Is this the way to finance green innovation?

So who spends on R and D in Australia? The table below shows the dominance of manufacturing and mining. An interesting feature is the R and D spending by financial and insurance services where $1.4 billion has been spent on “depository financial intermediation,” presumably on data handling and customer interaction through the Internet.

The electricity, gas, water and waste services spend $0.4 billion. But the electricity generation and supply spend is only $0.16 billion of this, 4% of mining or manufacturing R & D.

Source ABS

If we are going to boost the development of clean technologies then the development strength must be in manufacturing and mining. It is not to be found in the electricity supply businesses, although some of them own wind farms subsidized by the MRET scheme.

Does it matter whether there are fully developed businesses in Australia that extend from R and D all the way to sales and marketing? There are many branch offices of international corporations here and the statistics show that they spend as much as fully Australian owned companies.

The management of GM in Detroit clearly think that engineering and development at Fishermans Bend in Melbourne is a key asset of the corporation. Likewise in the high technology area, Varian Inc. has in Melbourne a major division for product development. You might conclude that the support for R and D goes to where it best supports the goals of the business with smart engineers, scientists and others. The only problem is how much of the benefit is captured for Australia.

So how would you approach spending $10 billion for the greater good?

The fundamental problem is that clean technology innovation is tax driven. Tax may drive innovation in the financial world but to supplant present energy sources you need lower cost alternatives or more economical ways of using energy. But a tax on carbon, like a window tax, will throw up some unusual technologies such as wind power, totally unsuited to supply base load power because of its intermittency. It is also costly for the management of the distribution of power through the grid.

When the MRET scheme is all over, there may be some very attractive engineering relics in the countryside but nothing to rival the end product of the sale of Papal Indulgences, arguably the carbon tax of its time, the building of St. Peters in Rome.

Of course the best development is natural, resting on the needs of customers. There may well be interesting uses for renewable or clean energy technologies in remote settings but these will not change general society behaviour and it may not give rise to a great new green business. There may be some freedom of action for the Clean Energy Finance Corporation as they may invest in technologies, inputs to these technologies and the use of the technologies.