The following is an article originally published February 1, 2024, by Forbes.

The Path Forward: Examining The Complexities Of R&D In Clean Energy

By Shashi Menon, EcoEngineers

As the head of a consulting firm with a focus on energy transition, the conversation around the allocation of resources to nascent clean energy projects is of paramount importance to me.

While the growing support for clean energy initiatives is commendable, there is often an underlying concern about the fiscal prudence of backing projects with commercially unproven technologies. However, I believe that it’s crucial for business leaders to recognize how applied research and development (R&D) plays an important role in the long term for clean energy and how failures can be just as important as successes.

Applied R&D is inherently a trial-and-error process. History has shown us that many of the essential fuels and chemicals we rely on today, from gasoline to various plastics, have been born from the ashes of R&D projects that initially failed.

Innovating For Tomorrow

Among R&D World magazine’s 2023 R&D awards finalists, several promising clean energy innovations are highlighted, ranging from new motor drives for hybrid electric aircraft to novel systems for capturing carbon dioxide (CO2). These finalists represent just a fraction of initiatives aimed at improving human safety, comfort and environmental sustainability.

Admittedly, the science behind each of these innovations is complex, and if it were simple, we would already be employing these technologies instead of investing considerable resources to refine and validate them.

Can Profit-Driven Innovation Help Solve The Energy Crisis?

Despite efforts to curb energy consumption and transition to cleaner sources, the stark reality is a continued rise in global CO2 emissions, as indicated by data from the International Energy Agency (IEA). With the world population expected to reach 10 billion by 2050, the demand for energy to support human demand will only intensify.

I believe that the quest for a solution to the energy conundrum through R&D is perhaps one of the most significant applications of capitalism. It can propel profit-motivated innovation to help discover transformative solutions akin to the discovery of penicillin. According to McKinsey & Company, the global expenditure on R&D in 2019 was around $2.3 trillion, with the pharmaceutical sector leading the investment. In contrast, they found that the energy sector is at the lower end, investing approximately 3% of its earnings into R&D.

The Crucial Role Of R&D Funding

Whether it be through advancements in direct air capture of CO2, improved solar panels or more efficient heating and cooling systems, business leaders should understand how investment in applied R&D remains crucial to meeting the clean energy demands of a growing global population.

Much of the funding for R&D for clean energy stems from taxpayers. I see this investment by society as a recognition of R&D’s intrinsic value for maintaining global competitiveness. Through this, leaders can take advantage of initiatives like the Inflation Reduction Act and its allocation of nearly $400 billion for developing clean energy solutions.

While the U.S. share of global R&D expenditures decreased from 69% in 1960 to about 31% in 2020, I see this as more a reflection of the increase in global competition. As other countries have realized the critical role of R&D in their competitive edge, they have increased their investments accordingly. There is still plenty being invested by the U.S. government for those looking to utilize public funds for their R&D.

Charting The Course

I believe that in focusing your R&D investment. it’s important to find ways to incentivize investment in areas more likely to generate success and redefine our relationship with energy. This includes direct air capture technologies, the development of biomaterials and elsewhere.

Practicality

One piece of advice to make R&D more productive is to make sure to be realistic about the process and product development timing and costs. Many promising renewables projects have failed because they ran out of funding during the process/product development stage. In most cases, it is better to be realistic than optimistic.

When focusing your R&D budgets on alternatives to burning petroleum for energy, you can take advantage of the opportunities provided by the Inflation Reduction Act, particularly through the Investment Tax Credit (ITC) and the Production Tax Credit (PTC). These credits enable taxpayers to deduct a percentage of the expenses associated with renewable energy systems from their federal taxes.

Bonus Credits

There are also bonus credits available for having minimum levels of domestic content, thus incentivizing American manufacturing. Under the Inflation Reduction Act, eligible taxpayers who are not tax-exempt entities can transfer all or a portion of specific tax credits, including the earlier mentioned ITC and PTC, to an unrelated party.

Research And Planning

Some words of caution: When investing in your R&D, it’s important to perform in-depth research on similar or adjacent R&D programs globally as far back as 30 years. This is often instructive and helps prevent you from “reinventing the wheel” or going down an investigative path that has already failed or fallen short.

Charting The Course

I believe that in focusing your R&D investment. it’s important to find ways to incentivize investment in areas more likely to generate success and redefine our relationship with energy. This includes direct air capture technologies, the development of biomaterials and elsewhere.

Practicality

One piece of advice to make R&D more productive is to make sure to be realistic about the process and product development timing and costs. Many promising renewables projects have failed because they ran out of funding during the process/product development stage. In most cases, it is better to be realistic than optimistic.

When focusing your R&D budgets on alternatives to burning petroleum for energy, you can take advantage of the opportunities provided by the Inflation Reduction Act, particularly through the Investment Tax Credit (ITC) and the Production Tax Credit (PTC). These credits enable taxpayers to deduct a percentage of the expenses associated with renewable energy systems from their federal taxes.

Bonus Credits

There are also bonus credits available for having minimum levels of domestic content, thus incentivizing American manufacturing. Under the Inflation Reduction Act, eligible taxpayers who are not tax-exempt entities can transfer all or a portion of specific tax credits, including the earlier mentioned ITC and PTC, to an unrelated party.

Research And Planning

Some words of caution: When investing in your R&D, it’s important to perform in-depth research on similar or adjacent R&D programs globally as far back as 30 years. This is often instructive and helps prevent you from “reinventing the wheel” or going down an investigative path that has already failed or fallen short.

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