Startups funded by the US Advanced Research Projects Agency – Energy filed patents at twice the rate of similar cleantech firms. The high-risk high-reward funding model has succeeded in advancing energy technology, but more is needed to help these innovative firms cross the valley of death and bring new cleantech products to market.
Messages for policy
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Federal R&D funding for cleantech startups should be expanded, as it can boost the rate of innovation. This is sorely needed given the underinvestment from the private sector.
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Observational studies cannot prove the effectiveness of any funding agency, but current evidence suggests maintaining or growing ARPA-E, given the large potential benefits from cleantech innovation.
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If ARPA-E is able to predict future patenting outcomes and fund companies with the greatest potential to produce new technologies, this could be a valuable contribution of ARPA-E in itself.
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ARPA-E alone cannot fully bridge the valley of death. Additional interventions, such as demonstration and procurement programmes, are still needed to help commercialize new clean energy technologies.
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Change history
25 September 2020
An amendment to this paper has been published and can be accessed via a link at the top of the paper.
References
Further Reading
Gaddy, B. E., Sivaram, V., Jones, T. B. & Wayman, L. Venture capital and cleantech: The wrong model for energy innovation. Energy Policy 102, 385–395 (2017). This work documents the high risk and low private returns of venture capital investments in cleantech from 2006 to 2011.
Goldstein, A. P. & Narayanamurti, V. Simultaneous pursuit of discovery and invention in the US Department of Energy. Res. Policy 47, 1505–1512 (2018). This work shows that ARPA-E funding produced more patents than similar projects funded by other offices in the DOE, with no loss in the production of scientific publications.
Howell, S. T. Financing Innovation: Evidence from R&D Grants. Am. Econ. Rev. 107, 1136–1164 (2017). This study of the DOE Small Business Innovation Research program found a positive effect on patenting and venture capital investment for small businesses, based on rankings of funded and unfunded applicants.
An Assessment of ARPA-E (National Academies of Sciences Engineering and Medicine, 2017). A committee review of ARPA-E found that it appears to be making progress, although more time is needed to assess long-term outcomes including emissions reductions.
Pless, J., Hepburn, C. & Farrell, N. Bringing rigour to energy innovation policy evaluation. Nat. Energy 5, 284–290 (2020). This Perspective explains the empirical challenges plaguing evaluations of energy innovation programmes, including insufficient data and lack of a valid counterfactual.
Acknowledgements
Funding for the original work was provided by the EU Framework Programme for Research and Innovation H2020 under the Grant Agreement no. 730403 (INNOPATHS), the Belfer Center’s Science, Technology, and Public Policy Program, as well as a grant from J. Armstrong and E. Armstrong.
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Goldstein, A., Doblinger, C., Baker, E. et al. Startups supported by ARPA-E were more innovative than others but an investment gap may remain. Nat Energy 5, 741–742 (2020). https://doi.org/10.1038/s41560-020-00691-8
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DOI: https://doi.org/10.1038/s41560-020-00691-8
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