America's Technology MoJo at Risk

Energy Secretary Steven Chu’s ‘sputnik’ remarks saying the U.S. is losing its strategic competitiveness in energy technology to China got headlines this week.  He urged national action to redouble our R&D efforts to protect our “future economic prosperity”.  Given Chu’s well deserved reputation as a Nobel laureate and former head of one of our most important national laboratories we take his admonition seriously.

To reinforce that view the Administration’s science advisory commission made the same argument in a report they presented to President Obama recently.  One of their recommendations was a small energy R&D surcharge on energy consumed to boost national spending on energy technology R&D from $5 billion to about $16 billion per year. The comparison was made to the strategy used by the energy industry years ago by funding the Gas Research institute and the Electric Power Research Institute. The amounts charged to individual end use consumers were rounding error but the sums did indeed fund some substantial basic research.

The reason we don’t do that anymore is that the Government moved away from ratebase regulation of a vertically integrated energy industry in favor of wholesale competition and retail energy delivery regulation and experiments in retail energy procurement.  That made it virtually impossible for the major industry players to collaborate on common research for fear of running afoul of collusion allegations or because their business interests diverged as the vertically integrated industry of the 1950’s was chopped up into upstream E&P producers in the case of oil and gas and unregulated wholesale power generators on the electric side, regulated energy delivery companies in some cases saw their rate structures “decoupled” so they no longer earned a return on commodity energy.

The question then is who would Secretary Chu tax with his R&D charge and how would that money be spent?

You see the problem don’t you?  When the industry is fragmented into its supply chain parts their interests are different and they no longer share the same R&D agenda as once was the case in the old GRI and EPRI days.

Secretary Chu’s R&D charge still works for the national laboratories and maybe that is what he has in mind. But that is a different problem since the labs agenda is now political not market driven and new technology R&D may be desirable theoretically but not politically if it leads to conclusions different than those emanating from Washington.

America’s Strategic Technology Advantage Must be Set Free to Compete and Lead

So China is a good proxy for the problem we face in retaining and enhancing our strategic competitive advantage. Secretary Chu says:

  • China’s export driven economy produces 20 percent of global technology exports, while the U.S. share has fallen to under 15 percent. Secretary Chu says: “China is doing this. It seems to be working. We should be doing this,” and he laments America is falling behind China in science leadership.  But China requires most foreign companies who seek access to its markets to bring their technology which China adopts, adapts and exports with little regard to the underlying intellectual property rights.
  • China is building 30 of the 50 new nuclear power plants in the world compared to two proposed in the U.S. McKinsey says China plans to build 120 GW of new nuclear power plants by 2020.  But China was able to adapt the French nuclear technology for its own domestic use and now is adapting and perfecting it for export undercutting Areva the French nuclear giant that provided it by prices almost half to take market share.  This is how China came to dominate wind and solar energy sectors as well.
  • The real competition for China in nuclear energy is Korea. Korea has done a spectacular job of improving nuclear technology performance and America is benefiting from that by enabling upratings of its existing fleet of nuclear power plants. Exelon’s nuclear fleet is using this improved technology to generate from 1,300 to 1,500 MW of additional generation capacity within eight years following completion of its uprating and life extension program.  America would benefit more from working with Korea than China—but Congress has not seen fit to approve the Korea free trade agreement that makes it possible.

America’s declining science and technology leadership is not caused by China but is entirely self-inflicted as a result of US Government policies that constrain domestic energy production and technology advancement if the sources or technologies are not politically correct.

Interior Secretary Salazar just this week shot down Energy Secretary Chu’s plea for more energy R&D when he reversed his position on off shore oil and gas drilling in coastal waters out of safety concerns and said it would be seven years before any new permits would be issued.  America’s market leading technology is not going to sit idle at home for seven years waiting for the government to get its act together.  It is going to India, to Korea, to Africa and, yes—even to China where it can do business, make money and provide a return on capital invested for its shareholders.

The US EPA is using its regulatory authority to achieve the same greenhouse gas emissions reduction the Administration sought in the failed Waxman-Markey bill except that the regulatory process delays mean it will be more than two years before US EPA will approve any permits for new fossil fuel power generation other than renewable energy essentially stalling an entire industry.

If America really wants to get its science and technology mojo back all the Government must do is get out of the way!