HomeResourcesIndustrial strategyWhy environmentalists should be excited by the Industrial Strategy Challenge Fund

Why environmentalists should be excited by the Industrial Strategy Challenge Fund

Factory platform in offshore wind farmUnder its new industrial strategy, the government has committed £4.7 billion for science and innovation until 2020 and has announced the creation of a new Industrial Strategy Challenge Fund (ISCF). This will be modelled on the US Defence Advanced Research Projects Agency, known as DARPA. For seasoned innovation thinkers, this is very good news. But what’s so exciting about DARPA?

State funded innovation underpins transformational change
When it comes to innovation Brits often look to the US for inspiration. The perception is generally that it’s the free market approach which underpins success across the Atlantic, where businesses are the sole drivers of innovation. The reality couldn’t be more different. In fact, many of the big technological breakthroughs in recent history have been the result of extensive US government funded challenge-led innovation.

DARPA is a prime example. Created in 1958 in response to the launch of the Sputnik, its aim was to secure the US technological leadership over the Soviet Union. Since then, alongside other government agencies like ARPA-E in the Department of Energy, it has driven growth through revolutionary technologies such as the internet, GPS, biotech, semiconductors and clean energy technologies. Government funding is behind all the smart technologies of the iPhone, an emblem of Silicon Valley, and has enabled clean energy success stories such as Elon Musk’s Tesla.

This is not only a US story. Many major economies, including Germany, Israel and Finland, boost their innovation through a similar approach. It also underpins the global, cleantech focused Mission Innovation initiative, designed to answer the challenge of implementing the Paris Agreement on climate change.

Challenge driven innovation can make the most of the UK’s assets
The UK has no shortage of innovators. But we have long had a mismatch between our world class science base and the comparatively low levels of business R&D and innovation-driven productivity growth, largely due to government support being limited to the early stages of the innovation chain, as we highlighted in 2013. Public funding was, until recently, only a fraction of that of other leading economies, and business R&D investment has been well below the OECD average, reflecting how, until now, our approach has been characterised by short termism, with respect to innovation and industrial policy priorities, particularly on low carbon technologies.

This is why the ISCF is such a change. The DARPA model is inherently long term and it rejects a business-led approach, the state being instead the lead risk-taker in driving disruptive technologies from concept to commercialisation. The challenge, generally set by politicians or experts, is the key determinant of what should be done. Expert programme managers, ie civil servants, have the freedom to shape innovation programmes and have access to, and discretion over, large amounts of patient funding to deliver a result. This structure provides the visibility to attract private sector investment in emerging technologies, and helps to align academia, SMEs and multinationals, enabling spillovers and synergies across sectors.

The UK has already made progress, establishing Innovate UK, the Catapults and the Knowledge Transfer Network, and we have gradually been increasing our innovation budget. A challenge-led innovation framework is a further step in the right direction, as long as UK institutions are allowed the freedom and given the clarity required to make it work.

What should the UK’s innovation challenges be?
Britain will have to operate in a low carbon and resource constrained world. The good news is that most of our potential customers (and competitors) are rapidly heading in the same direction. The UK has first mover advantage: it established itself as a low carbon leader with a legally binding climate change target in 2008, and has seen significant success in low carbon goods and services since. Unfortunately, political uncertainty in the UK has begun to limit the market opportunities. A challenge-led innovation programme is a good way of getting back on track and boosting the competitiveness of UK businesses.

We shouldn’t see this as a story for ‘green’ sectors only, even though these will be important. The industrial strategy green paper outlines challenge areas which respond to obvious low carbon and resource efficiency drivers: from smart, flexible and clean energy technologies to autonomous vehicles. But it also casts the net wider, with challenges ranging from smart cities to the manufacturing processes and materials of the future. Businesses in these areas will have to be competitive within a low carbon, resource resilient context too.

Overall, the ISCF programme shows that, when it comes to innovation, government understands the opportunities offered by a low carbon economy. Now it needs to set the right challenges and give its institutions the ability to deliver.

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