In 2010, Solyndra, a solar panel manufacturer was given over half a billion dollars in loan guarantees under the American Recovery and Reinvestment Plan. Less than two years later, Solyndra filed for bankruptcy, triggering congressional hearings and an FBI raid of Solyndra’s offices. Roundly criticized as a fiasco, Solyndra has become a byword for what happens when governments get involved in research and innovation. And yet, to tackle the climate crisis, governments must be more willing to take risks – and tolerate more failures like Solyndra – than they are currently willing to do to create the breakthroughs the private sector is unwilling to fund.
New technology that enables a shift to lower carbon emissions will be an essential element to solving the climate crisis. The US, the EU and the UK have all committed to the ambitious goal of becoming net zero emitting economies by 2050, while China is aiming for 2060.
Despite these objectives, government funding of energy R&D as a percentage of GDP has been declining since the 1980s – in all advanced countries.
High income countries are in the unique position of being able to afford investments in risky, disruptive technology, but they aren’t taking the chance. In the US, Joe Biden has set out promising proposals for infrastructure development, but there is a risk lawmakers in Congress will succumb to the temptation to skimp on these investments.
Governments can sponsor critical innovations that markets might not be willing to fund due to the risk of failure or the length of time to take such a product to market. These moonshot projects – typically with low probability of success but extremely high pay off when they do succeed– are likely to have social benefits that far outweigh short term costs.
For moonshot projects to have a transformational impact, governments need to take the sting out of the risk. Tax breaks and subsidies are a tempting route to tread down, but they prevent taxpayers from reaping the benefits. By boosting private sector innovation in this way, gains are privatized but risks are socialized. The relationship between taxpayers and the private sector cannot be so one-sided.
There needs to be a virtuous cycle in which governments are incentivised to fund riskier projects by having passive equity in the companies they fund, where possible. The government can opt to sell this stake at a future date, to fund another round of moonshot projects. By remaining passive, market dynamics can continue to function effectively.
After receiving grants and seed funding from the US government, Moderna has blossomed into a $184 billion company that has paid for itself many times over because of the lives it has saved. Despite this success, taxpayers have zero equity interest and are only rewarded through income tax receipts.
Yet invention is neither the beginning nor end of technological disruption. The myth of the brilliant scientist making a once-in-a-generation breakthrough has endured throughout history. The integration of new technology is just as revolutionary as the invention itself. Without the logistics of rolling out a vaccine, the developments by pharmaceutical companies would have been wasted.
The world already possesses technologies such as carbon capture sequestration (CCS) and bioenergy with carbon capture and storage (BECCS), which are thought to be potential solutions to reducing carbon in the atmosphere. But implementation challenges mean these technologies are years from wide scale deployment. Solar prices have fallen sharply following the solar “learning curve”, largely because of government subsidies. We can achieve similar successes that make CCS and BECCS viable with government sponsorship
The US learned the wrong lesson from Solyndra. It is ok – and even appropriate – that not every risk taken by the government succeeds. Government is the only institution that can fund moonshot projects, and the role of moonshots in tackling the climate crisis is undeniable. Government must raise the total amount it spends on energy R&D and partner with the private sector to fund risky projects – and in return, should receive passive equity.
As the Intergovernmental Panel on Climate Change’s recent report shows, the next two decades are critical to staving off climate catastrophe. Aggressive, timely funding by governments of both innovation and integration will go a long way toward helping.