Lessons Learned – Case Studies in Technology Development & Innovation
Whether we are able to address climate change will come down to our ability to develop, commercialise and deploy low carbon technologies. This will not happen miraculously – some type of policy intervention will be necessary, but what type? As a first step to exploring this subject, I looked at the lessons that we can draw from other initiatives where policies have been used to support the development and commercialisation of emerging technologies. Such case studies remain the best way of separating fact from fiction. And some of the lessons are surprising.
1 Cooperation between the public and private sectors is the key to success
Both the public and private sectors have different strengths that they bring to technology development innovation and both are essential to the successful development of technology. In the case of FGD technology, utilities provided a framework for demonstrating and field testing the technology at industrial scale and provided valuable feedback into the resolution of specific operational problems, while the government provided funding for R&D and demonstration projects and facilitated the exchange of information. In the case of the wind power industry in Denmark, the Government put in place a strategy to develop a sustainable domestic wind power industry, provided capital and operating subsidies and tax incentives and supported the standardization of wind turbine designs, while the private sector took the risks and invested strongly in order to develop domestic markets and take advantage of export opportunities.
2 Long term planning, support and targets are crucial
Technology development and deployment take decades. The development of LEVs in Japan began in the1970s and continues today. It took up to 17 years to develop the first industrial sale strip casting technology. Even the development of electronic ballasts spanned two decades. Given these long periods, technology development requires a long term planning framework to guide the development of technology over decades. These plans need to incorporate long term aspirational targets, but as the LEV case study shows, these plans also need to be flexible enough to adapt to changing circumstances and to incorporate technology and market learning and feedback. Crucially, support from both the private and public sector needs to be sustained over the length of the technology development chain. One of the keys to the success of the Danish wind power industry was the reliable nature of public support and private commitment to the goals of the technology strategy. In contrast, in the U.S. the start-stop nature of government funding is widely cited as one of the factors that undermined the development of the renewables industry there.
3 Technology Development needs Government Support
With the exception of strip casting technology, none of the other technologies would have developed to the extent they have without direct public support. The Japanese Government’s support for LEVs, the US Government’s support for FGD and AFBC technology, and the Danish Government’s support for a domestic wind power industry were all critical to the successful development and deployment of these technologies. In each case public support was directed at three discrete phases: support for basic and applied R&D; support for demonstration and field testing; and support for scale-up and commercialization. In this sense, public support can be particularly valuable in helping technologies to cross the ‘valley of death’ when a technology still faces reliability, performance and cost problems, and the risks of private investment remain high, as was the case with the FGD and electronic ballast technologies in the U.S. In each case the development of these technologies have contributed public welfare benefits that private actors would not have been able to benefit from.
4 Successful policy combines technology push and demand pull approaches
Again, each of the technologies discussed in the case studies benefited from a combination of technology push and demand pull policies; there was no magic policy bullet that supported any one of those technologies. LEVs in Japan benefited from direct public financing of R&D, public subsidies for demonstration projects, Government procurement programs and infrastructure investment. AFBC technologies in the U.S. received direct government support for R&D and also benefited from electricity market reforms that created niche markets for co-generation technologies. And FGD technologies benefited from the introduction of stringent technology based emission standards, as well as public support for R&D focused on specific technical issues. This combination of technology push and demand pull is critical to accelerating technology innovation. What is also interesting is that these technology push and demand pull policies do not follow the technology sequentially through its innovation chain. Technology push and demand pull policies are often needed simultaneously at all stages of the innovation chain, perhaps to differing degrees. In Japan, even while the emphasis of policy was on early stage R&D of LEVs, the government still put in place procurement programs to pull this early stage technology in to the market. Likewise, while the US government introduced the emission standards to pull FGD technology in to the market, they continued to subsidize applied R&D that delivered further technology improvements and addressed outstanding operational issues.
5 Trying to pick technology “winners” is a fool’s game
The history of BPEV technology in Japan and AFBC technology in the US demonstrates how difficult it is to pick technology “winners”. BPEV technology was the technology of choice in Japan and received the lion’s share of public support, but it was HEV technology that finally penetrated the market. Likewise, the bubbling AFBC design technology was heavily backed by the U.S. government and industry, but it was the circulating AFBC design, developed largely in Europe, that achieved the greatest acceptance in the market. Indeed, the literature is littered with examples of technologies that were adjudged to be the most promising technology, that received hundreds of millions of dollars in funding, and that ultimately failed. Technology support programmes have faired better where they have identified specific technology clusters, and then allowed ‘the experts’ – that is technology suppliers, customers, markets, researchers and technologists – to choose the technologies in which to invest. The Government can facilitate this process by the introduction of competitive tendering, which the DOE employed in the case of the electronic ballast technologies, and in demanding greater accountability and performance from the private sector actors who undertake research and development using public funds. Detailed technical knowledge, technology expertise and industry experience is also essential to being able to assess the merits of alternative technology options and to direct public support at those problems or barriers that are most critical to the success of a technology.
6 Focus on areas of strategic importance or comparative advantage
The most successful cases of technology development are often focused upon areas of strategic national or corporate interest or on areas where nations or industries enjoy a comparative advantage. In the case of LEVs in Japan for example, both the Japanese government and Japanese vehicle manufacturers considered the development of LEVs to be of strategic and economic importance to the country as a whole, and the support for this technology was deemed important to positioning Japanese vehicle manufactures ahead of their European and North American rivals. They built this new technology on the basis of the comparative advantage that they enjoyed in electric drive trains and battery technologies. In the case of strip casting technology, the steel industry was driven to invest in the development of this new technology because it promised to reduce the capital costs of the casting stage and to deliver them a comparative advantage over rivals. In the case of the Danish wind power industry, government and industry sought to collaborate to build a comparative advantage in a field that they believed promised significant growth in the future. It is easy to forget that prior to the development of this industry, 92% of Denmark’s electricity came from coal and much of that was imported from Germany. The development of the Danish wind power industry was also crucial to diversifying the country’s power supply, to increasing the country’s energy independence, as well as improving the balance of payments benefits that came with a vibrant and growing export industry. The support of FGD technologies in the U.S. also helped develop a small, specialist export capability. In the 1990s when demand for FGDs in the U.S. was lower than expected, many U.S. FGD technology suppliers sold their technologies into the growing markets in Germany and Japan. The economic benefits that derive from each of these examples shows how a technology development strategy focused on an area of national strategic importance and built upon an area of comparative advantage can create vibrant new business sectors.
7 Overcoming reliability, performance & costs Issues are critical
Reliability, performance and costs are the three challenges that all new technologies must overcome if they are to successfully penetrate the market. This was the case with all of the case studies I investigated. Strip casting, FGD, electronic ballasts, AFBC, wind turbines, and LEV technologies all faced reliability, performance and cost barriers and one of the most important factors behind their relative success was the way in which public support and private investment was focused very precisely on overcoming these barriers. This often required large scale investment from both the public and private sector to establish demonstration plants (as was the case with AFBC technology) which allowed the technology to buy down the learning curve. In other cases it required specific R&D focused on outstanding operational problems such as the fouling of early stage FGD technologies, or the battery capacity and performance in LEVs. In other cases it required government procurement programs and field testing to demonstrate the reliability of new technology and communicate its benefits to users, as was the case with the US Government’s specifications for electronic ballasts in some federal buildings. In all of these examples this type of support was crucial to winning market confidence in the new technology.
8 Price Signals have only a limited role to play in the development of new technology
There is no evidence in any of the case studies that price signals played a determinant role in the development and deployment of the new technology. More important were direct financial subsidies, either in the form of feed-in-tariffs as was the case with the Danish wind industry, or in the form of tax incentives, rebates or exemptions as was the case with HEVs and LEVs in Japan, or in the form of matched public-private investment as was the case with AFBC and FGD technologies. In the sole example where price signals were used, namely the US SO2 trading scheme, their effect was to undermine the development of FGD technology by providing an incentive to the lower cost solution of fuel switching low sulphur coal.
9 Good-old fashioned Command and Control Policies are needed
In most of the case studies, mandatory, government imposed limits, targets or standards were the key to the deployment of the new technology. FGD and AFBC technologies were developed in response to the imposition of mandatory air quality emissions limits. Japanese HEVs and Danish wind technologies were developed to meet mandatory government targets for the uptake of these technologies.
10 Information Sharing and Technology Networks are important
The case studies also illustrate the importance of information sharing within the development community during the course of developing a technology and between the development community and users prior to and during the early stage deployment of the new technology. The US SO2 Symposium established by the EPA to facilitate the exchange of information on SO2 control technologies, including FGD technologies, is widely cited by industry professionals as having played a crucial role in the development and uptake of FGD technology. In a similar vein, the DOE’s publication of the benefits of electronic ballasts amongst potential users was important to reassuring the commercial building sector of the benefits of the new technology. A particular feature of the strip casting case study was the important role that technology micro-networks played in developing the new technology. Strip casting technology development was undertaken within the context of several international technology networks that generally comprised a steel maker, equipment supplier and engineer. Of the three most successful micro-networks, BHP cooperated with the Japanese machine builder IHI in one, Usinor, Arcelor and Thyssen cooperated in the EUROSTRIP micro-network, and Nippon Steel and Mitsubishi cooperated in a third successful micro-network. It was only in this way that the participants could marshal the resources, expertise and experience needed to develop the new technology. The micro-networks competed with one another and benchmarked there performance against one another, but they also shared information and the investment and progress of one group often spurred investment and progress by another group. These micro-networks imparted a very powerful momentum to the development of the strip casting technology. Public, private and academic cooperation and information sharing was also an important feature of the MITI’s market expansion plans for LEVs in Japan.
11 In spite of common characteristics, each technology is different
In addition to those characteristics that are common to each of the case studies, the above examples also illustrate that there are a myriad of other factors that will be important to the development of a technology and that these factors are often particular to that technology. For example, the failure to develop infrastructure, particularly recharging facilities for BPEVs, undermined the uptake of the new LEV technologies in Japan. Whereas, in the case of FGD technology, no substantial infrastructure requirements impeded the development or uptake of that technology as it was applied to new power stations or retrofitted to existing plant. In the case of the strip casting technology, development was led by the large steel makers and no small steel making companies played any significant role in the development of the technology. In contrast, in the case of the electronic ballast technology, incumbent firms had significant sunk investment in the existing technology and it was small, independent players who took the lead in developing the new technology. In the case of the Danish wind power case study, the new technology was largely welcomed by consumers, many of whom joined cooperatives and invested directly in wind farms located within their region. Whereas, an intensive campaign of consumer awareness was needed to convince users of the advantages of electronic ballast technologies. It is important to recognize these differences and to develop the technology strategy and policy accordingly.
12 R&D and wait…doesn’t work
Finally, none of the case studies above are examples of an “R&D and wait” policy approach. That is, public investment in R&D, and then let the markets take care of the rest. Such an approach does not work. Either new technologies take a very long time to mature, or worse, new technologies are developed elsewhere as a result of the innovative activities and policies of other nations and it is businesses in those countries that capture the benefits of innovation. Our understanding of the innovation chain has evolved so that we understand that public support and private investment have an important role to play in all stages of the innovation chain, simultaneously.
Summary of key policy lessons from the selected case studies
You’ll find the detailed case studies here.
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Tags: Case Studies, Innovation, Low carbon technology