The document discusses lessons for accelerating energy innovation drawn from the history of the chemical industry, highlighting the importance of private R&D and market forces. It details the role of government in past programs, like the synthetic rubber initiative, emphasizing that large-scale production programs differ from those aimed at radical new technologies. Additionally, it underscores that fostering demand for innovative technologies and ensuring effective diffusion through market mechanisms and antitrust policies are crucial for successful energy innovation.

1. Accelerating energy innovation: Lessons from the chemical industry Ashish Arora, Duke & NBER Alfonso Gambardella, Bocconi ?

2. The Chemical Industry High R&D intensity, declines with time High basic R&D share, declines with time Low government support for R&D, declines with time.  R&D is mostly privately funded, driven by market and technical opportunities . Chemicals and energy innovation Key similarity  process innovation to use new feedstock Key differences  innovation golden age 1920-55, different historical era.

3. Govt. Role in Chemical Innovation: The Synthetic Rubber Research Program (1/2) Started 1942 – US feared cutoff from rubber suppliers Objectives Expand output of synthetic rubber Improve quality and produce specialty rubbers Contribute to polymer science Involve leading rubber firms, petro-chem firms and university research groups Free information exchange Extended after WW II $56 million invested in R&D, 1942-56 Synthetic rubber fed to an automatic weighing machine, operated by United States Rubber Company at Institute, West Virginia, ca. 1945

4. The Synthetic Rubber Research Program (2/2) Production problems solved Synthetic rubber output 850,000 tons in 1945 Seven times peak German output Eighty Five times output in 1941 New variants of GR-S rubber developed Cold rubber; oil extended rubber But major innovations from outside the program Limited impact on polymer science Bottom Line: Program did what it was intended for - Increase production.  Programs for energy innovation and programs for large scale production of energy from alternative sources are not the same . Synthetic rubber Innovations Nitrile rubbers ( Goodrich, Goodyear ) Carbon black ( Philips Petroleum ) Oil extended rubber (Goodyear; General Tire ) Fully synthetic rubber ( cis- polyisoprene) – (Karl Ziegler)

5. A major challenge for energy innovation: Rapid diffusion New producer goods technologies do not completely displace existing technologies (at least not quickly) Old technologies improve in response Complementary investments, infrastructure Co-Invention

6. An exception: Switch from coal to oil Conversion without much government intervention Driven by growth in Automobile; coal driven by Steel Massive investment and major advances in technology (catalysts, plants ..) Market for technology and market for oil were important in facilitating switch Specialized Engineering Firms (SEFs) diffused technology In 1950, 50% of US organic chemical output was based on natural gas and oil; by 1966, it was 88%. In 949, only 9% of UK organic chemical output was based on natural gas and oil; by 1962, it was 63%. The first petrochemical plant in Germany in 1950s; by 1973, 90% of organic chemical output was oil based

7. A major challenge of energy innovation: wide spread technology deployment Oil refining and chemical complex, Jamnagar, India, 1997 Total cost - $6 Billion. World’s largest grassroots petrochemical complex. Expanded 2008 – Capacity doubled. = 1.2 million bpd Key Technology Suppliers Bechtel (project management); UOP - technology Stone and Webster; DPG Black & Veatch - sulphur recovery and gas treatment units; Dow Global Technologies , licensing and services polypropylene Foster Wheeler : fired heaters for the refinery's coker; UOP catalytic converter reactor section and PSA (pressure swing absorption) packages Criterion Catalysts & Technologies (Shell): catalysts In chemicals, process technology is a marketable commodity Both manufacturing and non manufacturing firms (SEFs) provide technology licenses Vital for diffusion to “small” firms – Developing countries and small firms in rich countries. SEFs play an important role Some major innovations (e.g., Scientific Design, UOP) More likely package technology (incl. licensed in from others) with engineering and design services

8. The Global Market for Engineering and Licensing in Chemicals, 1980-1990 43.9% 34.6% 21.5% 15.6% 71.6% 12.7% Total 29.2 52.9 17.9 20.3 72.2 7.4 Textile & Fibers 35.6 2.9 61.5 16.9 52.1 31.0 Misc. Specialties 50.0 46.2 3.8 17.0 79.0 4.0 Pulp & Paper 52.8 6.1 41.2 13.2 63.1 23.8 Plastics & Rubber 41.9 3.2 54.8 17.6 63.0 19.4 Pharmaceuticals 49.1 32.4 18.5 10.8 75.9 13.3 Petrochemicals 42.1 48.6 9.3 10.0 83.7 6.4 Oil Refining 36.4 19.4 44.2 21.9 53.8 24.3 Organic Chemicals 48.5 34.6 16.8 14.4 78.9 6.6 Miscellaneous 51.7 24.4 23.9 20.9 71.3 7.8 Minerals & Metals 51.1 36.1 12.9 17.8 60.3 21.9 Industrial Gases 46.4 29.2 24.4 18.9 66.9 14.1 Inorganic Chemicals 32.8 62.3 4.9 17.1 78.0 5.0 Gas Handling 40.8 38.8 20.4 20.3 74.8 5.0 Food Processing 33.7 61.5 4.8 15.6 79.6 4.8 Fertilizers 39.0 33.7 27.2% 33.5 34.1 32.4% Air Separation By other firms (*) By SEF Own Technology by other firms (*) by SEF In‑House SECTORS % of Licenses % Of Plants Engineered

9. Share of SEFs in chemical technology licensing by type of buyer Source: Arora and Fosfuri, 2000 Require “broad” markets  tough anti-trust stance on market power in product market Push incumbents to license & increase competition in market for technology anti-trust in “market for technology” is also helpful! SEFs flourish with patent protection SEFs differentially benefit small firms and vice versa What policies promoted technology specialists and technology diffusion? (1/3)

10. Licensing by Chemical Firms by Share of SEF in total Licensing Source: Arora and Fosfuri,1999 Require “broad” markets  tough anti-trust stance on market power in product market Push incumbents to license & increase competition in market for technology anti-trust in “market for technology” is also helpful ! SEFs flourish with patent protection SEFs create competition in market for technology What policies promoted technology specialists and technology diffusion? (2/3)

11. Require “broad” markets  tough anti-trust stance on market power in product market Push incumbents to license & increase competition in market for technology anti-trust in “market for technology” is also helpful! SEFs flourish with patent protection Average number of SEFs by market (1980-90) Source: Arora, Fosfuri & Gambardella, “The division of inventive labor”, 2003 SEFs flourish with patent protection What policies promoted technology specialists and technology diffusion? (3/3)

12. Summary & Conclusions The history of chemical innovation Chemical innovation – science based and rely on private R&D Large, integrated in-house R&D, (e.g, Du Pont) Research intensive specialists – UOP, SD, Criterion Market based diffusion (SEFs) Universities: Train talent and institutionalize disciplines. Limited govt. in golden age of chemical innovation? Science to product route much clearer. Booming demand Implication for Energy Innovation Govt programs better at coordinating large scale production than radical new technology Supporting demand for innovative technologies is important, not simply subsidizing the production of new knowledge. Diffusion is as important as creation of new tech. Diffuse through market for technology Technology specialists . Anti-trust: Prevent sustained concentration of market power, in both product and in technology markets. IP policy: Patents for diffusion, not just for innovation.