The U.S. Department of Energy's Innovation Funding Falls Flat
(After the first, this is the second in a three-part series examining taxpayer-subsidized green energy.)
The federal government routinely showers “green” projects with billions of taxpayer dollars. This never-ending subsidization scheme occurs at all stages in the development process. As seen in the previous piece in this series, the U.S. Department of Energy (DOE) claims that its loan guarantees have bolstered renewable energy even though their backed projects would have likely happened anyway.
But guaranteed loans aren’t the only tool in the DOE’s arsenal. Through the Advanced Research Projects Agency-Energy (ARPA-E), the DOE also funds “high-impact energy technologies that are too early for private-sector investment.” Despite roughly $3 billion in ARPA-E spending since 2009, the initiative has failed to produce a viable bridge to private sector innovation. Instead of further bolstering its budget, policymakers need to take a long, hard look at where ARPA-E has gone wrong.
After ten years of ARPA-E operations, there is plenty of data to ascertain whether the program is living up to its expectations. Writing for the publication Nature, researchers from Harvard, Cambridge, the University of Massachusetts, and the Technical University of Munich found that ARPA-E recipients, “did not have better business outcomes than the larger pool of US cleantech startups that did not apply for ARPA-E funds.”
They did, however, have better outcomes than companies that were “encouraged” by ARPA-E but ultimately not selected for funding. This may suggest that companies pinning their hopes on government investment may neglect other, more promising private funding routes. In contrast, the cleantech startups that keep their options open from the beginning and do not need to rely on government funding seem more primed for success.
Another interesting result came from comparing the patent filings of recipients and non-recipients of government funding. According to the researchers, “startups that received funding from ARPA-E in its first year of operation filed twice the number of patents in subsequent years compared to other similar firms without ARPA-E funding.” However, the team admits that it’s unclear whether ARPA-E is leading to increased patenting or if the program has found a way to pick firms “with a high propensity to patent.”
And, while the patent process is an important contributor to innovation and technological growth, merely filing a patent is not proof that the idea is a game-changer. If startups are ramping up their ability to patent ideas just to attract federal funding, the end result could be quite damaging for future innovation. Even though low-quality or mistakenly approved patents are far rarer than commonly assumed, these dubious patents “hurt businesses and may slow down the pace of technological progress” according to a team of Australian and Swiss researchers.
It's disconcerting to see a government funding system with such a disconnect between patent filing rates and private sector engagement. One National Academies of Sciences, Engineering, and Medicine study on ARPA-E found that roughly three-quarters of ARPA-E funded projects designated as “completed” have no market engagement whatsoever: no private funding nor company formed around the research. And even that figure is probably high, since the DOE shadily includes recipients who had formed a firm prior to ARPA-E funding in their definition of “company formation.”
These lackluster figures haven’t stopped the Biden administration from attempting to expand ARPA funding. The President has proposed $500 million for the creation of an APRA-C (for climate-related funding issues), though researchers rightly question if this will result in overlap with ARPA-E.
Policymakers will likely continue pushing for an alphabet soup of “innovation” agencies that are all-but-certain to have disappointing outcomes. The federal government would be far better off examining the many problems facing startups, including high taxes and out-of-control regulatory costs. Addressing these issues would go a far longer way toward increasing innovation than ARPA- “insert letter here.”
Ross Marchand is a senior fellow for the Taxpayers Protection Alliance.