How Green will the Green Paper be?

On Thursday 31 July the Cutler Review will deliver it's much anticipated Green Paper on its Review of Australia's National Innovation System. A lot has happened since Senator Carr announced the Review in January this year that suggests the Green Paper could be, well, green.

Commercial Ready Closed

First off the ranks (and ahead of the Federal Budget by about two weeks) the government closed the Commercial Ready competitive grants program without consultation or notice - although those with a particularly long memory will recall that the ALP flagged a "refocusing" of Commercial Ready in its election campaign. This lack of process raised the ire of many, including the team over at Australian Anthill who coordinated a "flash protest" on the office of Senator Lindsay Tanner - Minister for Finance and Deregulation. Predictably, this appeared to do little to ease the plight of the hundred or so companies caught in the Circles of Commercial Ready Hell.

So the status quo remains today: Commercial Ready is gone but not yet quite forgotten.

Consultation and Listening Tour

Submissions to the review closed but a couple of days after Commercial Ready was closed (not that anyone knew it then) and it was interesting that the science and university lobbies didn't completely dominate the numbers of the submissions generated. In fact, around 47% of the over 630 submissions were from the private sector.

Dr Cutler and the balance of the review panel spent some time travelling around Australia, seeking the views of constituents: industry, academics and government players. Each of the principal consultation sessions was conducted audience by audience, further reinforcing the apparent divisions between these three sectors. Unfortunately, these sesssions were somewhat hollow. They offered little by way of insight into the panel's process or predilections (if they had any) and provided a brief soapbox moment for many participants.

Subsequent consultation sessions in focused areas (such as the R&D tax concession) were held, and the ears of panel members and specialist working groups were well and truly bent. It seems that's the way to get one's view across.

Federal Budget: New Green Initiatives

In addition to the Commercial Ready bombshell, the ALP's 13 May 2008 budget demonstrated a change in the approach to innovation and government funding for R&D. The budget included announcements across this area, including:

• New innovation program to help make Australia Climate Ready
• Re-tooling Australian manufacturers to tackle climate change
• $90 million Green Building Fund for more energy-efficient buildings
• Green Car Innovation Fund to address climate change challenge

This was, in reality, only a small contribution towards what is needed, but it does show a clear trend. In fact, even though the policy rationale for closing Commercial Ready was the view of the Productivity Commission that grant programs were not effective as the activity would most likely have been done anyway, the Climate Ready program was announced.

Climate Ready "Seminars"
Well ahead of the program's first application going in, AusIndustry has settled the application criteria (and, we believe, process). Unsurprisingly they are identical merit criteria to Commercial Ready, but the initial eligibility screen is that the project address the aim of Climate Ready, namely:

new technologies for water recycling, waste recovery or small-scale renewable energy; the development of green building materials to make homes more energy-efficient and more comfortable; and innovations to reduce the energy used by appliances, cutting emissions and household power bills.

Seminars announcing all of this were conducted back in the middle of June, with the program that has launched today.

Garnaut's $3 billion R&D Challenge

And then, in the context of the challenge of arresting the negative impact of carbon (equivalent) emissions on our environment, Professor Garnaut has given over an entire chapter of 24 pages to research, development and commercialisation of low emission technologies in his draft report. He identifies that some $3 billion needs to be invested into this area annually, principally across energy generation, transport and sequestration. Professor Garnaut elegantly summarises the rationale for market intervention as follows:

...market failures that impinge on the efficient and competitive function of markets for new ideas and technologies may result in suboptimal levels of investment in innovation. These market failures stem from the special characteristics of ideas and knowledge, as well as the unique processes of knowledge creation.

If, as a result of market failures, there are suboptimal levels of investment in low-emissions technologies, then inferior, more expensive substitutes will need to be deployed to reduce emissions. This inefficient response will lead to a carbon price that is higher than it would otherwise be.

These market failures are most important in the early research and demonstration and commercialisation phases of the innovation chain...

Somewhat more controversially Professor Garnaut explicity states that government intervention is best justified where "Australia has a comparative advantage".

The Review recognises, however, that it is difficult to determine what exactly Australia’s core areas of comparative advantage are in early research as there are no perfectly objective measures for comparing different fields and disciplines. The proposed research council would therefore need to consider a range of proxy indicators of comparative advantage when making funding allocation decisions. 

It then identifies that although we export uranium, research in its use would not be an area of Australia's comparative advantage, but in agriculture we may well have the required advantage.

Ultimately, this is required in order to support Australia's investment in an international context. This is explained as follows:

It is important that this issue be looked at from an international perspective since research is an international public good. Section 13.1 recommends that high-income countries support an International Low Emissions Technology Commitment, requiring them to allocate a small proportion of GDP to research, development and commercialisation of new, low-emissions technologies and technology transfer, at home or abroad. The chapter provided an indicative global figure for this fund of $100 billion per year, and an indicative Australian share of $2.8 billion.
emphasis supplied].

Thus, this becomes Australia's $3 billion green R&D funding hole. How will the government stimulate investment in this area? What policy instruments will it select and how will it integrate the review of the National Innovation System with the demonstrated need for further investment in this field?

So, are you ready for 31 July 2008?

This is a date that may be remembered for a setting to rights of the ills in Australia's National Innovation System or merely highlight the amount of work that still needs to be done to undo sixteen years of ad hoc policy and practice.

No doubt the report will be substantial.

It may even be controversial.

It may also be that Australia's Innovation and R&D future starts to look just a little bit 'greener' than it is today.

No matter what it turns out to be, we'll be pulling it apart and commenting on it here.

If you have any thoughts on what's coming, please add them as a comment here.