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Government funded renewable energy innovation in China
Energy Policy 51 (2012) 121–127
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Government funded renewable energy innovation in China Cui Huang a, Jun Su b, Xiaoyuan Zhao b, Jigang Sui b, Peng Ru b,n, Hanwei Zhang b, Xin Wang b a b
College of Public Administration, Zhejiang University, PR China School of Public Policy and Management, Tsinghua University, Rm. 515, 100084, PR China
a r t i c l e i n f o
abstract
Article history: Received 9 December 2010 Accepted 28 August 2011 Available online 19 October 2011
With the rapid development of the economy, China is facing pressures caused by traditional energy deficiency and environmental pollution in recent years, which has forced the Chinese government to start to pay attention to the development and utilization of renewable energy (RE). This article, based on data and statistics available up to 2008, studies features of China’s RE technology innovation and problems thereof. It finds that national science and technology programs are the main aspect of China’s RE technology innovation, and most of R&D funds for the RE technology come from China’s three main national programs. Besides, the overall expenditures on RE technology innovation constitute only a small proportion of China’s total domestic R&D funding and seem not enough. This paper also finds that, compared with research and development stages of RE technology, the demonstration and diffusion of RE technology in China are given less attention and thus are relatively less sufficient. Furthermore, influenced by China’s traditional scientific research system, there appears lack of sufficient incentives and opportunities for private sectors to fully participate in RE technology innovation because most national programs are undertaken by universities or research institutes. & 2011 Elsevier Ltd. All rights reserved.
Keywords: Renewable energy Innovation China
1. Introduction Energy is of particular strategic importance for the national economy. There are sharp contradictions between the supply and the demand of energy in China at present, as well as inefficient use, irrational consumption structure, and serious environmental pollution caused by the high consumption of coal and fossil energy. To address these issues, among the major challenges for China, energy technology development is indispensable. Renewable energy technology innovation and large scale application is one of the measures available for meeting the rapid growth in the demand for energy and the requirement for efficient, clean energy, and is expected to lessen the high pressure caused by the fast increasing demand for traditional energy in the rapid development of China’s economy. China has already become a global leader in renewable energy investment and industry. In 2007, China’s investment in new renewable capacity (excluding large hydropower) exceeded US$12 billion, second only to that of Germany. Actually, renewable energy development has been and will almost certainly remain at the forefront of China’s focus of national energy policy (Martinot and Li, 2007, 2008). This paper is to study features and problems of China’s renewable energy technology innovation. Based on the literature review, we analyze the market failure in the innovation process of
n
Corresponding author. Tel.: þ86 10 6279 5573; fax: þ 86 10 62797212. E-mail addresses: [email protected], [email protected] (P. Ru).
0301-4215/$ - see front matter & 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.enpol.2011.08.069
energy technologies. Based on the data collected up to 2008 from Statistical Yearbook of Science and Technology of China, the annual report of three key programs and other sources, by using statistical method, we explore systematically the scale, intensity and directions of Chinese governmental investment regarding renewable energy technology innovation.
2. Review: the technology life cycle and market failure of energy innovation 2.1. Energy technology innovation and technology life cycle Technological innovations have driven the long evolution of the energy sector, operating to increase energy’s benefits while reducing its costs and risks. Such innovations have expanded the energy supplies, increased the efficiency of the transformation of energy resources into desirable end-use forms, improved the availability and quality of energy, and reduced the adverse environmental impacts that result from energy extraction, conversion, and usage (Sagar and Holdren, 2002). In general, the emergence of a new technological system is a long, uncertain and painful process (Jacobsson and Johnson, 2000). According to the views of President’s Committee of Advisors on Science and Technology (PCAST), energy technology innovation is not simply equal to the R&D process of energy. Rather, an integral energy technology innovation process should include the research, development, demonstration (RD&D in short) and deployment of
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energy technology (PCAST, 1997; Sagar and Holdren, 2002). Sagar and Zwaan (2006) extracted two main parts from the whole cycle of technical evolution. The first part is the R&D or RD&D stage which is the early phase of technical innovation, and the second is the diffusion stage which is in the later phase of technical innovation, including commercialization, diffusion and maturation. 2.2. The risks and market failure of energy technology innovation 2.2.1. Risks regarding energy technology innovation The risk regarding energy technology innovation means that there is uncertainty about its success. There are two types of risk involved in the energy technology innovation process. The first is technical risk, and this arises mainly between the concept and implementation stages. Because technology innovation is restricted to technical equipment and scientific forces, many elements will be in an uncertain state, which will lead to technical risk. The second is market risk, which is often seen during the market stage of innovation. Due to the influence of many kinds of market factors, the technology diffusion will suffer from market risk during the commercialization stage (Tassey, 1997). These two types of risks will bring unsmooth decreases in technology innovation risks with time. In other words, there are two jumping processes here (see Fig. 1).
3. Government investment on renewable energy technology innovation in China 3.1. China’s total investment on energy science and technology According to the laws and characteristics of energy technology innovation, government investment on renewable energy technology is not only used to support R&D, but also is mainly used to support the research, development and demonstration of energy technologies (RD&D). We also use energy R&D as a substitute for energy RD&D under certain conditions. Total investment in energy technology is a symbol of a country’s participation level in the energy field. According to OECD’s statistics relating to its member countries’ total energy investment in science
Risks
2.2.2. Market failure and barrier There are serious market failures and barriers in the energy technology innovation process. The reasons for energy innovation’s market failure include externalities, the characteristics of public goods, and the neglected demand of the groups who lack the purchasing ability (Sagar and Holdren, 2002). ‘‘Market barriers’’ refer to obstacles that are not based on market failures but nonetheless contribute to the slow diffusion and adoption of energy efficient innovations (Jaffe and Stavins, 1994; Levine et al., 1995). If only depending on the market, many technology innovations will be aborted during the transforming process from laboratory research to commercial applications, which is called the ‘‘Death Valley’’ from invention to innovation by Auerswald and Branscomb (2003). Technology innovation is typically a long-term investment that is fraught with risks to the investor. The problem is particularly difficult in the renewable energy sector, where R&D funding has decreased dramatically. Companies will not fund the optimal societal level of the basic R&D of new technologies, since many of the benefits of such research will flow to their competitors and to other parts of economy. It will result in an ‘‘efficiency gap’’, which means an under-investment in R&D from the standpoint of the overall benefits to society (Brown, 2001).
2.2.3. The role of the government The existence of risks, market failures and barriers that inhibit socially optimal levels of investment in energy innovation is the primary reason for considering government interventions. In many instances, feasible, low cost policies can be implemented either to eliminate or compensate for market imperfections and barriers, enabling the markets to operate more efficiently to the benefit of society (Brown, 2001). The key issues for increasing the use of renewable energy actually relate to making these technologies costcompetitive. In absolute figures, the renewable business sector is still small. It is a high-tech sector with emerging technologies depending on the results of RD&D. The RD&D effort in the field of renewable energy is in accordance with national policies on energy, which has made available considerable funding allocated for developing renewable energy technologies (Ragwitza & Miola, 2005). Government policy support is the key and initial power for the development of renewable energy. Policies that support a sizable, stable market for renewable energy, in conjunction with policies that specifically provide incentives for a kind of technology such as wind technology to be manufactured locally, are most likely to result in the establishment of an internationally competitive renewable energy industry (Lewis and Wiser, 2007). Government investment is another frequently used method. Renewable energy is a high-tech sector with emerging technologies depending on the results of RD&D, but the investment from business sector is still small. A number of problems in the R&D stage, such as barriers in terms of cost, infrastructure needs, market organization, and information and financing constraints, will restrict their application. So the R&D funds invested by the government are very important for the development of energy technologies, which can overcome these barriers to energy innovation in the private sector, and provide key technologies in energy application which are useful for energy production.
Basic research
General technology research
Application R&D
Technology diffusion Time
Fig. 1. Risks in technology innovation. Source: Tassey (1997).
Energy GERD/GDP(%)
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Japan (2000)
0.95 0.9 0.85 0.8 0.75 0.7 0.65 0.6 0.55 0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0
Japan
Finland (1999) Switzerland (2000) France (1999) Netherlands (1999) Denmark (2000) Canada (2000)
France
Switzerland Finland
U.S.A (2000) Belgium (1999) Italy (1998)
Netherlands Italy Greece Spain
Austria (1999) Spain (2000) Germany (2000)
Austria
China Turkey Hungary 0
Greece (1997)
Canada Denmark U.S.A Belgium
U.K
U.K (2000)
Germany
0.5 1 1.5 2 2.5 3 Gross Expenditure of R&D(GERD)/GDP(%)
Turkey (2000) 3.5
Hungary (1999) China (2000)
Fig. 2. International comparison of gross expenditure of R&D (GERD) and energy GERD as a percentage of GDP. Sources: OECD (2002), UNESCO (2007). Table 1 National science and technology programs’ investment on the energy field in 2000.a Source: Gao and Lv (2004). Fulfilled funds (thousand YUAN)
Energy production and rational usage Proportion of energy projects (%) Government funds Proportion of government investment (%) Total
973 Program
863 Program
Key technology R&D Program
Total
11,320 16.46 64742 94.2 68,760
12,085 8.12 63,238 42.5 148,773
36,171 10.24 134,833 38.2 353,285
59,576 10.44 262,814 46.0 570,818
a Socio-economic goals include 11 elements, which are: development of agriculture, forestry and fisheries; development of industry, energy production and rational use; development of infrastructure, environment monitoring and protection; development of health, society and social service; exploration and use of the earth and atmosphere; comprehensive development of knowledge, civilian space and the international.
and technology (OECD, 2002), Japan’s energy RD&D budget takes the highest proportion of its GDP (0.88%), while Hungary’s budget takes the lowest (0.01%). Because of the imperfections of the Chinese budgetary system and the lack of statistical data, it is difficult to estimate the ratio of energy RD&D investment to GDP. While it is feasible method at present to calculate this ratio by using the national R&D inventory data collected by the Chinese government in 2000 (Ma et al., 2003). The national statistical R&D expenses were 69.67 billion YUAN in 2000, and the energy expenses were 4.48 billion YUAN, constituting 6.43% of the total R&D expenses. China’s GDP was 8956.6 billion YUAN in 2000, so the national R&D expenses accounted for 1.0% of GDP, and the energy R&D expenses accounted for 0.064% of GDP. Government investment constituted 477 million YUAN (10.65%), which accounted for 0.0068% of GDP. Though Chinese government has offered great financial support to energy R&D, China’s investment ratio in terms of technology research and energy technology development, comparing to OECD countries, remains very low in the world. As shown in Fig. 2, for most countries, the more a country invests in R&D, the higher level of ER&D investment it reaches. Japan, Finland, Switzerland and France are the countries with the high ratios of both R&D investment and ER&D investment. China is on the bottom left side of this figure, and its R&D and ER&D investment ratio is only above that of Turkey and Hungary.
3.2. The energy R&D investment in China’s national science and technology programs The National Basic Research Program (973 Program), National High-tech R&D Program (863 Program), as well as National Key Technology R&D Program are the three key programs (TKPs) in China. According to the released annual reports of TKPs (Ministry of Science and Technology (MOST), 2001), the total investment in these programs was 5.71 billion YUAN in 2000, 596 million of which was for energy production and rational usage, and this took 10.44% of the total investment of the three key programs. As shown in Table 1, the total investment is provided by the government and various enterprises, and the government’s investment took about 46.0% of the total investment. If we use this proportion to calculate the government investment in energy production and rational usage, that is 263 million YUAN. Regarding national RD&D investment, 477 million YUAN were provided by the government. According to this, the investment in TKPs constituted about 60% of the government’s energy RD&D investment (Gao and Lv, 2004). Accordingly, a conclusion can be reached that the TKPs are the main channels of government energy RD&D investment, which takes about 60% of the government’s energy investment, while 10.44% of the TKPs’ total outlay is used in the energy field.
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decrease in 2006. The main reason of such temporary decrease was that 2006 was the initiation year of eleventh five-year plan and the majority of projects in TKPs were launched in 2007; therefore only limited funds were arranged and dispatched in 2006. But the total investment funds and its proportion, taking 2007 as a benchmark, decreased in 2008, which is a problem that deserves further consideration (see Fig. 3). The proportions that every plan’s investment in the energy field took in the three energy investments are also changing (see Fig. 4). The National Key Technology R&D Program and the 863 Program have invested more funds, while the 973 Program has invested fewer funds. This indicates that China’s investment in the energy field has a preference for the development and demonstration of general technology and key technology, rather than basic research. During the tenth five-year plan, the investment proportion of the 863 Program in China’s energy field has been increasing annually, which indicated that China’s energy technology was promoting the R&D of advanced and key technology as well as energy technology demonstration. However, it should be noted that the funds of National Key Technology R&D Program were significantly expanded in 2007 and reached the peak. The funds remained high in 2008. These phenomena took place in the context that the renewable energy industry was fastgrowing, and were in line with the spirit of the ‘‘Main Areas and Priority Topics’’ in the National Medium- and Long-term Science and Technology Development Plan (2006–2020) (the State Council, 2006). It also means that the public funds in China are supportive of mastering key and enabling technologies and improving core industrial competitiveness while addressing the bottleneck constraints and major public good S&T issues. Take the investment of the 863 Program in the energy field as an example (see Fig. 5). The total investment of the 863 Program funds increased from 186.11 million YUAN in 1991 to 9.39 billion YUAN in 2008, which was a 50-fold growth (11.37 billion YUAN in 2005, which was a 61-fold growth), and the funds used in the energy technology field increased to 2.73 billion YUAN in 2008 from 26.24 million in 1991, which was a 103-fold growth. From the perspective of proportion, the investment proportion used in the energy field of the 863 Program increased to an average of 18.1% in the period of the ninth five-year plan from an average of 14.3 in the period of the eighth five-year plan, and this proportion increased to 18.7% in the period of the tenth five-year plan. Given that the number of technology fields involved in the 863 Program increased from 5 to 8 during these 15 years, the growth of energy field is not easy to be achieved, indicating that the Chinese
12000
40.0 35.0
10000
25.0 20.0
6000
15.0
4000
10.0 2000
5.0
8 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08
19 9
19 9
7
0.0 6
0
Year Fig. 3. Funds for the three key programs in energy field and their proportions (1996–2008). Source: National Bureau of Statistics (2002–2009).
Proportion (%)
30.0 8000
19 9
Fullfilled fund of the year (million Yuan)
Started in 1998, the 973 Program had already launched 25 projects in the energy field until 2005, which amounts to 10.9% of the total project number. The national government funded 548.32 million YUAN, taking up 10.5% of the total expenditure of the program. From 2006 to 2008, 26 projects were launched in the energy field, amounting to 11.2% of the total project number, with the national government funding of 414.45 million YUAN, which took up 8.47% of the total government expenditure of the program. Between 2001 and 2005, the 863 Program had set two subjects in the energy field, which were subsequent energy technology and clean coal technology. This program has also set 4 major projects, including the electric automobile, high-speed magnetic levitation traffic technology, the gas turbine and the fast neutron reactor. The national government provided 2.68 billion YUAN, which took 38.83% of the total investment in the energy field. 162 tasks were committed to universities, which constituted about 36%. 129 tasks were committed to state-run institutes, which constituted about 29%, and 160 tasks were committed to enterprises, which constituted about 35%. From 2001 to 2008, 1068 tasks were launched in energy field, taking up 8.18% of the total task number. Between 2001 and 2005, the Key Technology R&D Program launched 8 projects, which includes clean energy, renewable energy production, technical development and demonstration of the integration of an energy-saving building and solar system, the industry application of nuclear technology, the research and application of extreme high voltages transmission of hydropower in Southwestern China, PV and wind power commercialization technology development, and biological fuel technology development. The national government funded 222 million YUAN, which constituted about 25.39%. From 2001 to 2008, the national government funded 102.57 million YUAN in energy field, which account for 5.0% of the total government expenditure of the program. From 2006 to 2008, 17 projects were launched in the energy field, amounting to 3.1% of the total project number. The investment for energy projects in the TKPs kept increasing significantly between 1996 and 2008. In 1996, the investment was only 127 million YUAN. While, in 2008 it reached 6.1 billion. The peak of such investment, 9.9 billion, came up in 2007. The proportion of investment funds in the energy field in the TKPs remained around 10% from 1998 to 2003 while then displayed decrease from 2003 to 2005. When it comes to the eleventh fiveyear plan, both the absolute and relative size of the total investment funds in energy field rose sharply in 2007 and 2008 with the climax in 2007 although there was a comparative
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100% 90% 80% Proportion
70% 60% 50% 40% 30% 20% 10% 0%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year 973 Program
863 Program
KeyTechnology R&D Program
Fig. 4. Three Key Programs’ proportion of investment in the energy field (1996–2008). Source: National Bureau of Statistics (1997–2009).
40% 35.40%
35%
30.95% 30% Proportion
24.99% 25% 17.86%
20% 15% 10%
29.04%
26.33%
14.10%
16.87%
13.30%
15.31%
14.33% 13.12%
11.39%
13.29% 8.12%
12.62%
9.06%
5% 0% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year Fig. 5. Investment proportion of the 863 Program in the energy technology field (1991–2008, data in 2001 NA). Source: Gao and Lv (2004) for data from 1991 to 2000. National Bureau of Statistics (2002–2009) for data from 2001 to 2008.
government keeps attaching importance to research and development in the energy field. 3.3. China’s national science and technology program’s investment in the RD&D of renewable energy China has paid increasing attention to the research, development and diffusion (RD&D) of renewable energy technology since 2000. According to the data available, it appeared that during ‘‘Tenth Five-Year Plan’’ (2001–2005) period, most of these government science and technology programs began to invest funds in tasks related to renewable energy technology, and the amount and proportion of the investment kept increasing as well. 3.3.1. The 973 Program There are few deployments in the large scale utilization of renewable energy in the 973 Program, which focuses on basic research. According to the data available, the 973 Program has deployed 25 projects in the energy fields from 1998 to 2005, but there were only two projects related to renewable energy, and
these were basic research about the new low-cost and long-life photovoltaic cells (2000) and basic research on scale hydrogen production using solar energy (2003).
3.3.2. The 863 Program In the period of the tenth five-year plan, the 863 Program has launched two projects in the energy field, which were subsequent energy technology and clean coal technology. There are also four major projects: the electric automobile, high-speed magnetic levitation traffic technology, the gas turbine and the fast neutron reactor. Here, the subsequent energy includes nuclear energy, renewable energy, hydrogen energy and fuel cells, etc. According to the statistical data from the Chinese Ministry of Science and Technology (MOST) (2007a), there were 113 tasks regarding subsequent energy in the 863 Program, and the total investment funding for these tasks was 704.99 million YUAN, which took 10.2% of the total investment funds for all of the tasks. The national government funds were 324.54 million, which constituted 12.1% of the total. The figure below is drawn according to our study of the investment of the 863 Program which is in
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80
100%
Expenditure Percentage on succeeding energy projects
90%
70
70% 50
60%
40
50% 40%
30
Percentage
Expenditure (million Yuan)
80% 60
30% 20 20% 10
10%
0
0% 2001
2002
2003 Year
2004
2005
Fig. 6. 863 Program’s expenditure on renewable energy projects and the percentage on subsequent energy projects (2001–2005). Source: MOST (2007b).
Table 2 Number of tasks and investment of the 863 Program regarding renewable energy technology for the period of ‘‘the Tenth-Five Year Plan’’ (2001–2005).a Source: MOST (2007c). Types of renewable energy
Number of projects
Investment (per thousand YUAN)
Wind power Solar power Biomass energy Ocean energy Geothermal energy Hydro energy
20 22 21 4 2 0
68,950 54,410 42,300 3750 1700 0
a There were 72 tasks relating to renewable energy technology in the 863 Program during the period. Three strategic tasks not included.
subsequent energy and used in the renewable energy field and its proportion (see Fig. 6). According to the features of renewable energy, the renewable energy projects in the subsequent energy subject have been divided into five categories: wind power, solar power, biomass energy, ocean energy, geothermal energy and hydro energy. The statistical results are shown in Table 2. According to the number of tasks and investment funds, the investment by the 863 Program in renewable energy mainly focused on wind power, solar power and biomass energy in the period of the tenth five-year plan.
3.3.3. The Key Technology R&D Program In the period of the tenth five-year plan, there were 8 projects in the energy field launched under the Key Technology R&D Program, four of which were renewable energy projects, including renewable energy production, technical development and the demonstration of the integration of energy-saving building and solar systems, PV and wind power commercialization technology development, and biological fuel technology development. According to the statistical data from the Chinese Ministry of Science and Technology (MOST) (2007a), in the energy field in the
period of the tenth five-year plan, the total investment funding of the Key Technology R&D Program in renewable energy technology was 549.125 million YUAN, which constituted about 62.8%, and the national government funding was 129.00 million YUAN, which constituted about 58.1%. The national government funds invested in renewable energy technology R&D occupies a reasonably high proportion of the total domestic funds invested in renewable energy technology R&D, which has increased to more than 15% of the total domestic funds on average. The key technology program, where the investment by the national government in renewable energy technology occupies a particularly high proportion (over 50%), focuses on the major technological problems, which are of overall, cross-sector and trans-regional types. The TKPs in the national technology R&D program during the tenth five-year plan is of the demonstration type, so national investment occupies a relatively high ratio.
4. Conclusions and future work 4.1. Conclusions 4.1.1. Government begins to take the innovation and usage of renewable energy seriously The government has realized that traditional energy cannot fulfill the requirements of the rapid growth of the national economy and the requirement of sustainable development as well. The development of new types of alternative energy has been conducted in every field, and renewable energy technology is the most important content of all. The central government and local governments at various levels have developed many policies to support the innovation and utilization activities of renewable energy. In the national science and technology programs, there has been stability in a relative ratio and a steady increase in the total amount of expenditure on energy technologies. The funding of renewable energy innovation began since the tenth five-year plan, with a rising trend in both the amount and ratio of the investment.
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4.1.2. Most of the R&D funding comes from the national key science and technology programs, while enterprises are seldom involved Most of the funds and security policies are provided by the national science and technology programs in China’s renewable energy technology activities, and the national science and technology R&D program is the most important policy for reaching the innovation goal, although enterprises are seldom involved in the energy R&D projects, and these projects are often entrusted to universities and research institutes. There is still large potential space left for enterprises to take part in China’s renewable energy innovation activities. 4.1.3. Innovation investment is not enough Although the Chinese government has paid much attention to renewable energy technology innovation, the R&D investment is still at a relatively insufficient level in the world, indicating a still low ratio of science and technology innovation’s contribution to China’s economic growth. Given the global statistical result that a positive correlation exists between the ER&D expenditure of one country and the country’s R&D funding level, China’s low investment level in renewable energy R&D could be mostly due to its low R&D/GDP ratio. 4.1.4. Most of the innovation activities are R&D, while there are insufficient demonstration and diffusion activities R&D and diffusion are two important stages of technology innovation. While R&D is the basis of diffusion, the ‘‘Learning by Doing’’ effect of the technology diffusion stage also plays an important role in the further advancement and perfection of new technologies, but most of China’s innovation activities are R&D, while there are insufficient demonstration and diffusion activities. We can see from the number of renewable energy technology tasks in the 863 Program that most of these research tasks are technology R&D, and the demonstration and diffusion of technology seldom form part of these tasks. 4.2. Limitation and future work This article presents features and problems of China’s renewable energy technology innovation based on data and statistics collected up to 2008, and makes valuable contribution to current literature by adding evidence from China. While there remain limitations in our research and some practical and theoretical issues worth to further explored. On the theoretical side, this article focuses on China’s renewable energy technology innovation, but involves little discussion from other countries. It would be of great value to make comparison to find the differences of government funded renewable energy technology innovation among different countries such as U.S. and Europe. Exploring the reasons resulting in the difference and the influence arising from the difference are of significantly importance. On the practical side, this paper gives a clear overview of innovation policies that drive the growth of renewable energy technology innovation in China, but giving no evidence from specific industry development perspective. Thus doing some case study researches from specific renewable energy industry will be more credible.
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Acknowledgments This research was supported by the NSFC Project (70673053, 70803043, 71003062), Chinese Key Humanities and Social Sciences Project, Ministry of Education (06JZD0035), and Tsinghua University Initiative Scientific Research Program (20101081967). We gratefully appreciate the encouragement and valuable suggestions about the manuscript of Prof. J.P. Holdren, Dr. K.S. Gallagher and Dr. H.O. We also wish to thank Prof. Zheng Li, Prof. Qiang Yao, Prof. Minggao Ouyang and Prof. Zhengwu Wang for their help in supplying the necessary information and data.
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Energy Policy journal homepage: www.elsevier.com/locate/enpol
Government funded renewable energy innovation in China Cui Huang a, Jun Su b, Xiaoyuan Zhao b, Jigang Sui b, Peng Ru b,n, Hanwei Zhang b, Xin Wang b a b
College of Public Administration, Zhejiang University, PR China School of Public Policy and Management, Tsinghua University, Rm. 515, 100084, PR China
a r t i c l e i n f o
abstract
Article history: Received 9 December 2010 Accepted 28 August 2011 Available online 19 October 2011
With the rapid development of the economy, China is facing pressures caused by traditional energy deficiency and environmental pollution in recent years, which has forced the Chinese government to start to pay attention to the development and utilization of renewable energy (RE). This article, based on data and statistics available up to 2008, studies features of China’s RE technology innovation and problems thereof. It finds that national science and technology programs are the main aspect of China’s RE technology innovation, and most of R&D funds for the RE technology come from China’s three main national programs. Besides, the overall expenditures on RE technology innovation constitute only a small proportion of China’s total domestic R&D funding and seem not enough. This paper also finds that, compared with research and development stages of RE technology, the demonstration and diffusion of RE technology in China are given less attention and thus are relatively less sufficient. Furthermore, influenced by China’s traditional scientific research system, there appears lack of sufficient incentives and opportunities for private sectors to fully participate in RE technology innovation because most national programs are undertaken by universities or research institutes. & 2011 Elsevier Ltd. All rights reserved.
Keywords: Renewable energy Innovation China
1. Introduction Energy is of particular strategic importance for the national economy. There are sharp contradictions between the supply and the demand of energy in China at present, as well as inefficient use, irrational consumption structure, and serious environmental pollution caused by the high consumption of coal and fossil energy. To address these issues, among the major challenges for China, energy technology development is indispensable. Renewable energy technology innovation and large scale application is one of the measures available for meeting the rapid growth in the demand for energy and the requirement for efficient, clean energy, and is expected to lessen the high pressure caused by the fast increasing demand for traditional energy in the rapid development of China’s economy. China has already become a global leader in renewable energy investment and industry. In 2007, China’s investment in new renewable capacity (excluding large hydropower) exceeded US$12 billion, second only to that of Germany. Actually, renewable energy development has been and will almost certainly remain at the forefront of China’s focus of national energy policy (Martinot and Li, 2007, 2008). This paper is to study features and problems of China’s renewable energy technology innovation. Based on the literature review, we analyze the market failure in the innovation process of
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energy technologies. Based on the data collected up to 2008 from Statistical Yearbook of Science and Technology of China, the annual report of three key programs and other sources, by using statistical method, we explore systematically the scale, intensity and directions of Chinese governmental investment regarding renewable energy technology innovation.
2. Review: the technology life cycle and market failure of energy innovation 2.1. Energy technology innovation and technology life cycle Technological innovations have driven the long evolution of the energy sector, operating to increase energy’s benefits while reducing its costs and risks. Such innovations have expanded the energy supplies, increased the efficiency of the transformation of energy resources into desirable end-use forms, improved the availability and quality of energy, and reduced the adverse environmental impacts that result from energy extraction, conversion, and usage (Sagar and Holdren, 2002). In general, the emergence of a new technological system is a long, uncertain and painful process (Jacobsson and Johnson, 2000). According to the views of President’s Committee of Advisors on Science and Technology (PCAST), energy technology innovation is not simply equal to the R&D process of energy. Rather, an integral energy technology innovation process should include the research, development, demonstration (RD&D in short) and deployment of
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energy technology (PCAST, 1997; Sagar and Holdren, 2002). Sagar and Zwaan (2006) extracted two main parts from the whole cycle of technical evolution. The first part is the R&D or RD&D stage which is the early phase of technical innovation, and the second is the diffusion stage which is in the later phase of technical innovation, including commercialization, diffusion and maturation. 2.2. The risks and market failure of energy technology innovation 2.2.1. Risks regarding energy technology innovation The risk regarding energy technology innovation means that there is uncertainty about its success. There are two types of risk involved in the energy technology innovation process. The first is technical risk, and this arises mainly between the concept and implementation stages. Because technology innovation is restricted to technical equipment and scientific forces, many elements will be in an uncertain state, which will lead to technical risk. The second is market risk, which is often seen during the market stage of innovation. Due to the influence of many kinds of market factors, the technology diffusion will suffer from market risk during the commercialization stage (Tassey, 1997). These two types of risks will bring unsmooth decreases in technology innovation risks with time. In other words, there are two jumping processes here (see Fig. 1).
3. Government investment on renewable energy technology innovation in China 3.1. China’s total investment on energy science and technology According to the laws and characteristics of energy technology innovation, government investment on renewable energy technology is not only used to support R&D, but also is mainly used to support the research, development and demonstration of energy technologies (RD&D). We also use energy R&D as a substitute for energy RD&D under certain conditions. Total investment in energy technology is a symbol of a country’s participation level in the energy field. According to OECD’s statistics relating to its member countries’ total energy investment in science
Risks
2.2.2. Market failure and barrier There are serious market failures and barriers in the energy technology innovation process. The reasons for energy innovation’s market failure include externalities, the characteristics of public goods, and the neglected demand of the groups who lack the purchasing ability (Sagar and Holdren, 2002). ‘‘Market barriers’’ refer to obstacles that are not based on market failures but nonetheless contribute to the slow diffusion and adoption of energy efficient innovations (Jaffe and Stavins, 1994; Levine et al., 1995). If only depending on the market, many technology innovations will be aborted during the transforming process from laboratory research to commercial applications, which is called the ‘‘Death Valley’’ from invention to innovation by Auerswald and Branscomb (2003). Technology innovation is typically a long-term investment that is fraught with risks to the investor. The problem is particularly difficult in the renewable energy sector, where R&D funding has decreased dramatically. Companies will not fund the optimal societal level of the basic R&D of new technologies, since many of the benefits of such research will flow to their competitors and to other parts of economy. It will result in an ‘‘efficiency gap’’, which means an under-investment in R&D from the standpoint of the overall benefits to society (Brown, 2001).
2.2.3. The role of the government The existence of risks, market failures and barriers that inhibit socially optimal levels of investment in energy innovation is the primary reason for considering government interventions. In many instances, feasible, low cost policies can be implemented either to eliminate or compensate for market imperfections and barriers, enabling the markets to operate more efficiently to the benefit of society (Brown, 2001). The key issues for increasing the use of renewable energy actually relate to making these technologies costcompetitive. In absolute figures, the renewable business sector is still small. It is a high-tech sector with emerging technologies depending on the results of RD&D. The RD&D effort in the field of renewable energy is in accordance with national policies on energy, which has made available considerable funding allocated for developing renewable energy technologies (Ragwitza & Miola, 2005). Government policy support is the key and initial power for the development of renewable energy. Policies that support a sizable, stable market for renewable energy, in conjunction with policies that specifically provide incentives for a kind of technology such as wind technology to be manufactured locally, are most likely to result in the establishment of an internationally competitive renewable energy industry (Lewis and Wiser, 2007). Government investment is another frequently used method. Renewable energy is a high-tech sector with emerging technologies depending on the results of RD&D, but the investment from business sector is still small. A number of problems in the R&D stage, such as barriers in terms of cost, infrastructure needs, market organization, and information and financing constraints, will restrict their application. So the R&D funds invested by the government are very important for the development of energy technologies, which can overcome these barriers to energy innovation in the private sector, and provide key technologies in energy application which are useful for energy production.
Basic research
General technology research
Application R&D
Technology diffusion Time
Fig. 1. Risks in technology innovation. Source: Tassey (1997).
Energy GERD/GDP(%)
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Japan (2000)
0.95 0.9 0.85 0.8 0.75 0.7 0.65 0.6 0.55 0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0
Japan
Finland (1999) Switzerland (2000) France (1999) Netherlands (1999) Denmark (2000) Canada (2000)
France
Switzerland Finland
U.S.A (2000) Belgium (1999) Italy (1998)
Netherlands Italy Greece Spain
Austria (1999) Spain (2000) Germany (2000)
Austria
China Turkey Hungary 0
Greece (1997)
Canada Denmark U.S.A Belgium
U.K
U.K (2000)
Germany
0.5 1 1.5 2 2.5 3 Gross Expenditure of R&D(GERD)/GDP(%)
Turkey (2000) 3.5
Hungary (1999) China (2000)
Fig. 2. International comparison of gross expenditure of R&D (GERD) and energy GERD as a percentage of GDP. Sources: OECD (2002), UNESCO (2007). Table 1 National science and technology programs’ investment on the energy field in 2000.a Source: Gao and Lv (2004). Fulfilled funds (thousand YUAN)
Energy production and rational usage Proportion of energy projects (%) Government funds Proportion of government investment (%) Total
973 Program
863 Program
Key technology R&D Program
Total
11,320 16.46 64742 94.2 68,760
12,085 8.12 63,238 42.5 148,773
36,171 10.24 134,833 38.2 353,285
59,576 10.44 262,814 46.0 570,818
a Socio-economic goals include 11 elements, which are: development of agriculture, forestry and fisheries; development of industry, energy production and rational use; development of infrastructure, environment monitoring and protection; development of health, society and social service; exploration and use of the earth and atmosphere; comprehensive development of knowledge, civilian space and the international.
and technology (OECD, 2002), Japan’s energy RD&D budget takes the highest proportion of its GDP (0.88%), while Hungary’s budget takes the lowest (0.01%). Because of the imperfections of the Chinese budgetary system and the lack of statistical data, it is difficult to estimate the ratio of energy RD&D investment to GDP. While it is feasible method at present to calculate this ratio by using the national R&D inventory data collected by the Chinese government in 2000 (Ma et al., 2003). The national statistical R&D expenses were 69.67 billion YUAN in 2000, and the energy expenses were 4.48 billion YUAN, constituting 6.43% of the total R&D expenses. China’s GDP was 8956.6 billion YUAN in 2000, so the national R&D expenses accounted for 1.0% of GDP, and the energy R&D expenses accounted for 0.064% of GDP. Government investment constituted 477 million YUAN (10.65%), which accounted for 0.0068% of GDP. Though Chinese government has offered great financial support to energy R&D, China’s investment ratio in terms of technology research and energy technology development, comparing to OECD countries, remains very low in the world. As shown in Fig. 2, for most countries, the more a country invests in R&D, the higher level of ER&D investment it reaches. Japan, Finland, Switzerland and France are the countries with the high ratios of both R&D investment and ER&D investment. China is on the bottom left side of this figure, and its R&D and ER&D investment ratio is only above that of Turkey and Hungary.
3.2. The energy R&D investment in China’s national science and technology programs The National Basic Research Program (973 Program), National High-tech R&D Program (863 Program), as well as National Key Technology R&D Program are the three key programs (TKPs) in China. According to the released annual reports of TKPs (Ministry of Science and Technology (MOST), 2001), the total investment in these programs was 5.71 billion YUAN in 2000, 596 million of which was for energy production and rational usage, and this took 10.44% of the total investment of the three key programs. As shown in Table 1, the total investment is provided by the government and various enterprises, and the government’s investment took about 46.0% of the total investment. If we use this proportion to calculate the government investment in energy production and rational usage, that is 263 million YUAN. Regarding national RD&D investment, 477 million YUAN were provided by the government. According to this, the investment in TKPs constituted about 60% of the government’s energy RD&D investment (Gao and Lv, 2004). Accordingly, a conclusion can be reached that the TKPs are the main channels of government energy RD&D investment, which takes about 60% of the government’s energy investment, while 10.44% of the TKPs’ total outlay is used in the energy field.
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decrease in 2006. The main reason of such temporary decrease was that 2006 was the initiation year of eleventh five-year plan and the majority of projects in TKPs were launched in 2007; therefore only limited funds were arranged and dispatched in 2006. But the total investment funds and its proportion, taking 2007 as a benchmark, decreased in 2008, which is a problem that deserves further consideration (see Fig. 3). The proportions that every plan’s investment in the energy field took in the three energy investments are also changing (see Fig. 4). The National Key Technology R&D Program and the 863 Program have invested more funds, while the 973 Program has invested fewer funds. This indicates that China’s investment in the energy field has a preference for the development and demonstration of general technology and key technology, rather than basic research. During the tenth five-year plan, the investment proportion of the 863 Program in China’s energy field has been increasing annually, which indicated that China’s energy technology was promoting the R&D of advanced and key technology as well as energy technology demonstration. However, it should be noted that the funds of National Key Technology R&D Program were significantly expanded in 2007 and reached the peak. The funds remained high in 2008. These phenomena took place in the context that the renewable energy industry was fastgrowing, and were in line with the spirit of the ‘‘Main Areas and Priority Topics’’ in the National Medium- and Long-term Science and Technology Development Plan (2006–2020) (the State Council, 2006). It also means that the public funds in China are supportive of mastering key and enabling technologies and improving core industrial competitiveness while addressing the bottleneck constraints and major public good S&T issues. Take the investment of the 863 Program in the energy field as an example (see Fig. 5). The total investment of the 863 Program funds increased from 186.11 million YUAN in 1991 to 9.39 billion YUAN in 2008, which was a 50-fold growth (11.37 billion YUAN in 2005, which was a 61-fold growth), and the funds used in the energy technology field increased to 2.73 billion YUAN in 2008 from 26.24 million in 1991, which was a 103-fold growth. From the perspective of proportion, the investment proportion used in the energy field of the 863 Program increased to an average of 18.1% in the period of the ninth five-year plan from an average of 14.3 in the period of the eighth five-year plan, and this proportion increased to 18.7% in the period of the tenth five-year plan. Given that the number of technology fields involved in the 863 Program increased from 5 to 8 during these 15 years, the growth of energy field is not easy to be achieved, indicating that the Chinese
12000
40.0 35.0
10000
25.0 20.0
6000
15.0
4000
10.0 2000
5.0
8 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08
19 9
19 9
7
0.0 6
0
Year Fig. 3. Funds for the three key programs in energy field and their proportions (1996–2008). Source: National Bureau of Statistics (2002–2009).
Proportion (%)
30.0 8000
19 9
Fullfilled fund of the year (million Yuan)
Started in 1998, the 973 Program had already launched 25 projects in the energy field until 2005, which amounts to 10.9% of the total project number. The national government funded 548.32 million YUAN, taking up 10.5% of the total expenditure of the program. From 2006 to 2008, 26 projects were launched in the energy field, amounting to 11.2% of the total project number, with the national government funding of 414.45 million YUAN, which took up 8.47% of the total government expenditure of the program. Between 2001 and 2005, the 863 Program had set two subjects in the energy field, which were subsequent energy technology and clean coal technology. This program has also set 4 major projects, including the electric automobile, high-speed magnetic levitation traffic technology, the gas turbine and the fast neutron reactor. The national government provided 2.68 billion YUAN, which took 38.83% of the total investment in the energy field. 162 tasks were committed to universities, which constituted about 36%. 129 tasks were committed to state-run institutes, which constituted about 29%, and 160 tasks were committed to enterprises, which constituted about 35%. From 2001 to 2008, 1068 tasks were launched in energy field, taking up 8.18% of the total task number. Between 2001 and 2005, the Key Technology R&D Program launched 8 projects, which includes clean energy, renewable energy production, technical development and demonstration of the integration of an energy-saving building and solar system, the industry application of nuclear technology, the research and application of extreme high voltages transmission of hydropower in Southwestern China, PV and wind power commercialization technology development, and biological fuel technology development. The national government funded 222 million YUAN, which constituted about 25.39%. From 2001 to 2008, the national government funded 102.57 million YUAN in energy field, which account for 5.0% of the total government expenditure of the program. From 2006 to 2008, 17 projects were launched in the energy field, amounting to 3.1% of the total project number. The investment for energy projects in the TKPs kept increasing significantly between 1996 and 2008. In 1996, the investment was only 127 million YUAN. While, in 2008 it reached 6.1 billion. The peak of such investment, 9.9 billion, came up in 2007. The proportion of investment funds in the energy field in the TKPs remained around 10% from 1998 to 2003 while then displayed decrease from 2003 to 2005. When it comes to the eleventh fiveyear plan, both the absolute and relative size of the total investment funds in energy field rose sharply in 2007 and 2008 with the climax in 2007 although there was a comparative
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100% 90% 80% Proportion
70% 60% 50% 40% 30% 20% 10% 0%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year 973 Program
863 Program
KeyTechnology R&D Program
Fig. 4. Three Key Programs’ proportion of investment in the energy field (1996–2008). Source: National Bureau of Statistics (1997–2009).
40% 35.40%
35%
30.95% 30% Proportion
24.99% 25% 17.86%
20% 15% 10%
29.04%
26.33%
14.10%
16.87%
13.30%
15.31%
14.33% 13.12%
11.39%
13.29% 8.12%
12.62%
9.06%
5% 0% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year Fig. 5. Investment proportion of the 863 Program in the energy technology field (1991–2008, data in 2001 NA). Source: Gao and Lv (2004) for data from 1991 to 2000. National Bureau of Statistics (2002–2009) for data from 2001 to 2008.
government keeps attaching importance to research and development in the energy field. 3.3. China’s national science and technology program’s investment in the RD&D of renewable energy China has paid increasing attention to the research, development and diffusion (RD&D) of renewable energy technology since 2000. According to the data available, it appeared that during ‘‘Tenth Five-Year Plan’’ (2001–2005) period, most of these government science and technology programs began to invest funds in tasks related to renewable energy technology, and the amount and proportion of the investment kept increasing as well. 3.3.1. The 973 Program There are few deployments in the large scale utilization of renewable energy in the 973 Program, which focuses on basic research. According to the data available, the 973 Program has deployed 25 projects in the energy fields from 1998 to 2005, but there were only two projects related to renewable energy, and
these were basic research about the new low-cost and long-life photovoltaic cells (2000) and basic research on scale hydrogen production using solar energy (2003).
3.3.2. The 863 Program In the period of the tenth five-year plan, the 863 Program has launched two projects in the energy field, which were subsequent energy technology and clean coal technology. There are also four major projects: the electric automobile, high-speed magnetic levitation traffic technology, the gas turbine and the fast neutron reactor. Here, the subsequent energy includes nuclear energy, renewable energy, hydrogen energy and fuel cells, etc. According to the statistical data from the Chinese Ministry of Science and Technology (MOST) (2007a), there were 113 tasks regarding subsequent energy in the 863 Program, and the total investment funding for these tasks was 704.99 million YUAN, which took 10.2% of the total investment funds for all of the tasks. The national government funds were 324.54 million, which constituted 12.1% of the total. The figure below is drawn according to our study of the investment of the 863 Program which is in
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80
100%
Expenditure Percentage on succeeding energy projects
90%
70
70% 50
60%
40
50% 40%
30
Percentage
Expenditure (million Yuan)
80% 60
30% 20 20% 10
10%
0
0% 2001
2002
2003 Year
2004
2005
Fig. 6. 863 Program’s expenditure on renewable energy projects and the percentage on subsequent energy projects (2001–2005). Source: MOST (2007b).
Table 2 Number of tasks and investment of the 863 Program regarding renewable energy technology for the period of ‘‘the Tenth-Five Year Plan’’ (2001–2005).a Source: MOST (2007c). Types of renewable energy
Number of projects
Investment (per thousand YUAN)
Wind power Solar power Biomass energy Ocean energy Geothermal energy Hydro energy
20 22 21 4 2 0
68,950 54,410 42,300 3750 1700 0
a There were 72 tasks relating to renewable energy technology in the 863 Program during the period. Three strategic tasks not included.
subsequent energy and used in the renewable energy field and its proportion (see Fig. 6). According to the features of renewable energy, the renewable energy projects in the subsequent energy subject have been divided into five categories: wind power, solar power, biomass energy, ocean energy, geothermal energy and hydro energy. The statistical results are shown in Table 2. According to the number of tasks and investment funds, the investment by the 863 Program in renewable energy mainly focused on wind power, solar power and biomass energy in the period of the tenth five-year plan.
3.3.3. The Key Technology R&D Program In the period of the tenth five-year plan, there were 8 projects in the energy field launched under the Key Technology R&D Program, four of which were renewable energy projects, including renewable energy production, technical development and the demonstration of the integration of energy-saving building and solar systems, PV and wind power commercialization technology development, and biological fuel technology development. According to the statistical data from the Chinese Ministry of Science and Technology (MOST) (2007a), in the energy field in the
period of the tenth five-year plan, the total investment funding of the Key Technology R&D Program in renewable energy technology was 549.125 million YUAN, which constituted about 62.8%, and the national government funding was 129.00 million YUAN, which constituted about 58.1%. The national government funds invested in renewable energy technology R&D occupies a reasonably high proportion of the total domestic funds invested in renewable energy technology R&D, which has increased to more than 15% of the total domestic funds on average. The key technology program, where the investment by the national government in renewable energy technology occupies a particularly high proportion (over 50%), focuses on the major technological problems, which are of overall, cross-sector and trans-regional types. The TKPs in the national technology R&D program during the tenth five-year plan is of the demonstration type, so national investment occupies a relatively high ratio.
4. Conclusions and future work 4.1. Conclusions 4.1.1. Government begins to take the innovation and usage of renewable energy seriously The government has realized that traditional energy cannot fulfill the requirements of the rapid growth of the national economy and the requirement of sustainable development as well. The development of new types of alternative energy has been conducted in every field, and renewable energy technology is the most important content of all. The central government and local governments at various levels have developed many policies to support the innovation and utilization activities of renewable energy. In the national science and technology programs, there has been stability in a relative ratio and a steady increase in the total amount of expenditure on energy technologies. The funding of renewable energy innovation began since the tenth five-year plan, with a rising trend in both the amount and ratio of the investment.
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4.1.2. Most of the R&D funding comes from the national key science and technology programs, while enterprises are seldom involved Most of the funds and security policies are provided by the national science and technology programs in China’s renewable energy technology activities, and the national science and technology R&D program is the most important policy for reaching the innovation goal, although enterprises are seldom involved in the energy R&D projects, and these projects are often entrusted to universities and research institutes. There is still large potential space left for enterprises to take part in China’s renewable energy innovation activities. 4.1.3. Innovation investment is not enough Although the Chinese government has paid much attention to renewable energy technology innovation, the R&D investment is still at a relatively insufficient level in the world, indicating a still low ratio of science and technology innovation’s contribution to China’s economic growth. Given the global statistical result that a positive correlation exists between the ER&D expenditure of one country and the country’s R&D funding level, China’s low investment level in renewable energy R&D could be mostly due to its low R&D/GDP ratio. 4.1.4. Most of the innovation activities are R&D, while there are insufficient demonstration and diffusion activities R&D and diffusion are two important stages of technology innovation. While R&D is the basis of diffusion, the ‘‘Learning by Doing’’ effect of the technology diffusion stage also plays an important role in the further advancement and perfection of new technologies, but most of China’s innovation activities are R&D, while there are insufficient demonstration and diffusion activities. We can see from the number of renewable energy technology tasks in the 863 Program that most of these research tasks are technology R&D, and the demonstration and diffusion of technology seldom form part of these tasks. 4.2. Limitation and future work This article presents features and problems of China’s renewable energy technology innovation based on data and statistics collected up to 2008, and makes valuable contribution to current literature by adding evidence from China. While there remain limitations in our research and some practical and theoretical issues worth to further explored. On the theoretical side, this article focuses on China’s renewable energy technology innovation, but involves little discussion from other countries. It would be of great value to make comparison to find the differences of government funded renewable energy technology innovation among different countries such as U.S. and Europe. Exploring the reasons resulting in the difference and the influence arising from the difference are of significantly importance. On the practical side, this paper gives a clear overview of innovation policies that drive the growth of renewable energy technology innovation in China, but giving no evidence from specific industry development perspective. Thus doing some case study researches from specific renewable energy industry will be more credible.
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Acknowledgments This research was supported by the NSFC Project (70673053, 70803043, 71003062), Chinese Key Humanities and Social Sciences Project, Ministry of Education (06JZD0035), and Tsinghua University Initiative Scientific Research Program (20101081967). We gratefully appreciate the encouragement and valuable suggestions about the manuscript of Prof. J.P. Holdren, Dr. K.S. Gallagher and Dr. H.O. We also wish to thank Prof. Zheng Li, Prof. Qiang Yao, Prof. Minggao Ouyang and Prof. Zhengwu Wang for their help in supplying the necessary information and data.
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