Is this the way to finance green innovation?

Financing green innovation?

On the 11^th of October 2011 the Federal Government announced that a panel of experts, chaired by Ms Jillian Broadbent, was to advise on the design of the $10 billion Clean Energy Finance Corporation. Further, this corporation would overcome the well-known capital market barriers to commercializing clean energy technologies.

The key question is whether this is a sensible way to promote innovation?

This giant of a start-up fund will provide finance to renewable energy, energy efficiency and low emissions technologies. It will also invest in firms utilising these technologies as well as manufacturing businesses that focus on producing inputs to these technologies. However it will not finance carbon capture and storage, despite Garnaut Review and Treasury projections depending on the arrival in the 2030s of this technology. Of course, like Harry Potter, we dare not name the Voldemort of energy sources - nuclear power.

Innovation is something we have to have the politicians and academics tell us. The characteristics of innovation are either an unmet need - particularly successful opening a new business area where you might be the price setter, or a significant cost reduction or an enhancement in a product or process. But the main characteristic of an innovation is the random walk of those involved as they came upon their innovation.

No National Needs or Flagship programs will do it, but rather the thoughts and efforts of people in sales, marketing, production and research and development who find by interacting with their customers how to improve or produce new products.

Indeed surveys by the Australian Bureau of Statistics show in 2006-07 that only 2.6% of ideas for innovation were sourced from universities and 4.1% from government agencies. This result is not unique to Australia. Yet these institutions are the organizations that Garnaut wants to reshape the country.

*gathered from business, customers, competitors, conferences, journals and associations

Source ABS

But look at the evidence. Government institutions and universities don’t give much bang for the buck where 38% of Australia’s R and D expenditure generates only 6.7% of the ideas.  Universities of course play a key role in educating accountants, engineers, scientists and many others who do make the innovations in the companies where they work and may have even founded. The universities also publish results and hold conferences so research information enters the public domain.

The universities and government institutions are not the place to directly fund these clean energy technologies. The Co-operative Research Centres, those peculiar hybrid organisms, are predicated on co-operative research with business. But if businesses are in competition with each other then only non-competitive areas are open to shared research. Again this is not the best place to go.