Innovation in Energy Technology COMPARING NATIONAL INNOVATION SYSTEMS AT THE SECTORAL LEVEL Innovation in energy technology is increasingly important for meeting growing energy demand Innovation in Energy amidst heightened concerns about energy supplies and environmental protection. Governments across the OECD are investing in R&D on new energy technologies, including fuel cells, and Technology seeking ways to speed their deployment and the transition to a more sustainable, hydrogen- based economy. What steps are they taking? What approaches seem to be most effective? How can governments best harness the capabilities of public and private sector researchers to IN COMPARING NATIONAL advance innovation? N O INNOVATION SYSTEMS V This report reviews efforts under way in several OECD countries to advance innovation in A T AT THE SECTORAL LEVEL energy technology, with a particular focus on hydrogen fuel cells. It compares energy innovation I O systems in Canada, France, Germany, Italy, Japan, Korea, Norway, the United Kingdom and N the United States to identify the roles of government, industry, universities and other public I N research organisations in the innovation process. It also examines the policies and programmes E governments are implementing to finance needed R&D and to stimulate market demand for N innovative energy technologies. The report forms part of a larger effort to compare innovation E R processes in different industry sectors and technological fields to more fully elaborate the G national innovation systems approach to policy making. 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The OECD is also at the forefront of efforts to understand and to help governments respond to new developments and concerns, such as corporate governance, the information economy and the challenges of an ageing population. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies. The OECD member countries are: Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The Commission of the European Communities takes part in the work of the OECD. OECD Publishing disseminates widely the results of the Organisation’s statistics gathering and research on economic, social and environmental issues, as well as the conventions, guidelines and standards agreed by its members. This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Organisation or of the governments of its member countries. © OECD 2006 No reproduction, copy, transmission or translation of this publication may be made without written permission. Applications should be sent to OECD Publishing: [email protected] or by fax (33 1) 45 24 13 91. Permission to photocopy a portion of this work should be addressed to the Centre français d'exploitation du droit de copie, 20, rue des Grands-Augustins, 75006 Paris, France ([email protected]). 3 FOREWORD – Foreword The OECD Working Party on Innovation and Technology Policy (TIP) launched three case studies in 2002 to examine sectoral innovation systems, recognising that national innovation systems and policy needs vary across technological fields and industry sectors. The three case studies focused on pharmaceutical biotechnology, knowledge-intensive service activities and energy technology. This report presents a synthesis of the case study on the innovation of energy technologies, which was intended to: 1) examine the energy technology innovation system in participating countries; 2) evaluate the effectiveness of the innovation systems by assessing their economic, environmental, and energy security benefits; and 3) perform cross-country analysis to delineate policy implications. The energy case study was conducted by designated experts from nine participating countries who agreed to prepare national studies of the innovation processes of hydrogen fuel cells, oil and gas, and renewable energy technologies, with fuel cells as the common technology to be examined by all participating countries. The studies examine the drivers of energy innovation; the processes of knowledge creation, diffusion and exploitation; and the roles of public/private partnerships, intellectual property rights and globalisation in the innovation process. This publication contains extended summaries of these national reports as well as a synthesis of the key conclusions from them.1 Because of the relatively large number of studies on hydrogen fuel cells, it was possible to carry out a more com- prehensive cross-country analysis on this technology, and a substantially larger part of this report is devoted to fuel cell technology innovation systems of the participating countries, with a more limited analysis of the innovation systems of oil and gas. This report draws on the contributions of the national experts who participated in the project and in many cases co-ordinated the input of additional members of their research teams: Bruce Bowie, Richelle Dabrowski and Annie Desgagne (Canada); Bernard Bourgeois and Yvan Faure-Miller (France); Juergen Wengel (Germany); Oronzo Tampone and Alicia Mignone (Italy); Akira Maeda (Japan); Sung-Chul Shin and Jung Kyung Yu (Korea); Helge Godoe, Aslaug Mikkelsen and Jon Moxnes Steineke (Norway); Roy Williamson (United Kingdom); Inja Paik, Michael Curtis and John Nail (United States). Inja Paik (United States) chaired the study. From the OECD Secretariat, Jerry Sheehan served as the overall co-ordinator of the project, with assistance from Gudrun Maass and Yukiko Fukasaku. Emmanuel Hassan prepared a bibliometric analysis of patents and publications related to fuel cell technologies, with statistical support from Cristina Serra-Vallejo, Sandrine Kergroach and Corinne Doenges. Madeline Woodruff and Mitsuhide Hoshino from the International Energy Agency also made valuable contributions. 1. The full-length country case studies plus the bibliometric analysis are available at www.oecd.org/sti/innovation under the heading “Sectoral Case Studies on Innovation”. INNOVATION IN ENERGY TECHNOLOGY: COMPARING NATIONAL INNOVATION SYSTEMS AT THE SECTORAL LEVEL – ISBN-92-64-01407-1 – © OECD 2006 4 – FOREWORD The study benefited significantly from the International Conference on Innovation in Energy Technologies, held in Washington, DC on 29-30 September 2003. The conference was co-sponsored by the OECD, the International Energy Agency (IEA), the US National Academies and the US Department of Energy. A number of recognised experts on inno- vation and energy technology debated a wide range of topics related to the complex workings of energy technology innovation systems, including: the roles of market forces and government policies in establishing objectives for energy innovation and directions for research; the relative contributions of and degree of collaboration among industry, universities and government in financing and performing research and development; and obstacles impeding commercialisation of new energy technologies (see Annex B for the conference programme). The insight gained from this conference has informed the prepara- tion of this report in myriad ways. INNOVATION IN ENERGY TECHNOLOGY: COMPARING NATIONAL INNOVATION SYSTEMS AT THE SECTORAL LEVEL – ISBN-92-64-01407-1 – © OECD 2006 5 TABLE OF CONTENTS Foreword 3 Executive Summary 7 Chapter 1. Synthesis of Main Findings 13 Résumé 47 Chapitre 1. Synthèse des principales conclusions 53 Country Studies 93 Chapter 2. Canada: Fuel Cells 95 Chapter 3. France: Fuel Cells 113 Chapter 4. Germany: Fuel Cells 129 Chapter 5. Italy: Fuel Cells 149 Chapter 6. Japan: Fuel Cells 161 Chapter 7. Korea: Fuel Cells and Photovoltaics 181 Chapter 8. Norway: Fuel Cells 195 Chapter 9. Norway: Upstream Oil and Gas 215 Chapter 10. United Kingdom: Fuel Cells 237 Chapter 11. United States: Automotive Fuel Cells 255 Chapter 12. United States: Stationary Fuel Cells 277 Chapter 13. United States: Advanced Turbine System 295 Annex A. Types of Fuel Cells and Their Applications 319 Annex B. International Conference on Innovation in Energy Technologies: 323 Programme INNOVATION IN ENERGY TECHNOLOGY: COMPARING NATIONAL INNOVATION SYSTEMS AT THE SECTORAL LEVEL – ISBN-92-64-01407-1 – © OECD 2006 7 EXECUTIVE SUMMARY – Executive Summary Innovation in energy technology has widespread implications for OECD economies. Although the energy sector accounts for a small share of GDP, the pervasive use of energy throughout modern economies makes uninterrupted supplies and stable prices critical to sustaining growth. Rapid growth in energy demand coupled with growing concerns about energy security and the environment, however, raise questions about the sustainability of the current energy system and call for renewed efforts to develop and deploy new and improved energy technologies that can support a sustainable energy system.1 Understanding how to stimulate innovation in energy technology is therefore of growing importance. This report summarises the conclusions of a project on innovation in energy tech- nology organised by the OECD Working Party on Innovation and Technology Policy. It forms part of a larger effort to compare innovation processes in different industry sectors to both provide guidance to policy makers on development of innovation policy and to more fully elaborate the national innovation systems approach to policy making. The report focuses primarily on innovation in hydrogen fuel cell technology, which was the subject of country studies prepared by experts from nine countries: Canada, France, Germany, Italy, Japan, Korea, Norway, the United Kingdom and the United States. It also addresses innovation in oil and gas technologies, drawing on work done in France, Norway and the United States, which allows some ability for comparative analysis across national innovation systems and among innovation systems for different energy technologies. Innovation in hydrogen fuel cells Hydrogen fuel cells are a revolutionary technology that promises to transform the global energy economy, as they offer long-term potential for high-efficiency with near- zero emissions of greenhouse gases. With potential applications in transportation, power generation and portable power, the market for fuel cells and related products, according to some estimates, is projected to reach USD 29 billion by 2011, and could reach as high as USD 1.7 trillion by 2021. Hydrogen fuel cell technology is complex, however, and numerous technical and economic problems remain to be solved, particularly in auto- motive applications, before it can achieve widespread deployment. In addition, the commercial success of hydrogen fuel cells requires that suitable infrastructure be developed for the generation, distribution and storage of hydrogen fuels. Fuel cells must prove their ability not only to generate sufficient power for a range of envisioned applications with different performance and cost requirements, but also to do so more effectively than existing and emerging energy technologies (e.g. internal combustion engines, batteries and renewable energy sources), many of which have benefited from decades or more of continual refinement. 1. International Energy Agency (IEA) (2004), World Energy Outlook 2004. INNOVATION IN ENERGY TECHNOLOGY: COMPARING NATIONAL INNOVATION SYSTEMS AT THE SECTORAL LEVEL – ISBN-92-64-01407-1 – © OECD 2006 8 – EXECUTIVE SUMMARY Multiple factors drive innovation While improvement in environmental quality in general and concerns about climate change in particular are important drivers of the fuel cell innovation system for all countries, other factors also motivate innovation. The economic opportunities presented by hydrogen fuel cells are a powerful driver for those countries with large automobile manufacturing sectors, including France, Germany, Japan and the United States, as well as for a country such as Norway that desires to make better use of existing energy resources. For countries with limited domestic energy resources that depend heavily on imported oil for transportation, including Japan, Korea and the United States, energy security is an equally strong driver of the fuel cell innovation system. Fuel cell innovation in Canada, Norway and the United Kingdom, with large domestic energy resources, and in countries with intermediate levels of resources, such as France, often takes the form of a “fast-follower” strategy, although a cluster of Canadian firms has emerged as industry leaders in fuel cell technology. Government and industry contribute to energy R&D funding Both government and industry invest considerable sums in fuel cell R&D. Although the balance between these two sources of funding varies considerably among countries, the share financed by the public sector is relatively high, reflecting the large public interest in successful commercialisation of fuel cells. The US government announced in 2003 its plan to spend USD 1.7 billion over the next five years on fuel cell R&D including hydrogen production, storage and infrastructure. Japanese government spending on fuel cell R&D reached USD 320 million in 2004. The European Community announced plans to spend USD 2.1 billion between 2003 and 2006 on renewable energy, mostly on hydrogen fuel cells. With the potential commercial applications of fuel cells becoming more apparent, industry is playing an increasingly important role, investing more in fuel cell R&D than governments in many countries. Current annual spending by the private sector on hydrogen fuel cell R&D worldwide is estimated to be about USD 1 billion. Industry R&D spending in the United States peaked at over USD 1 billion in 2000, although it declined to about half that level in 2004, reflecting weaker economic conditions at the turn of the millennium. Venture capital firms have played a limited role in funding fuel cell start-up firms because fuel cell technology is highly capital intensive with long time horizons for commercialisation; and public policy and regulatory regimes regarding fuel cells are not well developed, increasing uncertainties about future market conditions. National innovation systems for fuel cells are complex and diverse Because of their wide range of applications, fuel cell innovation systems engage a diverse and changing set of actors in public and private sector R&D and other innovative activities. Government laboratories and universities are important players in generating and diffusing knowledge. While universities generally account for the majority of scien- tific publications, government laboratories also play an important role in fuel cell tech- nology, reflecting longstanding traditions of energy research in many countries and the significant societal benefits expected to result from deployment of fuel cell technology. The work of these public research organisations (PROs) is funded (and performed) by many government ministries, including those with responsibility for research, industry, energy, environment and defence, reflecting the range of interests in fuel cell technology. Industry is heavily engaged in innovation of hydrogen fuel cells. Active firms include INNOVATION IN ENERGY TECHNOLOGY: COMPARING NATIONAL INNOVATION SYSTEMS AT THE SECTORAL LEVEL – ISBN-92-64-01407-1 – © OECD 2006 9 EXECUTIVE SUMMARY – large national and multinational enterprises, as well as small and medium-sized enter- prises (SMEs). While SMEs tend to focus specifically on development of fuel cells, large firms operate in a number of industry sectors, including energy, automobiles, electronics and chemicals. These firms are connected in complex ways by organisational networks that generate, diffuse and use knowledge. The balance between the public and private sectors in fuel cell innovation varies considerably from one country to another, reflecting different public sector motivations for promoting development of fuel cells and different industrial structures. In Italy, most fuel cell activity takes place in the public sector, although industry interest is growing; in Korea, government funding exceeds estimated funding from industry. In other countries, most notably Canada and Japan, most fuel cell knowledge resides in industry, as opposed to PROs, but the public sector role is increasing. Public and private financing of fuel cell R&D are approximately equal in France, and several other countries, including Germany, Japan and the United States, appear to have motivated both public and private sector involvement in fuel cells. Public/private partnerships (P/PPs) are common vehicles used by nearly all countries to spur fuel cell innovation and encourage knowledge sharing. Most P/PPs engage re- searchers from public and private-sector organisation who work on commonly identified objectives and share costs. The partnerships help governments identify R&D gaps and opportunities as well as technical barriers to be removed, and enable industry to share risks of investing in pre-commercial technology. France’s PACo network, Germany’s Futures Investment Programme (ZIP), Japan’s Hydrogen & Fuel Cell Demonstration Project (JHFC), and the US FreedomCAR initiatives are some examples. These partner- ships have blurred the traditional line between the roles of government performing basic research, and industry performing applied R&D. Despite the nascent stage of development of fuel cell technology, innovation activities are surprisingly globalised. Firms try to leverage their R&D resources by entering into strategic alliances with key customers, suppliers, and research organisations in foreign countries. For example, Ballard Power Systems, headquartered in Canada, has developed an extensive international R&D system including establishing R&D facilities in Ger- many. Both US and Japanese automobile manufacturers also have developed extensive, global networks of R&D collaborators. At the government level, several initiatives have been implemented to improve international co-ordination of research, development and commercialisation. The International Partnership for the Hydrogen Economy (IPHE), established in 2003, involves more than a dozen countries accounting for 85% of global GDP, with the goal to help co-ordinate and leverage on-going R&D activities to accelerate hydrogen fuel cells. Within Europe, the H and Fuel Cells Technology Platform has been 2 set up to integrate the existing, dispersed national R&D programmes in order to improve co-ordination and effectiveness. Fuel cell innovation policy extends beyond R&D Successful innovation in fuel cells requires much more than R&D. Market develop- ment is extremely important as fuel cells represent a novel approach to satisfying energy needs in application areas served by a number of entrenched technologies. The costs and risks of switching to fuel cells are high, and customers may be understandably reluctant to invest in fuel cells until they are more fully convinced of their capabilities and reliability. Fuel cell innovation programmes, as many energy innovation programmes, tend therefore to aim not just at promoting R&D, but at encouraging a fuller spectrum of activities INNOVATION IN ENERGY TECHNOLOGY: COMPARING NATIONAL INNOVATION SYSTEMS AT THE SECTORAL LEVEL – ISBN-92-64-01407-1 – © OECD 2006