169, 168, 167, 168... How many innovation programs will remain tomorrow?

At the start of the government's National Innovation System review there were (according to the Minister's calculations) 169 programs offering support in the innovation space.

Commercial Ready and the Renewable Energy Development Initiative (REDI) disappeared in the federal budget. Climate Ready was added. So, at a minimum we now have 168 programs.

The green paper will be released tomorrow, and Dr Cutler and Senator Carr will be doing a lot of press, justifying the investment in the report. And, admittedly there will be a process of finalising the green paper into a white paper presumably ahead of changed in the 2009/2010 federal budget. In the current analysis, though, I am curious about the following:

• how many programs will be cut or recommended to continue?
• what mix of policy interventions across tax, grants, bounties/awards and regulatory improvements will be justified?
• which industry sectors will win or continue to lose support (hint: sustainability looks promising, information technology, perhaps not so much)?
• what should the overall budget commitment to innovation be?
• how clear will the report be in identifying and capitalising upon Australia's strategic or comparative advantages in terms of the industry and innovation system?
• how clear will the report be in identifying market failures that were previously unknow, and proposing solutions to the same?

There is certainly a lot of food for thought there. Fundamentally, for the review to create value it needs to achieve insights and policy/program changes that have the capacity to significantly increase Australia's productivity whilst maintaining or improving sustainability. In my opinion, that is going to be the test. And we will very shortly know how Dr Cutler has handled the Oracle's Dilemma.

But, depending on the accuracy of at least one source, don't expect too much from the current review on the area of Energy. Apparently that is a function of the Department of Resources, Energy and Tourism (Martin Furguson's department) and not the Department of Innovation, Industry, Science and Research.

Go figure?

What are you looking expecting? Please visit this article and leave a comment.

Climate Ready grant applications open: First round closes 4 September 2008

The Rudd Government’s $75 million Climate Ready grants program, supporting the development of new products, processes and services to tackle climate change by providing dollar-for-dollar support for research and development, proof-of-concept and early-stage commercialisation activities, is open for applications.

Grants of between $50,000 and $5 million are available.

Somewhat controversially the program will operate on a rounds basis, in contrast to Commercial Ready's "always open" system. This should improve the clarity of the program and the time to a decision, however there has been no announcement as to whether the grant funding will operate on a rounds basis, too.

If it does, and there are four rounds per year, this would mean that the $75 million would be distributed in approximately $4.7 million amounts.

This would suggest that the opportunity to get a $5 million grant is pretty small, as there would be no other grant awarded for that round.

The round funding dates are as follows:

• Round 1 - 4 September 2008
• Round 2 - 4 December 2008
• Round 3 - 12 March 2009
• Round 4 - 25 June 2009

So, if you want to get into the first round you'd better scoot over to the Commercial Ready page, download the forms and get on with it. Oh, and be guided by the fact that Commercial Ready grants took approximately 3 months to write properly.

Get in now!

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.

The Greening of Innovation Policy Continues

Fresh after the announcement of Climate Ready and other "green" announcements in the 2008 Budget, it looks like we may be going further in that direction as a nation.

It's hard not to have noticed that the Garnaut Draft Report is now online. Professor Joshua Gans, writing in The Age has identified that the Government will need to allocate more than $3 billion a year for innovation on low-emissions technologies.

He puts this in perspective by referencing the $1 billion Backing Australia's Ability program by the former Howard Government. A further point is the $500 million on the Low Emissions Technology Demonstration Fund, which was for projects to demonstrate breakthrough technologies with significant long-term greenhouse gas reduction potential in the energy sector.

Ideally, those technologies would have had to demonstrate a reduction of greenhouse gas emissions by about 2% per annum with reasonable uptake after 2030.

It will be interesting to see how this feeds into the Cutler Innovation Review, which has its own green paper due out on 31 July. The detail of the delivery, be it tax concessions (deductions or credits), grants, other government regulatory relief, will be interesting.

Of course, there's a real possibilty (even a probability) that the additional investment in low-emissions technology will lead to a related productivity boost for the economy.

Put innovation back in the hands of the stakeholders

by Jane Drummond, Manager, Michael Johnson Associates

Although not to the same level (quite) as the death of JFK or Diana, the impact of the reduction of the R&D tax concession from 150% to 125% back in 1996, when I was a University post-doctoral researcher working on industry funded projects, was memorable in that the “news” was interpreted by our industry team leader with the implication that it would result in the end of our group.

As such, this change was perceived as having jeopardised the viability of our long standing relationship with our industry sponsor – a technology based Australian multi-national company. This would put at risk many of the mutual and synergistic benefits that the collaboration had provided including:

• industry access to first-class scientists and facilities;
• academic focus on market and technology driven business opportunities;
• knowledge development and transfer in both pure and applied research; and
• industry-related training and employment opportunities for students

all of which are key foundational ingredients in Australia’s innovation future.

Historically, the R&D tax concession program has provided a funding incentive that has underpinned the relationship between many Australian companies and the group of research centers (Universities, CSIRO and technology service providers) qualified as Registered Research Agencies (RRA’s). Importantly, this incentive program has fostered relationships between technology-driven enterprises and the intellectual resources of the research community offering a broader scope for industry to support and engage in both pure and applied research.

Since exiting the research field to work in a “proper job” with a stable career path, I wonder how Australia’s investment in its bright young scientists will most effectively be fuelled? Lifting the R&D tax concession back to an “effective” 150% rate, delivering 15 cents (up from 7.5 cents) in the R&D dollar to Australia’s business community must clearly be the most effective action to take. Importantly, this change would deliver an immediate and universal R&D incentive (with no lengthy application process involved) in direct support of the R&D needs for all Australian tax-paying entities.

Surely, the R&D tax concession delivers exactly what Australia’s innovation future needs. There is an imperative for the Cutler Innovation Review to put an “effective” incentive back in the hands of the innovation stakeholders.

Make it happen – raise the R&D tax concession rate to 150% and better still to 200% for RRA’s!