Is There A Future to Biofuel Innovation?

Global concern about the availability and cost of petroleum has been on the rise since the price increases of the 1970s and more recently. A promising alternative to fossil fuels, biofuel has been advocated since the mid-twentieth century. Biofuels, i.e. fuels that are produced through contemporary biological processes and are thus renewable, have been found to be economically marginal in the marketplace, yet are socially and politically more acceptable than fossil fuels. This makes biofuels an important target of policies.

Governments in several countries have introduced deployment policies to foster the adoption of clean energy technologies. Biofuel policies sort into two types: technology-push and demand-pull, the latter aided by mandated fuel blends. These policy approaches are individually appropriate for different generations of biofuel technologies. Government support, and the productivity of research inputs, are important factors in considering whether to invest in biofuel research. To date, however, there has been no consistent way to measure research productivity.

Recently, Utah State University scientists Michelle Arnold and Joseph Tainter, together with Deborah Strumsky of Arizona State University, examined the productivity of research in the technologies used to produce biofuels, using data from the U.S. Patent and Trademark Office. Their goal was to ascertain the direction of innovation productivity in biofuel technologies, and to suggest policy approaches commensurate with their findings. Their work is currently published in the research journal Energy Policy.

Productivity of innovation within a sector or industry is difficult to calculate directly since firms consider such information proprietary. An alternative approaches was developed to assess the productivity of innovation, and whether an industry is experiencing diminishing returns to R&D inputs. Using data provided from the U.S. Patent and Trademark Office, the researchers constructed a database of liquid biofuel technologies patented since 1976. “We carefully read each patent to determine which ones pertained to biofuels,” says Arnold. “Our goal,” observed Tainter, “was to avoid false positives.” Methanol was considered in a separate category since it has many industrial uses. Overall, 2610 patents were retained for the analysis. Lastly, the research team gathered information on the number of authors, class number, quantity of class numbers assigned to each patent, and how the patent pertained to biofuel innovation.

The number of authors per patent is a key measure of costs. Interdisciplinary teams are more expensive than lone scholars, and often require more institutional support. Patents per author then became the measure of productivity. This is equivalent to the standard measure of productivity in the economy as a whole, output per worker.

The authors found that the productivity of innovation in biofuel technologies is declining. The trend is true of each biofuel generation, and of methanol technologies. This matches the results of earlier research by the authors (with Temis Taylor of Stony Brook University and José Lobo of Arizona State University) in technical innovation as a whole, and in many technological sectors. “In R&D as a whole, we find increasing complexity and costliness in the research process,” says Tainter, “producing diminishing returns to research inputs.” For example, in biofuels, third generation technologies are more complex than those of earlier generations.

In a nutshell, their study showed clearly and consistently that the productivity of innovation in biofuel technologies is diminishing, evidenced by declining patents per author. Continuation of this trend will in time force reductions in research investments in biofuel technologies. The authors recommended alternative policy approaches for the problem, especially giving greater emphasis to demand-pull policies, such as mandated fuel blends, that guarantee a large market.