15 September 2011

Anything but water

14 comments:

  1. David,

    That is not an honest summary of the "climate denial" paper. I encourage you to read someone less ideological.

    I'd start with Judith Curry's blog or Roger Pielke Jr., both well published and respected academics who have provided much more thoughtful commentary on the specific paper and what happened around it.

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  2. @anon -- I was more interested in the debate over the process of publishing and retracting the paper, not what the paper said. Climate "science" is already subject to massive personal bias and driven by political needs (of both sides). I'm sick of it.

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  3. David,

    The bankruptcy of Solyndra was unfortunate, but clean tech is a high-risk, high-rewards sector. My colleagues and I recently published a piece in Forbes on why federal investment in clean technology is so essential, and why the government must play venture capitalist in this space where private venture cannot. Without programs like DOE's loan guarantee program, we would not have railroads, the interstate highway system, the cell phone, the personal computer, the internet, the jet engine, the biotech industry, or countless pharmaceutical advances.

    Our piece:

    http://www.forbes.com/sites/energysource/2011/09/02/solyndras-failure-is-no-reason-to-abandon-federal-energy-innovation-policy/

    Please see also this new report from Bill Gates, John Doerr, Jeff Immelt, and other leading executives and entrepreneurs of the American Energy Innovation Council, which calls for increased federal spending on high-risk, high-reward clean tech innovation (report summary and link to PDF on this page):

    http://thebreakthrough.org/blog/2011/09/business_industry_titans_call.shtml

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  4. Hi David,

    Please see this report about the huge benefits of public investment in technology innovation, from the American Energy Innovation Council (Bill Gates, John Doerr, Jeff Immelt, others):

    http://www.americanenergyinnovation.org/2011-report/

    If you could, please provide reasoning as to why government should not have "bet other people's money" on railroads, jet engines, DARPA-net, GPS, microchips, cellular technology, etc.

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  5. @alex -- it's it's such a sure thing, govt should leave it to private investors.

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  6. David,

    Thanks for the reply.

    There are lots of reasons why private investors won't put their money in technology that is nonetheless in the clear interest of the nation, the economy, and humanity--including Technology and Commercialization "Valleys of Death," the spillover effect, etc. This reality is amplified in the energy sector, where there is a clear lack of product differentiation (eg, one kWh of solar electricity provides the same end-use services as one kWh of coal-generated electricity).

    You can witness the testimony of the extremely successful private sector investors of the AEIC who agree with me (report linked in previous comment). Also worth reading is Demos' recent pamphlet "The Entrepreneurial State," in which the author demonstrates that the state has historically played a role not just in fixing or regulating markets, but in actively creating them.

    As a prolific blogger yourself, I'm sure you appreciate the leading role that the Department of Defense played in the creation of the DARPA-net, the precursor to the Internet. The Internet was not a sure thing when the government began research and investment through DARPA, but I think you'll agree that its presence has changed nearly every facet of commerce, communications, and the social fabric.

    The same argument can be made with cellular technology, microchips, and commercial travel, for which there are broad public and private benefits to be had but which the private sector cannot make early action on because it cannot quickly monetize its investment.

    Much like with the Internet, what's needed with clean tech is for the government to do the research and commercialization, bringing clean energy to grid-parity with fossil energy generation, so that private enterprise can compete with incumbent oil, coal, and gas.

    I know you're not an ideologue David, and am interested in the libertarian philosophy around governments creating markets. Please let me know why you think that technology investment should be left to private investors, even when all evidence points to the federal government as the biggest source of disruptive technological innovation.

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  7. @Alex -- for every $ of "good" government investment, I think I can find $10 of "bad" investment -- wasted time and money, misdirection and black holes. This is not just in the categories of Bridges to Nowhere and Foreign Wars, but also in water infrastructure (probably 80% of what was built in the Western US), technology (solar cells are the latest in a long line that include wasted money on autos, silicon chips, telecommunications, etc.)

    I agree that the internet is great, but DARPA was trying to build a netowrk resistant to nuclear strikes -- NOT to help us send cheeseburger cats, email or online orders for books. Incidental innovation is just that; industrial policy has a VERY HIGH opportunity cost, e.g., agricultural subsidies that deplete water sources, harm small farmers, distort food choices, etc.

    I agree that SOME government "investment" is REALLY useful, but a lot of it (I'd say >50%) is wasteful spending that produces fewer benefits than the costs it increases.

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  8. David,

    Thanks for the reply.

    As it turns out, Solyndra represented roughly 1.3% of the DOE loan guarantee program, which has guaranteed over 40 separate projects, of which Solyndra is the only failure. In terms of overal debt financed by the government via this program, for every $1 of "bad" investment, I can demonstrate $50 of "good" investment. Some of these companies are First Solar, Sunpower, and Brightsource, all of which are more than solvent and increasingly competitive. Granted, another company could still go under, but it's noteworthy that ever through recent weeks' increased scrutiny directed towards the DOE, no other companies have been found to be in danger of bankruptcy or like they had benefitted from any political glad-handing.

    DARPA's initial R&D in DARPA-net certainly did not envision what the Internet became, but that's not really a justification for why government investment in innovation doesn't work--it's an example of how government investment can and does have remarkable benefits often beyond its original intent, often as a result of bringing a novel technology to the private sector. The Internet would be worthless without the private sector ingenuity of Google, Apple, etc., but these companies and thousands of others would not exist (at least in their current form) without that initial government investment.

    Then of course there's government investment that was targeted and direct, a la insuring the clean nuclear power industry, building the interstate highway system (not a Bridge to Nowhere by any stretch), or guaranteeing the microchip industry when no private sector had any use for microchips.

    Beyond the historic efficacy of government investment: Clean energy technology will be required if humanity is to avert cataclysmic climate change while expanding energy access to 3 billion people over the next 50 years. It is currently too expensive. The private sector has not innovated; spending by the energy sector on R&D is starkly lower than in defense, health, or IT. This is largely explained by the spillover effect, the capital intensiveness of energy tech, and long-lead times for investments/projects.

    Government needs to play VC here, because VCs aren't and can't. To you that's making bad bets with OPM. To me that's following the same investment practices that got us the Internet, the PC, the cell phone, and literally every energy-generating technology deployed today.

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  9. @Alex:

    "for every $1 of "bad" investment, I can demonstrate $50 of "good" investment."

    Go ahead.

    "all of which are more than solvent and increasingly competitive."

    So why does the government have to invest? Why not private capital? Shouldn't GE? Or is the government crowding out private $$?

    "but these companies and thousands of others would not exist (at least in their current form) without that initial government investment."

    So how's the government record vs. private money, e.g., AT&T and Ford?

    "clean nuclear power industry, building the interstate highway system (not a Bridge to Nowhere by any stretch), or guaranteeing the microchip industry when no private sector had any use for microchips."

    Nuclear -- a boondoggle in most places.

    Highways -- unexpected consequences AND massive subsidies/transport distortions

    microchips -- wat?

    "Beyond the historic efficacy of government investment"

    Nice try.

    "Clean energy technology will be required if humanity is to avert cataclysmic climate change while expanding energy access to 3 billion people over the next 50 years. It is currently too expensive."

    Not if CC is going to happen (i.e., no mitigation).

    "The private sector has not innovated; spending by the energy sector on R&D is starkly lower than in defense, health, or IT. "

    Maybe b/c the government is crowding it out? Or it's a waste of $$? Defense is a WEIRD one to add...

    "This is largely explained by the spillover effect, the capital intensiveness of energy tech, and long-lead times for investments/projects."

    Disagree, there are PLENTY of projects that were premature and/or wasted $. Government often speeds up development of BAD ideas, e.g., solar in Germany.

    "Government needs to play VC here, because VCs aren't and can't. To you that's making bad bets with OPM. To me that's following the same investment practices that got us the Internet, the PC, the cell phone, and literally every energy-generating technology deployed today."

    You're making stuff up now...

    I'd prefer a "government VC" program where taxpayers could choose to participate or not -- then YOU could put YOUR money where your mouth was, and I could keep my money.

    We're VERY far from the realm of government competence, i.e., guaranteeing basic rights and producing public goods...

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  10. @Alex -- ps: http://www.coyoteblog.com/coyote_blog/2011/09/owning-solyndra.html

    Point: Govt shouldn't take my $ to invest. Ever.

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  11. Thanks for the very thorough reply! I hope I'm not frustrating you :)

    Please excuse the length of this comment. I have been respectfully accused of wrongness and making things up, and will now proceed to defend my claims.

    - My $1:$50 was in reference to the DOE loan guarantee program, of which $535 of the total loan volume has defaulted but the remaining ~$30 billion in loan volume has not. In ten years we'll have a better idea of the success rate of THIS program, but for now it's got a pretty good (98.3%) success rate. I do not claim to be able to identify $50 of good investment for every $1 of bad investment across all government programs.

    - The $535 loan guarantee from DOE enabled capital investment by Solyndra, followed by over $1 billion invested from private venture (such as Richard Branson and the Walmart family, among others). If DOE made a bad bet, so did they.

    - Looking at ROI's for the federal government versus AT&T and Ford would be interesting. However, AT&T and Ford would not exist in anything close to their current form without government infrastructure investment and tech R&D (the Defense Department developed the first cellular technology, which I'm sure AT&T is grateful for).

    - I'm sure there are inefficiencies and distortions in transportation thanks to federal highway subsidies, but as close to 100% of Americans use federal roads, the impetus is on you to prove that the benefits of these subsidies do not outweigh the direct costs combined with the revealed cost of inefficiency. Be my guest.

    - Nuclear energy is expensive (though not really, when amortized), relatively dangerous, and I'm sure cases can be shown where "boondoggle" would be an appropriate descriptor. However, 20% of the electricity produced/consumed in the United States (the two are very nearly the same because power is produced in response to instantaneous demand) is generated via our 103 nuclear reactors. Since Americans pay for that power, the impetus is on you, again, to show why one-fifth of American electricity (or some appreciable portion of that one-fifth) is a wasted investment. Please include the benefits of the energy services derived from nuclear power in your cost-benefit analysis.

    - Microchips were developed by the private sector (Texas Instrument and Fairchild Semiconductor developed the first prototypes), but it was several years before the private sector could afford/had any use for them. The first customers of microchips were the US Air Force and NASA, which guaranteed the purchase for every microchip produced by the private sector. This public-private partnership enabled engineering improvements and economies of scale that drove the prive of microchips from $1000 per unit to $20-$30 per unit in the span of a few years. After they reached this price level, they became attractive for private component manufacturers and designers. This EXACT story can play out with clean energy -- the government guarantees the initial production/innovation through targeted programming, enabling an industry that would have been impossible without the solvency and financing capacity of the federal government.

    - "Nice try" is not an sufficient rebuttal. At no point so far in your argument have you demonstrated empirically that federal investments in infrastructure or disruptive technology innovations were ineffective or inefficient.

    - "Maybe" is not a sufficient rebuttal. Without an adequate and rational counter-argument, there is no reason for me to change my data-supported view that a) the private sector spends a disproportionately small amount on energy R&D, b) the federal government spends a comparably small amount on energy R&D, c) these facts are due to phenomena like the spillover effect, Valleys of Death, and hugh capital requirements, and d) this underinvestment in public/private R&D hurts innovation, thereby hurting economic growth and productivity.

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  12. - Solar in Germany is a thermodynamically imperfect technology, and VERY expensive feed-in-tariffs in Germany are not the most efficient financing mechanism. However, the expansive German market has contributed to engineering advances and economies of scale (for every doubling of solar power deployment there is a 20% reduction in costs -- this has been observed over more than a decade).

    - "You're making stuff up now" is not a sufficient rebuttal. I made a claim, I respectfully request that you refute mine with evidence. My evidence is here, a report called "Where Good Technologies Come From: Case Studies in American Innovation." In 30 pages it explains the government origins of: the Green Revolution, railroads, the aviation industry, jet engines, gas turbines, microchips, personal computing, the Internet, GPS, nuclear power, synthetic fuels, commercial wind power, solar power, and biotech.

    - Lastly, we clearly have a philosophical disagreement about the role of government, which I fully respect. To you, that is your money the government is spending. To me, it is the government's money, which I paid to the government in return for services like infrastructure, insurance, market regulation, and innovation investment. These, IMO, are two perfectly and equally valid philosophical beliefs. However, because you are a user of the Internet, cell phones, roads, planes, medicine, and energy-generating technology (please tell me if I'm being presumptuous!), I believe the impetus is on you to explain why a) the government should not have invested in those technologies, b) why the private sector should have, and c) why the private sector didn't.

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  13. Hi David,

    FYI, I blogged about this exchange.

    http://theenergycollective.com/alextrembath/65850/submerged-state

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  14. @Alex -- I had to find time to get to your comment. Glad you got blogging material out of this :)

    ================================
    Here's what I wrote on that blog:

    1) You seem to think that government deserves credit for any and all innovations that occur due to the existence of government. In that sense, government is responsible for EVERY good idea.

    2) You fail to consider opportunity cost, as in the cost of money diverted from other uses to pay for government programs, and the change of incentives when government gets involved in an area (check out the K Street crowd).

    I recommend that you read more about the basic function of government, so you understand the dangers of over-reach (GWB and Obama fall into that category), i.e., http://www.aguanomics.com/2010/07/calculus-of-consent-review.html
    ================================

    Now I will reply to your comments. Since they are not numbered, I will just go in order, starting with:

    "- My $1:$50" -- that's a very poor method of accounting. Lack of bankruptcy = success? There are opportunity costs and crowding out problems to worry about.

    "so did they" with their money. You can too, but don't use my taxes.

    "DoD investment" -- DoD invests in killing people, without regard to costs. Not a business plan I support.

    "close to 100% of Americans use federal roads" -- those subsidies distort the incentive to use rail, air and sea transit. That's inefficient, per se. (I don't need data when I have theory.)

    "Since Americans pay for that power" -- so why, again, does the government have to anything to do with it? It could be supplied -- at much improved efficiency by private markets. Government guarantees not only destroy "appropriate insurance" for nuclear, but also makes operators more reckless (cf., Japan's government monopolies in this week's economist)

    "After they reached this price level, they became attractive for private component manufacturers and designers." What's your hurry for low prices? We waited until 2001 for the IPod. What's wrong with a few years more? Esp. since companies took years to change management to match hardware.

    That said, this (http://thebreakthrough.org/blog/2011/02/grounding_our_innovation_polic.shtml) gives a more nuanced view: the government can help but shouldn't pick winners.

    "Nice try" is not an sufficient rebuttal" yes it is. YOU need to show that government involvement is NECESSARY, let alone SUFFICIENT. Read the infant industry literature as well as the lit. on agricultural subsidies, etc.

    "underinvestment in public/private R&D" According to who? Is this a problem unique to the US, or world wide? I've seen a LOT of good investment in Holland and a lot of BAD investment in the US, which is more corrupt.

    "engineering advances and economies of scale" - I wonder what it would have been in Spain? Without the Spanish getting put out of business by the Germans?

    re: Breakthrough Institute (see above link)

    "infrastructure, insurance, market regulation, and innovation investment." -- the only one where gov't involvement is necessary (and not necessarily sufficient) is regulation. Let's agree on that.

    Oh, and remember that you are FREE to invest where those lobbyists direct. I prefer to keep my money and direct it via competing investment firms run by entrepreneurs with skin in the game.

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