ME. Professor, irregardless of whether there is or isn’t a waiver of the Renewable Fuel Standard, from my vantage point it appears the nation’s first generation biofuel refineries will only be marginally profitable for the foreseeable future until fuel prices take off again. Long term it takes deep pockets to weather the cyclical nature of fuel prices. The oil companies have the deepest pockets around, so do we just wait for the oil industry to pick up biofuel refineries at low prices during succeeding rounds of narrow margins?
BF. If cellulosic ethanol refineries make it off the ground, it will be because they were finally able to get their costs down and because emerging Asian demand for global fuel supplies will contribute to keeping prices high enough for margins to occur in the transportation fuels market. Much of the emerging research for renewable fuels is focused on developing niche high-value products markets, however market development is slow, costly, and the oil refining industry already occupies much of that space.
ME. EPA’s greenhouse gas (GHG) regulations are reshaping incentives and putting a chill on coal-fired power plants, while some real problem solving innovations are having trouble gaining traction. Perhaps this is due to over-targeting policy incentives, over-promised research capabilities, and the private sector not being nearly as entrepreneurial and capitalistic as we would like to think. Some wealthy people will invest in new casinos in a saturated market, but will they invest in promising new technologies for reducing GHG emissions by producing green gasoline and drop-in fuels at $2.25/gallon at existing corn ethanol plants? You previously said billions are setting on the sidelines in the private sector waiting for reduced uncertainty before they invest. Our society is willing to spend billions on political campaigns, now how about innovations with promise? Show me the money.
BF. Now may not be a good time to ask government to bump up research budgets since we face the fiscal cliff and trillion dollar budget deficits. But in fact, the reason the U.S. led global economic performance over the last century has been our willingness to invest in innovation and creation of new discoveries, new knowledge, and commercializing good ideas that develop new markets, new jobs, higher incomes, and higher standards of living. The private sector and universities played a role educating the researchers and scientists who created the discoveries. In agriculture, the private sector and extension played a role in adoption and diffusion of new technology by creating demonstrations and learning opportunities and for dispersed producers and the food and fiber supply chain.
ME. Well that old rhetoric doesn’t cut it if faculty meetings focus on debating which “peer-reviewed journals” are in the “top ten” for professional publication instead of real world problems. Students now come from all over the world. Faculty come from all over the world. Many join the “publish or perish” crowd with goals of publishing in top journals for their mutual admiration societies. They often regard extension as a “dinosaur” because they have no connection to local institutional networks and hinterland constituents who address real economic development challenges of rural or urban living.
BF. Research universities are developing research parks that provide an opportunity for private sector research and development scientists to do their work in close proximity of university scientists and researchers. In recent decades, this has been a successful model for commercializing university research that has been followed by several universities and entrepreneurial stakeholder networks. Supreme Court decisions a few decades ago allowed for patents on new genetic modifications and helped to rekindle university interests in the area. Some patents are contributing to fermentation of advanced biofuels.
ME. That is the classic “research-driven” technology transfer model espoused by many university presidents-- borrowed from the ag experiment station concept. Unfortunately, university patents only account for 3 percent of U.S. patents, according to Dr. Richard Lester, an MIT Industrial Performance Center Director who recently spoke to ISU’s Annual Extension Conference. Technology transfer is only one of many models that universities can use to facilitate economic development. If his numbers are right, 97 percent of intellectual property being developed in the U.S. is done in the private sector.
BF. University research parks do tend to foster two types of tenants. First there are the students and faculty who are starting companies and seek to commercialize their university research, or patents that they developed on their own time outside of the university. Second, companies with deep enough pockets are locating part of their research and development divisions at university research park locations to be in close proximity to university researchers. Perhaps they bring patents with them. Universities often focus on larger clients as that is where the largest payoff is. The research on research parks also shows that graduating companies often don’t locate far from the entrepreneurial networks of their university mentors. This may not facilitate economic development for distant communities out of the area, unless networks of parks develop.
ME. Well, first generation research and commercialization of ethanol was done primarily by a few small family-owned companies—not by great universities or large corporations. The game-changing innovations mentioned are held by capable small firms that for strategic and efficiency reasons didn’t bring technologies on campus. So the tech-transfer model missed these connections. Also, rural capital is often bypassed in favor of venture capital networks that are less costly for university and entrepreneurial networks to access. Rural investors have patient capital, but they are dispersed and tend to retain ownership, whereas venture capitalists look for higher returns and exit strategies. Recent reports by USDA and Community Vitality Center at ISU suggest local ownership can result in higher economic multipliers for rural regions.
BF. Business parks are not unique to universities as they have emerged in many rural communities thanks to forward-looking community leaders, economic developers, and rural utilities interested in sustaining margins and community vitality. Perhaps an “extension-client driven” model designed to address individual needs would be effective in partnering with strategic businesses where they are located. As one administrator puts it, “it is nice for a distinguished researcher to rediscover value in an Extension model.”
* Edelman is a professor of economics at Iowa State University and Flinchbaugh is an emeritus professor of agricultural economics at Kansas State University.