Select Committee on Science and Technology Appendices to the Minutes of Evidence


APPENDIX 19

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 required—change, 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 CENTRE FOR CLIMATE CHANGE RESEARCH

  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 Councils—NERC, 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 time—from 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 mitigation;

    —  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 sequestration;

    —  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&D—A 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:

Table 1

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
11.8
—by DTI
5.6
—by DEFRA
0.7
—by EPSRC
5.0
—by NERC
0.5
Nuclear Fusion
14.33
37.83
—by DTI
14.33
—through Euratom
23.50
Nuclear Fission
6.95
—by EPSRC
0.35
—by HSE
1.25
—by DEFRA
0.85
—through Euratom
4.50
Other
21.50*

*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 exists—the 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 future.

  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 expenditure—that governments should pull out and leave almost everything to the market—is 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 FOR PUBLIC SUPPORT

  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 solving

    —  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 mentioned—the 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:

    —  Capability—creating the skills needed to take advantage of scientific information.

    —  Variety—helping 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).

    —  Capacity—a 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 BALANCE RIGHT?

  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 inevitable.

  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 reality".

  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 technology deployment.

5.  TOWARDS TECHNOLOGY DEPLOYMENT

  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 opposite—reliable 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.

CONCLUSIONS

  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 market—the 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 areas—an 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 rebuilt—both 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


 
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