Just Do It

Yesterday, the Washington Post editorial board signed on to the idea of a sliding scale gas tax to keep oil prices high and encourage private sector research and development of alternative fuel technology. Max Boot said basically the same thing a few days ago in the LA Times, so this looks like a meme that's on the rise.

It is certainly true that the private sector has dropped the ball here. According to Kammen and Nemet, spending on research by the energy industry is an order of magnitude below the "average R&D intensity of U.S. industry," and the trend is downward. For example:

In the early 1980s, energy companies were investing more in R&D than were drug companies; today, drug companies invest 10 times as much in R&D as do energy firms. Total private sector energy R&D is less than the R&D budgets of individual biotech companies such as Amgen and Genentech.

No one disputes the need for more private-sector R&D, but what is telling is the inability of the Post or Boot to find a positive role for the federal government apart from imposing a gas tax. It is a hallmark of conservative thought that indirect encouragement of the private sector is always preferable to direct public sector action, and the Post doesn't hesitate make that claim:

This approach [government-sponsored research] assumes that government knows which technologies are worth backing. It assumes that if government researches a new technology, the private sector will see a business case for bringing it to market. And it neglects the fact that government research into alternative energy is engaged in an arms race with private research into oil extraction….

To boost less carbon-intensive fuels, Mr. Bush needs to focus less on how the government spends its small research budget and more on how companies spend their enormous ones.

Wrong, wrong, wrong. First of all, government sponsored R&D assumes that science knows which technologies are worth investigating. Let the NAS dole out the research dollars and there will be a peer-reviewed, merit-based process in place. Second, if research into a specific technology is successful and the business community doesn't take it to market, that's really an indictment of the private sector's decision-making capability, not the research itself. Third, Kammen and Nemet show that high public sector R&D spending is an essential component of encouraging private sector investment — it doesn't compete with it.

Finally, if you honestly look at the numbers, you'll find that the federal government already spends about 3 times as much on energy R&D as private industry does. There simply isn't an "enormous" industry research effort today, and the Post should know that.

The Post is right about one thing, though: the focus should not be on how to spend the government's small research budget. Instead, the focus needs to be on spending a much larger research budget. Government has to kickstart the process, and it needs to do more than tweak the tax code and hope that the private sector, which seems averse to doing real research right now, sees the light and starts working in earnest. The public sector needs to ramp up spending and make strategic investments to encourage additional research all across the board. If we really want to move beyond oil, that's the meme that needs to get some serious traction.