to
the science budget. Whilst this change in fusion's position is
meant to reflect its "big science" status, this technology
has never had serious applications other than energy supply. Therefore,
the Committee may wish to question its continuing dominance of
UK energy research spending.
We would argue that unless overall public funding for energy
R&D in the UK is very substantially raised (in which case
a relatively smaller on-going commitment to fusion might be reasonable),
funding for fusion research should be cut to a much lower level.
This would free up money for technologies with more immediate
commercial prospects (eg some renewables), and speculative technologies
with little or no history of support (eg carbon sequestration).
There has recently been evidence of a shift in government
priorities to reflect these concerns. Renewable energy technologies
in particular will benefit from a large injection of public funds
during the next few years. An allocation of £100 million
for renewables announced by the Prime Minster will be spent on
capital grants to aid technology deployment as well as R&D.
This fund includes £18 million for energy crop technology
R&D and an extra £10m for "blue skies" renewables
research to be delivered through the Research Councils. Additional
capital grants totalling around £150 million are being funded
from the National Lottery, the DTI and DEFRA. As the Environmental
Audit Committee recently observed, these new initiatives directly
contradict the DTI's continued insistence that its aim is not
to pick winners. The vast majority of the money is being directed
at offshore wind power, energy crops and solar photovoltaics.
Whilst these new initiatives go some way towards redressing
the balance of support for short and medium term technologies,
there is still a major gap in non-carbon energy R&D for the
longer term. There are other speculative technologies and options
that promise just as much as nuclear fusion in terms of substantial
carbon emissions reductions. The two main candidates are hydrogen
and carbon sequestration. We would argue that a UK R&D programme
that has space for funding of nuclear fusion should also have
room for substantial support for these two options.
At present, support for sequestration and hydrogen R&D
in the UK is minimal . The DTI is currently conducting a feasibility
study of carbon sequestration via carbon dioxide capture and storage
for the UK. The UK has huge potential capacity for off-shore storage
of carbon dioxide (in deep saline aquifers and oil and gas fields),
matched in Europe only by that of Norway. In order to gain the
economic benefits associated with Enhanced Oil Recovery as a possible
route towards larger scale carbon storage, we must respond in
the very near term.
Synergies between R&D for carbon capture and storage
and hydrogen should also be exploited; generating hydrogen from
fossil fuels with carbon capture would promote the application
of hydrogen as an energy carrier and could play a role in the
transition towards the hydrogen economy. Hydrogen itself has no
dedicated R&D programme at present. Some work is underway
within a number of universities, and a status report has been
produced which calls for a new programme from 2003.
The overall implication of this brief analysis is that the
level of public energy R&D support in the UK needs to be increased
substantially. If the UK wishes to achieve and maintain a leading
position in at least some technological areas, resources have
to be made available by the government to leverage increased activity
by the private sector. One possible approach would be to peg investment
levels at similar per capita levels to those countries in the
IEA that invest the most, although we recognise that this implies
a substantial increase in funding. In addition to supporting expanded
technology-specific R&D, this would also allow increased scope
for research into appropriate policies and regulations for new
5. TOWARDS TECHNOLOGY
Public R&D support for cleaner energy technology options
is of limited benefit if it does not lead to widespread deployment
of new products. It is therefore insufficient for governments
to help fund research, development and demonstration. There must
also be accompanying policies to create or enable new markets
for the products of R&D programmes. The new capital grants
for renewable energy technologies, the Renewables Obligation and
the Carbon Trust's low carbon innovation programme are just three
examples of such policies in action in the UK. In the Netherlands,
an approach known as strategic niche management has been developed
to create protected markets for new technologies for a limited
period of time.
The aims of accompanying market enablement policies need
to be clear at the outset. There is often a temptation for firms
to see such market enablement mechanisms as a vehicle for further
technology demonstration. Demonstration and deployment require
different approaches. Demonstration produces results, which are
necessarily experimental and unreliable since the aim is to try
out new techniques. Deployment requires the oppositereliable
technologies that can deliver environmental and commercial results.
Deployment schemes like the Renewables Obligation aim to help
technologies cross the familiar "valley of death" between
R&D and full commercialisation. They provide transitional
subsidies to compensate for market failures. For many non-carbon
technologies that might contribute to the UK's efforts to reduce
greenhouse gases, it is this kind of deployment support that is
required as much as basic R&D.
Public support for R&D should be complemented by a range
of other policy initiatives, similar to the market transformation
approach adopted in policies aimed at some sectors of the consumer
goods markets. This can include signals about public procurement
and the willingness to analyse and make alterations to the relevant
regulatory frameworks. It would also help to foster better co-ordination
between the large number of public R&D funders (government
departments, research councils, national laboratories, new regional
funders etc.) and those agencies whose emphasis is on deployment
of low-carbon technologies (the Carbon Trust, the Energy Saving
Trust, the Sustainable Development Commission etc.). At present,
there appear to be too many funders and agencies whose activities
are poorly co-ordinated.
This brief analysis of some of the issues surrounding current
and future non-carbon energy R&D in the UK leads to a number
of concluding observations.
First, public funding will play an essential role in bringing
cleaner energy technologies to marketthe private sector
cannot complete this task alone. Public support for R&D has
a wide range of benefits for innovation and market creation beyond
the creation of new scientific and technological knowledge.
Second, the challenge of climate change requires an overall
expansion of public R&D funding. The funding portfolio should
be targeted since the UK cannot compete in all technological areas,
and it should retain space for "blue skies" research
on longer term prospects as well as near market technologies.
There is a clear need to rebalance the UK energy R&D budget
to reduce the proportion spent on nuclear fusion, and to allow
increased funding for other long-term possibilities such as hydrogen
and carbon sequestration.
Third, there is an urgent need to tackle the shortage of
UK skills in key energy areas such as electricity distribution
engineering and nuclear decommissioning. This is true whether
or not the UK decides to become a leader in these particular areasan
informed buyer also needs significant technical capabilities to
select and deploy technologies effectively.
The UK skills shortage relates to a fourth point. The UK's
institutional capacity to carry out R&D needs to be rebuiltboth
within the public sector (eg through national research laboratories)
and within the private sector. Those public institutions tasked
with R&D delivery (eg the Carbon Trust, the DTI, AEA Technology,
the Energy Savings Trust, Scottish agencies and regional English
agencies) need to be co-ordinated in an effective manner.
Finally, we have pointed out the key role of additional policies
to deploy non-carbon energy technologies that have been developed
with the help of public R, D and D programmes. Without such policies,
it will be extremely difficult for the UK energy system to achieve
the radical change necessary to make a serious contribution to
climate change mitigation.
20 September 2002