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Congress Should Slash Energy Department’s Advanced Research Program

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Congress Should Slash Energy Department’s Advanced Research Program

November 28, 2017

The Department of Energy (DOE) has seen its fair share of boondoggles over the years, from failed renewable ventures to paternalistic microwave regulations. But no program has enjoyed quite as much celebrity and staying power as the Advanced Research Projects Agency-Energy (ARPA-E), designed to fund basic research projects supposedly too farsighted for private investors.

The Information Technology and Innovation Foundation’s (ITIF) study defending the program, released last week, is but the latest in a line of reports that fail to show concrete benefits. Authors David M. Hart and Michael Kearney rely heavily on a study conducted by the National Academies of Sciences, Engineering, and Medicine earlier this year that provides patent and investment statistics, as well as case studies, on ARPA-E funded endeavors. 

However, as the Taxpayers Protection Alliance has previously shown, the study suffers from large limitations and leaps in logic.  Indeed, taxpayers are being forced to foot the bill for a program with little empirical justification.

Noting that “outcomes are difficult to measure,” the academics and consultants behind the earlier DOE study examined the number of publications, patents, and firm formation that come from projects receiving ARPA-E funding. But what constitutes an “acceptable” amount of publications, patents, and start-up activity?

To the authors, ARPA-E can be vindicated by comparing outcomes to that of the DOE’s other grant and loan programs (Offices of Science and Energy Efficiency & Renewable Energy (EERE)). Their analysis finds, for instance, that “recipients of 44 percent of ARPA-E awards published at least once, compared with the Office of Science and EERE at 27 percent and 18 percent of awards, respectively.” According to this bizarre logic, the inability of most ARPA-E recipients to publish their research should be viewed as a success, only because publication rates in other DOE programs are even more abysmal.

The researchers also state that ARPA-E projects result in a patent for $8.2 million awarded, compared to $18.1 million and $28.4 million respectively for the Office of Science and EERE. They make this comparison despite warning earlier of the dangers in using patent filings as a proxy for successful innovation. Patents are, of course, a necessary ingredient in continued innovation, but many are filed to no avail.

Maybe, then, we should focus more exclusively on bottom-line economic results such as private sector viability. On this metric, the results are murky and point to disappointing outcomes for ARPA-E. Nearly three-quarters of projects designated as “completed” have no market engagement whatsoever—no private funding or company formed around the research. And even that figure is probably high, since the academics shadily include recipients who founded firms prior to ARPA-E funding in their definition of “company formation.”

The ITIF scholars add to the NAS’s dubious data dump with statistical games of their own. Hart and Kearney map the number of deals and dollars invested in both early stage and overall private equity clean tech deals from 2005 to 2017. The data reads like a Rorschach test, but the authors take the large decline in overall volume from 2010 to 2011 onward as evidence that venture capital is simply insufficient to forge a path forward for clean tech investments.

This much is clear—there was a zenith of these investments, and in particular early-stage, hardware-intensive technologies around the 2007 to 2011 period. But many factors contributed to an investment bubble, including a series of mandates and subsidies for renewable projects during the Bush and Obama Administrations and ever-rising gasoline prices.

Given this abundance of data, it’s hard to conclude that ARPA-E is a smashing success. But program defenders will readily respond to these lackluster statistics by shouting “market failure” from the rooftops. Basic research may have distant commercial applications, and will not be funded by venture capitalists in the absence of immediate results. And, even if high failure rates are inevitable in very early research, the few that do succeed can be transformational, proponents say.

This is not always the case. Take, for example, ARPA-E’s cherished case study of a project to develop a non-repellant lubricant for industrial purposes. ARPA-E consultants claim that funding would not have happened, since commercial application wouldn’t be practical for a generation. But polytetrafluoroethylene, the original “no-stick” compound found on the bottom of no-stick pans and pipe-liners, was invented nearly a decade before commercialization, with the lavish financial support of DuPont Company, not taxpayers.

In the past basic, far-flung research has attracted private funding and could continue to do so.  America saw innovation at a breathtaking pace in the century following the Civil War, an era with nonexistent government funding of research. Lawmakers considering the funding of programs like ARPA-E should ponder this, and question whether private funding has been displaced by a smorgasbord of government programs. “Incubators” such as ARPA-E that displace private funds and carry no evidence of success do not deserve taxpayer funds. Further studies by program backers will only further confirm ARPA’s status as a failed program.

Ross Marchand is a policy analyst at the Taxpayers Protection Alliance

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