[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
SHOULD CONGRESS ESTABLISH
``ARPA-E,'' THE ADVANCED RESEARCH
PROJECTS AGENCY-ENERGY?
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON SCIENCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
MARCH 9, 2006
__________
Serial No. 109-39
__________
Printed for the use of the Committee on Science
Available via the World Wide Web: http://www.house.gov/science
______
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COMMITTEE ON SCIENCE
HON. SHERWOOD L. BOEHLERT, New York, Chairman
RALPH M. HALL, Texas BART GORDON, Tennessee
LAMAR S. SMITH, Texas JERRY F. COSTELLO, Illinois
CURT WELDON, Pennsylvania EDDIE BERNICE JOHNSON, Texas
DANA ROHRABACHER, California LYNN C. WOOLSEY, California
KEN CALVERT, California DARLENE HOOLEY, Oregon
ROSCOE G. BARTLETT, Maryland MARK UDALL, Colorado
VERNON J. EHLERS, Michigan DAVID WU, Oregon
GIL GUTKNECHT, Minnesota MICHAEL M. HONDA, California
FRANK D. LUCAS, Oklahoma BRAD MILLER, North Carolina
JUDY BIGGERT, Illinois LINCOLN DAVIS, Tennessee
WAYNE T. GILCHREST, Maryland DANIEL LIPINSKI, Illinois
W. TODD AKIN, Missouri SHEILA JACKSON LEE, Texas
TIMOTHY V. JOHNSON, Illinois BRAD SHERMAN, California
J. RANDY FORBES, Virginia BRIAN BAIRD, Washington
JO BONNER, Alabama JIM MATHESON, Utah
TOM FEENEY, Florida JIM COSTA, California
BOB INGLIS, South Carolina AL GREEN, Texas
DAVE G. REICHERT, Washington CHARLIE MELANCON, Louisiana
MICHAEL E. SODREL, Indiana DENNIS MOORE, Kansas
JOHN J.H. ``JOE'' SCHWARZ, Michigan VACANCY
MICHAEL T. MCCAUL, Texas
VACANCY
VACANCY
C O N T E N T S
March 9, 2006
Page
Witness List..................................................... 2
Hearing Charter.................................................. 3
Opening Statements
Statement by Representative Sherwood L. Boehlert, Chairman,
Committee on Science, U.S. House of Representatives............ 16
Written Statement............................................ 17
Statement by Representative Bart Gordon, Minority Ranking Member,
Committee on Science, U.S. House of Representatives............ 18
Written Statement............................................ 20
Statement by Representative Judy Biggert, Chairman, Subcommittee
on Energy, Committee on Science, U.S. House of Representatives. 22
Written Statement............................................ 24
Prepared Statement by Representative Jerry F. Costello, Member,
Committee on Science, U.S. House of Representatives............ 26
Prepared Statement by Representative Eddie Bernice Johnson,
Member, Committee on Science, U.S. House of Representatives.... 26
Prepared Statement by Representative Michael M. Honda, Minority
Ranking Member, Subcommittee on Energy, Committee on Science,
U.S. House of Representatives.................................. 27
Prepared Statement by Representative Sheila Jackson Lee, Member,
Committee on Science, U.S. House of Representatives............ 27
Witnesses:
Dr. Steven Chu, Director, Lawrence Berkeley National Laboratory
Oral Statement............................................... 28
Written Statement............................................ 31
Biography.................................................... 36
Dr. David C. Mowery, William A. & Betty H. Hasler Professor of
New Enterprise Development, Haas School of Business, University
of California at Berkeley
Oral Statement............................................... 37
Written Statement............................................ 39
Biography.................................................... 42
Ms. Melanie Kenderdine, Vice President, Washington Operations,
Gas Technology Institute
Oral Statement............................................... 43
Written Statement............................................ 46
Biography.................................................... 51
Dr. Frank L. Fernandez, President, F.L. Fernandez, Inc.
Oral Statement............................................... 52
Written Statement............................................ 54
Biography.................................................... 58
Dr. Catherine Cotell, Vice President for Strategy, University and
Early Stage Investment, In-Q-Tel
Oral Statement............................................... 59
Written Statement............................................ 61
Biography.................................................... 66
Financial Disclosure......................................... 67
Discussion....................................................... 68
Appendix: Answers to Post-Hearing Questions
Dr. Steven Chu, Director, Lawrence Berkeley National Laboratory.. 86
Dr. David C. Mowery, William A. & Betty H. Hasler Professor of
New Enterprise Development, Haas School of Business, University
of California at Berkeley...................................... 90
Ms. Melanie Kenderdine, Vice President, Washington Operations,
Gas Technology Institute....................................... 92
Dr. Frank L. Fernandez, President, F.L. Fernandez, Inc........... 96
Dr. Catherine Cotell, Vice President for Strategy, University and
Early Stage Investment, In-Q-Tel............................... 100
SHOULD CONGRESS ESTABLISH ``ARPA-E,'' THE ADVANCED RESEARCH PROJECTS
AGENCY-ENERGY?
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THURSDAY, MARCH 9, 2006
House of Representatives,
Committee on Science,
Washington, DC.
The Committee met, pursuant to call, at 10:00 a.m., in Room
2318 of the Rayburn House Office Building, Hon. Sherwood L.
Boehlert [Chairman of the Committee] presiding.
hearing charter
COMMITTEE ON SCIENCE
U.S. HOUSE OF REPRESENTATIVES
Should Congress Establish
``ARPA-E,'' the Advanced Research
Projects Agency-Energy?
thursday, march 9, 2006
10:00 a.m.-12:00 p.m.
2318 rayburn house office building
1. Purpose
On Thursday, March 9, 2006, the House Committee on Science will
hold a hearing on whether Congress should establish an Advanced
Research Projects Agency in the Department of Energy, or an ARPA-E.
The National Academy of Sciences, in its report last fall on
enhancing American competitiveness, Rising Above the Gathering Storm,
recommended the creation of an ARPA-E to fund ``transformational
research that could lead to new ways of fueling the Nation and its
economy,'' and different bills have been introduced in the House and
Senate to implement the recommendation.
Critics of the proposal have raised a variety of issues, including
that an ARPA-E may not address the actual barriers to new energy
technology; that it is based on a research agency model that does not
apply well to energy; that different proponents of ARPA-E describe
different missions for it; that it would compete with, or get swallowed
up by existing energy research programs; and that it is unclear how it
would be distinct from other energy research programs.
The hearing is intended to help Congress analyze the arguments for
and against an ARPA-E, to consider alternative approaches, and to
determine how to structure an ARPA-E if it were created.
2. Witnesses
Dr. Steven Chu is Director of Lawrence Berkeley National Laboratory. He
served on the NAS panel\1\ that recommended establishing ARPA-E. He was
a co-winner of the 1997 Nobel Prize in Physics.
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\1\ Committee on Prospering in the Global Economy of the 21st
Century: An Agenda for American Science and Technology which produced
the October 2005 NAS report Rising Above the Gathering Storm:
Energizing and Employing America for a Brighter Economic Future, The
National Academies Press, Washington, DC (2005).
Dr. Catherine Cotell is Vice President for Strategy, University and
Early Stage Investment at In-Q-Tel. The Central Intelligence Agency
established In-Q-Tel in 1999 to gain access to new technologies
---------------------------------------------------------------------------
emerging from small startup companies.
Dr. Fernando L. Fernandez is President of F.L. Fernandez, Inc., a
consulting firm with clients in research and development. He served as
Director of the Defense Advanced Research Projects Agency (DARPA) from
1998 to 2001.
Ms. Melanie Kenderdine is Vice President, Washington Operations, for
the Gas Technology Institute. She served as Director of the Office of
Policy in the Department of Energy from 1999 to 2000.
Dr. David Mowery is the William A. & Betty H. Hasler Professor of New
Enterprise Development at the Haas School of Business, University of
California at Berkeley. He is an expert in technological change,
international trade, and U.S. technology policy.
3. Overarching Questions
What problems within the energy research enterprise
is ARPA-E intended to address? Is ARPA-E the best mechanism to
address these problems? If not, what alternatives might be more
successful?
If Congress were to create an ARPA-E, how should the
agency operate, where in the Department of Energy (DOE) should
it be located, and how should it interact with existing aspects
of DOE, including the National Laboratories?
4. Brief Overview
The October 2005 NAS report, Rising Above the Gathering Storm:
Energizing and Employing America for a Brighter Economic Future (also
known as the Augustine Report for its chair, retired Lockheed Martin
CEO Norman Augustine), recommended creating an ARPA-E within DOE to
fund ``transformational research that could lead to new ways of fueling
the Nation and its economy.'' The report offered recommendations in
four areas to enhance U.S. competitiveness: K-12 education, higher
education, economic and technology policy, and scientific research.
The Augustine report argued that affordable and reliable energy
production is central to the future of the American economy and that
revolutionary new technologies are needed for a sustainable energy
future. The report argued further that no existing DOE programs were
well suited to promote such technological advances and get them into
the marketplace. What was needed, the report concluded was a DOE unit
modeled on the Defense Advanced Research Projects Agency (DARPA), the
agency that is widely credited with the development of the Internet.
The Augustine report said ARPA-E:
would sponsor creative, out-of-the-box, transformational,
generic energy research in those areas where industry by itself
cannot or will not undertake such sponsorship, where risks and
potential payoffs are high, and where success could provide
dramatic benefits for the Nation. ARPA-E would accelerate the
process by which research is transformed to address economic,
environmental, and security issues. It would be designed as a
lean, effective, and agile--but largely independent--
organization that can start and stop targeted programs based on
performance and ultimate relevance.
Citing the Augustine report, the President has proposed increased
funding for three research and development (R&D) agencies and for
several science and math education programs. The Administration has not
endorsed the ARPA-E proposal and has expressed concern that its funding
could compete with higher priorities, including proposed increases for
DOE's Office of Science. Energy Secretary Samuel Bodman has suggested
that an entity based on In-Q-Tel, a venture capital organization
sponsored by the Central Intelligence Agency (CIA), might be a more
appropriate approach to getting new technology into the energy market.
(More on that below.)
5. Issues
The arguments for ARPA-E are laid out in the Augustine report
(excerpt attached). This section summarizes the arguments of critics.
Why aren't more revolutionary technologies finding their way into the
energy market, and is ARPA-E an effective approach to solving that
problem? This is really two questions: First, is the problem in the
energy markets primarily one to be solved by increasing the supply of
energy technologies or by creating more demand for energy technologies?
And second, if the problem is the supply of technologies, would ARPA-E
be the most effective way to spawn new technologies and get them into
the marketplace?
Is the problem primarily one of technology supply or demand? While
there is no question that R&D is necessary to supply new technologies
to the marketplace, some critics of the ARPA-E proposal argue that the
U.S. energy marketplace is not short of ideas or technologies, but that
the current market structure does not generate demand for new
technologies. For example, an NAS study several years ago identified
numerous existing technologies that could increase automobile fuel
mileage that were not being applied or applied for that purpose. Even
today, oil prices are generally at a level that does not induce
consumers to switch to new energy technologies. Without government
incentives, whether through taxes, regulations or other means, the
market will not create a sufficient demand for new technologies, these
critics argue. They point out that while there are societal reasons to
seek new energy technologies, those do not translate into individual
demands with oil at current prices. Under this reasoning, new
technologies funded by an ARPA-E are no more likely to find their way
into the marketplace than are existing ideas.
What is the primary barrier to technology supply and would ARPA-E
address it? But even if one assumes that technology supply is part of
the problem, ARPA-E, may not be the most effective tool to get more new
technologies into the marketplace, critics argue. According to the
Augustine report, ARPA-E would fund ``a broad portfolio of foundational
research that is needed to invent transforming technologies that in the
past were often supplied by our great industrial laboratories.'' This
assumes that a primary gap in energy technology creation is a lack of
early-stage, largely basic research and that the government would be
able to determine what kind of research in that area is most needed.
But many advocates of a greater government role in energy technology
see the primary barrier not at the early stages of research, but later
in the process when the inventors of new technologies find that they do
not have the wherewithal to fully develop their ideas into products or
to bring their ideas to market. Some advocates of ARPA-E who were not
on the Academy panel argue that ARPA-E could address this stage of the
problem, but that is not what the Academy has argued. Critics argue
that if the goal is to work on the later stages of development and
product introduction, then an ARPA-E is the wrong tool to use.
Does the DARPA model match the needs of energy R&D? Proponents of new
government efforts to get R&D into the marketplace often turn to DARPA
as a model. For example, in the competitiveness debates of the 1980s,
some argued for the creation of a civilian equivalent of DARPA to
counter Japanese inroads in U.S. technology markets. (This proposal
contributed to the creation of the Department of Commerce's Advanced
Technology Program.) In the Homeland Security Act, Congress created a
Homeland Security Advanced Projects Agency (HSARPA) to help create new
technologies to counter terrorism. HSARPA is not generally viewed as a
success, partly because it has focused primarily on short-term
development projects.
The appeal of the DARPA model is clear. DARPA has had an enviable
record of success in funding technologies that have given the U.S.
military a technology edge, many of which have eventually made it into
the marketplace. Experts generally attribute the agency's success to
its relative independence from the military services and their
laboratories, its ties to industry as well as academia, its relative
insulation from politics which has enabled the agency in the past to
undertake long-range projects and tolerate failure, and its internal
structure which empowers program managers to make decisions on who and
what to fund. Like the National Science Foundation (NSF), DARPA
performs no research, but funds research elsewhere. Unlike NSF, DARPA
works more with industry and does not have peer review of its
proposals. But DARPA has had its ups and downs and has focused on
different aspects of technology over its almost 50 years of operation.
Today, DARPA is focusing more on shorter-range projects of more
immediate use to the military.
Critics of the ARPA-E proposal argue that a salient feature of
DARPA is that it funds the creation of technologies for which the
government will be the primary or sometimes sole market. This makes it
easier to determine what technologies to target, helps researchers
target their own efforts, and assures industry that there will be a
payoff for its efforts. Moreover, price is not generally a significant
consideration for technologies developed by DARPA. This is true in the
area of homeland security, as well. But this fundamental feature of
DARPA is not true in the energy arena. Critics argue that it is at best
unclear how a DARPA model would succeed in a field in which the
government is not a primary customer and does not exert much direct
control over the marketplace.
What other models exist that could be applied to energy research?
Another model that has been suggested to push more technology into the
energy market is In-Q-Tel, a Congressionally created, government-funded
non-profit venture capital firm that seeks to accelerate market
introduction of products that could benefit U.S. intelligence efforts.
In-Q-Tel generally does not get involved in technologies until they are
well on their way to development or in the prototype stage. Therefore,
In-Q-Tel would not help attack the problem that the Augustine report
identified, a lack of early-stage, more fundamental research. But an
In-Q-Tel model might get more ideas out of the laboratory and into the
marketplace. However, In-Q-Tel, like DARPA, works in a realm in which
the government is the market. While In-Q-Tel will only back ventures
that appear to have a market beyond the government, its primary goal is
to promote the development of products that the government itself will
purchase. Also, In-Q-Tel, which was created in 1998 and did not get
fully underway until later, does not yet have much of a track record
and no one has analyzed how it might function in the energy market.
Moreover, the expanding use of government-funded firms that get equity
in private companies could raise questions about the appropriate
government role in the financial marketplace.
Why can't existing DOE programs accomplish the goal of an ARPA-E and
how would an ARPA-E interact with existing programs? Proponents of
ARPA-E argue, in effect, that the DOE Office of Science programs are
too basic and that the DOE energy supply programs are too applied,
leaving a gap. The Office of Science does support fundamental research,
but most of it is not directed at specific energy problems or
technologies. (The Office of Science is trying to increase its
involvement in these areas.) The applied programs tend to fund
incremental research that is unlikely to lead to ``transformational''
advances. DOE also has a more bureaucratic culture than DARPA and lacks
some of DARPA's more flexible procurement authority.
Some critics argue that DOE should reform its basic and/or applied
programs to address any gaps identified by the Academy report. Others
fear that if an ARPA-E is located in DOE it will be gradually come to
look like existing DOE programs because otherwise it will compete with
them for funds. These critics are particularly fearful that ARPA-E will
simply become another source of funding for the National Laboratories,
which they see as too removed from the marketplace and too focused on
their existing portfolios to undertake ``transformational'' research
targeted at new energy technologies. These critics note that a strength
of DARPA has been that is has not had its own laboratories and has
generally worked independently of the military laboratories.
How would an ARPA-E be structured? The Academy panel did not provide
detailed advice on how to structure ARPA-E, other than to point to the
DARPA model. In establishing an ARPA-E, Congress would have to decide
where in DOE to locate it, how to ensure the independent and program
manager-driven agenda of DARPA, how to provide stable and adequate
funding and how to clearly describe the kinds of research that ARPA-E
would be intended to fund. The Augustine report recommends having ARPA-
E report to the DOE Under Secretary for Science (a position created by
last summer's Energy Policy Act), but critics worry that that would not
give ARPA-E adequate independence and would increase the likelihood
that funds would go to the National Laboratories. Some critics argue
that if Congress were to create an ARPA-E, it should do so outside of
DOE and perhaps as a free-standing quasi-governmental entity.
6. Additional Background
Augustine Report. The Academy panel did not receive outside advice or
testimony on the ARPA-E idea and at least one of its members was a
reluctant supporter of the idea because of concerns that the DARPA
model did not apply to areas in which the government was not a
customer. Also, the one member of the Academy panel from the energy
industry, Lee Raymond, then-Chairman and CEO of the ExxonMobil
Corporation, dissented from the recommendation, arguing against further
government involvement in energy markets.
History and Structure of DARPA. DARPA's mission is ``to prevent
technological surprise to the U.S., but also to create technological
surprise for our enemies,'' \2\ through radical innovation to further
national security. While each service branch conducts its own research
to further known, short-term requirements, DARPA aims to anticipate
future military needs, in any service branch, and accelerate
development of breakthrough technology to meet those needs.
---------------------------------------------------------------------------
\2\ DARPA: Bridging the Gap; Powered by Ideas, Defense Advance
Research Projects Agency, Feb. 2005, p. 1.
---------------------------------------------------------------------------
DARPA was created in 1958 as the Advanced Research Projects Agency
(ARPA), in response to Cold War concerns such as the launch of Sputnik
Early areas of research involved space and missile defense. By the late
1970's, the agency focused on defense, emphasizing breakthrough
technological applications and enhanced links to real customers. ARPA/
DARPA research projects include crucial contributions to development of
stealth aircraft, unmanned aerial vehicles (UAVs), and the Internet.
DARPA exists within the Office of the Secretary of Defense, outside
the service branches. Its director oversees Offices (eight of them at
present) that bring together experts with similar interests. Within the
Offices are program managers hired for short stints, typically four to
six years. Only one layer of management, the Office directors,
separates the program managers from the director. DARPA upper
management devise research themes in consultation with defense leaders,
and together with the program managers, they identify important,
difficult problems that fit in with those themes. Program managers are
expected to consult with technical communities throughout government,
industry, and academia to design projects intended to create novel
military capabilities. Program managers have special contracting
authority that allows them to negotiate flexible contracting
arrangements with researchers. Their projects aim to create usable
products, and must include plans for transfer of those products to real
users. The short-term of program managers creates a supply of new
people with new ideas and encourages accelerated execution of projects.
DARPA has no laboratories of its own--all work is performed by contract
with outside researchers--minimizing institutional interests within
DARPA that might prolong research that is no longer promising.
DARPA strives to transfer its research products to actual
warfighters. This transfer may occur for research that leads to a
component technology--such as a stealth technology or microchip--that a
defense contractor incorporates the component into larger system that
it ultimately sells to a service branch. Because DARPA relies on
outside research laboratories, the contractor itself may have
participated in the development of the technology, acquiring enough
familiarity and confidence in it to use it in a real product it sells
to a service branch.
The transfer of technology from DARPA to a service branch may be
more challenging, however, for a more elaborate technology. The
technology might compete with a significant existing technology already
in use by a service. Furthermore, because DARPA looks beyond known,
short-term, technological needs, its technology may demand new methods
for employing the technology. As a result, a service branch may resist
acquiring the DARPA technology. To overcome this resistance, DARPA can
appeal directly to the Secretary of Defense, since its position within
DOD does not require reporting through the service branches.
History and Structure of In-Q-Tel. In-Q-Tel started off making
investments primarily in the information technology area, including
Internet security, data integration, imagery analysis, and language
translation, and in recent years has expanded into infrastructure
priorities such as wireless communications and nanotechnology, and
biodefense products such as sensors. These investments have helped
government agencies keep up with technology developments in the
commercial marketplace, and helped the intelligence community in
particular to mold, develop and deploy crucial technologies in a timely
manner.
To keep up with the boom in innovations in the private sector,
especially in information technology (IT), the CIA assembled a team of
senior staff and outside consultants and lawyers in 1998 to design an
entity to partner with industry in accelerated solutions to IT problems
facing the intelligence community. After meeting with investment
bankers, venture capitalists, entrepreneurs, and Members of Congress
and staff, the team conceived what is now In-Q-Tel.
In-Q-Tel actively seeks out emerging technology that can help meet
the needs of its intelligence agency clients. Its primary means of
involvement with fledgling technologies is to invest in the companies
developing the technology alongside of commercial investment partners,
using the equity tool, combined with a great deal of contractual
flexibility, to provide In-Q-Tel and its government partners early
access to the technology and the ability to influence product
development.
Small or newer companies often do not to target the Federal
Government market because it can be difficult to target or slow to
access. And because those companies often need to penetrate their
markets quickly to generate cash flow, government customers can miss
the chance to influence product development. Moreover, private venture
capital firms sometimes discourage small companies they invest in from
doing business with the government because the complexity of the
procurement process and long lead time on procurement decisions. This
means that agencies are often two to three years behind the commercial
market for technology, especially in areas like IT where there is rapid
innovation.
Through special flexibility in contracting arrangements granted by
Congress similar to the flexibility enjoyed by DARPA in its
arrangements, In-Q-Tel is able to overcome procurement obstacles and to
help the intelligence agencies adopt technology more quickly. However,
in the long run, In-Q-Tel believes that the products it invests in
should be targeted at a commercial market, to lower costs for its
client agencies, and that they should be purchased through normal
procedures once fully commercialized.
A Board of Trustees oversees In-Q-Tel's direction, strategy, and
policies.\3\ In-Q-Tel is managed by a CEO and has a staff of 64. Its
current budget is estimated to be $60 million.\4\ In-Q-Tel seeks to
demonstrate solutions. It does not generate finished products. The CIA
or other intelligence agencies acquire products through their own
separate contracting arrangements. Although In-Q-Tel operations are
public and few of their staff have security clearance, the manner of
actual use of their products by the CIA may be classified. Nonetheless,
In-Q-Tel offers the CIA a mechanism by which to involve industry in
solving the specific technology problems faced by the intelligence
community.
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\3\ Among its trustees is Norman Augustine, chair of the committee
that produced the NAS Rising Above the Gathering Storm report. In an
August 15, 2005 Washington Post article, Augustine called In-Q-Tel
``far more successful than [he] thought it would be,'' but ``still an
unproved experiment.''
\4\ ``Tech Entrepreneur Joins CIA's Venture Capital Arm,''
Washington Post, January 4, 2006. http://www.washingtonpost.com/wp-dyn/
content/article/2006/01/03/AR2006010301401.html
---------------------------------------------------------------------------
7. Legislative Proposals
H.R. 4435 (Gordon): A bill to provide for the establishment of the
Advanced Research Projects Agency-Energy
This bill establishes the Advanced Research Projects Agency-Energy
(ARPA-E) within DOE. This new agency is modeled after DARPA. Under the
bill, ARPA-E is headed by a Director appointed by the Secretary. The
Director hires program managers to manage individual projects, and the
project managers are given flexibility in establishing R&D goals for
the program. Program managers will also be responsible for selecting
projects for support as well as monitoring their progress. The ARPA-E
will have authority to hire specialized science and engineering
personnel to be program managers. Participation in the program is
limited to institutions of higher education, companies or consortia of
universities and companies, and these consortia may also include
federally funded research and development centers.
In addition, the bill establishes an Energy Independence
Acceleration Fund, allows for recoupment of funds from successful
commercialization projects, and includes provisions relating to an
Advisory Committee and evaluation of ARPA-E.
S. 2197 (Domenici/Bingaman/Alexander/Mikuski): Protecting America's
Competitive Edge through Energy Act of 2006, known as the ``PACE-
Energy'' Act
Section 4 of this bill, which will be marked up on March 8, creates
ARPA-E, using language based on the law that created the Homeland
Security Advanced Research Projects Agency. Under the bill, ARPA-E is a
new office within DOE that will report to the Under Secretary for
Science.
S. 2196 (Clinton/Reid/Bingaman): Advanced Research Projects Energy Act
This bill establishes the Advanced Research Projects Agency-Energy
within the Department of Energy. The provisions of this bill also
include prizes for advanced technology achievements, annual reporting
requirements, and authorizations.
8. Witness Questions
Dr. Steve Chu, Dr. Fernando L. Fernandez, Ms. Melanie Kenderdine, and
Dr. David Mowery
1. Should ARPA-E be designed more to foster directed basic
research or to get products into the marketplace? If the focus
were basic research, what steps would ARPA-E or other entities
have to take to affect the marketplace? If the focus were
technology transfer, what specific barriers would ARPA-E be
designed to overcome, how would it do so, and would that be the
most effective way that government could transform the energy
marketplace?
2. What kinds of entities should receive funding from ARPA-E?
Should the National Laboratories be able to receive funding
from ARPA-E? How should the work funded by ARPA-E differ from
work funded under existing DOE basic and applied research
programs? How could Congress structure ARPA-E to ensure that
ARPA-E did not end up carrying out programs that are
substantially similar to those already in DOE's portfolio?
3. Is it credible to develop a solution to U.S. energy needs
based on the Defense Advanced Research Projects Agency (DARPA),
given that DARPA is developing ideas for a market in which the
government itself is the primary customer and cost is not a
primary concern?
Dr. Catherine Cotell
1. How far along in the research and development process are
the products and processes that In-Q-Tel supports? To what
extent has government research funding contributed to the
products and processes that In-Q-Tel supports? How would you
contrast In-Q-Tel's role with that of the Defense Advanced
Research Projects Agency (DARPA)?
2. To what extent do you think the In-Q-Tel model could be
applied to areas in which the government is not going to be a
primary or early user of a technology? What practical and/or
philosophical questions would such an expansion of the In-Q-Tel
model raise?
3. What have you found to be the primary barriers to new
technologies coming to market? Does the U.S. seem to have more
of a problem creating new technologies or bringing them to
market? Do you think the same factors are the primary barriers
in the energy market?
Appendix 1
ARPA-E Proposal Excerpted from Rising Above the Gathering Storm
Perhaps no experiment in the conduct of research and engineering
has been more successful in recent decades than the Defense Advanced
Research Projects Agency model. The new agency proposed herein is
patterned after that model and would sponsor creative, out-of-the-box,
transformational, generic energy research in those areas where industry
by itself cannot or will not undertake such sponsorship, where risks
and potential payoffs are high, and where success could provide
dramatic benefits for the Nation. ARPA-E would accelerate the process
by which research is transformed to address economic, environmental,
and security issues. It would be designed as a lean, effective, and
agile--but largely independent--organization that can start and stop
targeted programs based on performance and ultimate relevance. ARPA-E
would focus on specific energy issues, but its work (like that of DARPA
or NIH) would have significant spinoff benefits to national, State, and
local government; to industry; and for the education of the next
generation of researchers. The nature of energy research makes it
particularly relevant to producing many spin off benefits to the broad
fields of engineering, the physical sciences, and mathematics, fields
identified in this review as warranting special attention. Existing
programs with similar goals should be examined to ensure that the
Nation is optimizing its investments in this area. Funding for ARPA-E
would begin at $300 million for the initial year and increase to $1
billion over five years, at which point the program's effectiveness
would be reevaluated. The committee picked this level of funding the
basis of on its review of the budget history of other new research
activities and the importance of the task at hand.
The United States faces a variety of energy challenges that affect
our economy, our security, and our environment (see Box 6-4).
Fundamentally, those challenges involve science and technology. Today,
scientists and engineers are already working on ideas that could make
solar and wind power economical; develop more efficient fuel cells;
exploit energy from tar sands, oil shale, and gas hydrates; minimize
the environmental consequences of fossil-fuel use; find safe,
affordable ways to dispose of nuclear waste; devise workable methods to
generate power from fusion; improve our aging energy-distribution
infrastructure; and devise safe methods for hydrogen storage.\6\
---------------------------------------------------------------------------
\6\ M.S. Dresselhaus and I.L. Thomas. Alternative energy
technologies. Nature 414(2001):332-337.
---------------------------------------------------------------------------
ARPA-E would provide an opportunity for creative ``out-of-the-box''
transformational research that could lead to new ways of fueling the
Nation and its economy, as opposed to incremental research on ideas
that have already been developed. One expert explains, ``The supply [of
fossil-fuel sources] is adequate now and this gives us time to develop
alternatives, but the scale of research in physics, chemistry, biology
and engineering will need to be stepped up, because it will take
sustained effort to solve the problem of long-term global energy
security.'' \7\
---------------------------------------------------------------------------
\7\ Ibid.
---------------------------------------------------------------------------
Although there are those who believe an organization like ARPA-E is
not needed (Box 6-3), the committee concludes that it would play an
important role in resolving the Nation's energy challenges; in
advancing research in engineering, the physical sciences, and
mathematics; and in developing the next generation of researchers. A
recent report of the Secretary of Energy Advisory Board's Task Force on
the Future of Science Programs at the Department of Energy notes,
``America can meet its energy needs only if we make a strong and
sustained investment in research in physical science, engineering, and
applicable areas of life science, and if we translate advancing
scientific knowledge into practice. The current mix of energy sources
is not sustainable in the long run.'' \8\ Solutions will require
coordinated efforts among industrial, academic, and government
laboratories. Although industry owns most of the energy infrastructure
and is actively developing new technologies in many fields, national
economic and security concerns dictate that the government stimulate
research to meet national needs. These needs include neutralizing the
provision of energy as a major driver of national security concerns.
ARPA-E would invest in a broad portfolio of foundational research that
is needed to invent transforming technologies that in the past were
often supplied by our great industrial laboratories (see Box 6-5).
Funding of research underpinning the provision of new energy sources is
made particularly complex by the high cost, high risk and long-term
character of such work--all of which make it less suited to university
or industry funding.
---------------------------------------------------------------------------
\8\ Secretary of Energy's Advisory Board, Task Force on the Future
of Science Programs at the Department of Energy. Critical Choices:
Science, Energy and Security. Final Report. Washington, DC: U.S.
Department of Energy, Oct. 13, 2003, p. 5.
---------------------------------------------------------------------------
Among its many missions, DOE promotes the energy security of the
United States, but some of the department's largest national
laboratories were established in wartime and given clearly defense-
oriented missions, primarily to develop nuclear weapons. Those weapons
laboratories, and some of the government's other large science
laboratories, represent significant national investments in personnel,
shared facilities, and knowledge. At the end of the Cold War, the
Nation's defense needs shifted and urgent new agendas became clear--
development of clean sources of energy, new forms of transportation,
the provision of homeland security, technology to speed environmental
remediation, and technology for commercial application. Numerous
proposals over recent years have laid the foundation for more extensive
redeployment of national laboratory talent toward basic and applied
research in areas of national priority.\9\
---------------------------------------------------------------------------
\9\ Galvin Panel report, Task Force on Alternative Futures for the
Department of Energy National Laboratories, Secretary of Energy
Advisory Board. Washington, DC.: U.S. Department of Energy, Feb. 1995;
PCAST, Federal Energy Research and Development for the Challenges of
the Twenty-First Century, Report of the Energy Research and Development
Panel, the President's Committee of Advisors on Science and Technology,
Washington, DC, Nov. 1997; Government Accounting Office. Best
Practices: Elements Critical to Successfully Reducing Unneeded RDT&E
Infrastructure. USGAO Report to Congressional Requesters. Washington,
DC: GAO (?), Jan. 8 1998.
Introducing a small, agile, DARPA-like organization could improve
DOE's pursuit of R&D much as DARPA did for the Department of Defense.
Initially, DARPA was viewed as ``threatening'' by much of the
department's established research organization; however, over the years
it has been widely accepted as successfully filling a very important
role. ARPA-E would identify and support the science and technology
critical to our nation's energy infrastructure. It also could offer
---------------------------------------------------------------------------
several important national benefits:
Promote research in the physical sciences,
engineering, and mathematics.
Create a stream of human capital to bring innovative
approaches to areas of national strategic importance.
Turn cutting-edge science and engineering into
technology for energy and environmental applications.
Accelerate innovation in both traditional and
alternative energy sources and in energy-efficiency mechanisms.
Foster consortia of companies, colleges and
universities, and laboratories to work on critical research
problems, such as the development of fuel cells.
The agency's basic administrative structure and goals would mirror
those of DARPA, but there would be some important differences. DARPA
exists mainly to provide a long-term ``break-through'' perspective for
the armed forces. DOE already has some mechanisms for long-term
research, but it sometimes lacks the mechanisms for transforming the
results into technology that meets the government's needs. DARPA also
helps develop technology for purchase by the government for military
use. By contrast, most energy technology is acquired and deployed in
the private sector, although DOE does have specific procurement needs.
Like DARPA, ARPA-E would have a very small staff, would perform no R&D
itself, would turn over its staff every three to four years, and would
have the same personnel and contracting freedoms now granted to DARPA.
Box 6-6 illustrates some energy technologies identified by the National
Commission on Energy Policy as areas of research where federal research
investment is warranted that is in research areas in which industry is
unlikely to invest.
Chairman Boehlert. The hearing will come to order.
I want to welcome everyone to this morning's hearing, which
will be the first public balanced discussion of the proposal to
establish an Advanced Research Projects Agency in the
Department of Energy, or as it has come to be called, ``ARPA-
E.'' Given its origin in the National Academy of Science's
``Gathering Storm'' report, the ARPA-E proposal must be treated
seriously and respectfully.
But serious and respectful treatment means thinking through
all the strengths and weaknesses of the proposal and the
alternative ways to achieve the goals of the Academy panel and
the sometimes-differing goals of the proposal's other
supporters. It does not mean rushing through open-ended
legislation with limited analysis or debate.
Parenthetically, let me deviate from the text. There is
much--to draw an analogy here. There is much talk in this town
about the urgent need for lobbying reform. A hasty rush to
judgment on the part of the House, we've solved the problem. We
have banned former Members from the gymnasium. Give me a break.
So I intend for the Science Committee to act deliberately,
starting with this balanced panel that will enable us to think
through such key issues as: why more revolutionary technologies
have not made their way into the energy market, the different
approaches to getting more technology to market, how an ARPA-E
would compare to existing programs, and what characteristics an
ARPA-E would have to have to be successful.
Right now, I would describe myself as an open-minded
skeptic about ARPA-E. On the one hand, I am immediately drawn
to any proposal designed to foster more focused research on
energy technologies and a more sustainable U.S. energy
portfolio. But on the other hand, I see that the ARPA-E
proposal is predicated on several implicit assumptions, all of
which are, at the very least, open to debate, and I hope they
will be debated here this morning.
I think the four key assumptions are: one, that the problem
with the energy market is that the supply of new technologies
is insufficient; two, that the supply is constrained because of
a lack of fundamental research; three, that a sensible way to
promote more fundamental research is to apply the DARPA model
to a civilian energy sector; and four, that implementing the
DARPA model is the best way to improve energy research, given
the tight federal budgets.
Now let me examine each of these assumptions briefly, and I
hope our witnesses will examine them as well and, in the
process, help educate us.
I think the first assumption is clearly wrong. The biggest
barrier to new energy technologies is not supply. It is demand.
And until the government is willing to institute policies to
stimulate demand or until oil gets to a dangerously high price,
it is going to be very hard for new technologies to enter or
dominate the new market. We already have plenty of technologies
to improve automobile fuel efficiency just sitting on the
shelf, gathering dust, to cite one sad example. So I see this
whole supply debate as largely beside the point. Until we
change the market, developing new technologies is just going to
be the equivalent of filling up a warehouse of a company that
is already out of business. But the demand side isn't in our
jurisdiction.
But that said, obviously, improving the technology supply
wouldn't hurt, but is the supply problem due primarily to a
lack of fundamental research or are the problems further down
the research pipeline, to use the outdated metaphor? Our
witnesses have a range of views on that, which need to be
heard.
Similarly, our witnesses differ on the applicability of the
DARPA model, and I have to say that I haven't heard a very good
explanation of how the DARPA model can be reasonably employed
in a situation, unlike in Defense where the government is not
the primary or initial customer. For starters, the politics
surrounding technology choices are going to be completely
different in a commodity market.
And finally, we need to decide whether even if ARPA-E were
a good idea whether it would be a better use of funds than
granting the President's proposal to increase the DOE Office of
Science by 14 percent, because in this budget environment, we
surely are not going to be able to do both. And increasing the
Office of Science budget was an even higher priority Academy
recommendation than ARPA-E.
So we have got some serious, thorny, critical questions
before us today that ought to provoke good conversation, not
only with those of us on the dais, but among our impressive
witnesses as well. And I look forward to hearing what they have
to say. What we hear today will be an important factor in
deciding how we proceed legislatively over the next couple of
months as we prepare the competitiveness legislation to deal
with the American Competitiveness Initiative.
Mr. Gordon.
[The prepared statement of Chairman Boehlert follows:]
Prepared Statement of Chairman Sherwood L. Boehlert
I want to welcome everyone to this morning's hearing, which will be
the first public, balanced discussion of the proposal to establish an
Advanced Research Projects Agency in the Department of Energy, or as it
has come to be called ``ARPA-E.'' Given its origin in the National
Academy of Science's Gathering Storm report, the ARPA-E proposal must
be treated seriously and respectfully.
But serious and respectful treatment means thinking through all the
strengths and weaknesses of the proposal and all the alternative ways
to achieve the goals of the Academy panel and the sometimes-differing
goals of the proposal's other supporters. It does not mean rushing
through open-ended legislation with limited analysis or debate.
So I intend for the Science Committee to act deliberately, starting
with this balanced panel that will enable us to think through such key
issues as: why more revolutionary technologies have not made their way
into the energy market, the different approaches to getting more
technology to market, how an ARPA-E would compare to existing programs,
and what characteristics an ARPA-E would have to have to be successful.
Right now, I would describe myself as an open-minded skeptic about
ARPA-E. On the one hand, I am immediately drawn to any proposal
designed to foster more focused research on energy technologies and a
more sustainable U.S. energy portfolio. But on the other hand, I see
that the ARPA-E proposal is predicated on several implicit assumptions,
all of which are, at the very least, open to debate--and I hope they
will be debated this morning.
I think the four key assumptions are: One, that the problem with
the energy market is that the supply of new technologies is
insufficient; two, that the supply is constrained because of a lack of
fundamental research; three, that a sensible way to promote more
fundamental research is to apply the DARPA (the Defense Advanced
Research Projects Agency) model to the civilian energy sector; and
fourth, that implementing the DARPA model is the best way to improve
energy research given the tight federal budget.
Let me examine each of these assumptions briefly, and I hope our
witnesses will examine them as well.
I think the first assumption is clearly wrong. The biggest barrier
to new energy technologies is not supply; it's demand. And until the
government is willing to institute policies to stimulate demand--or
until oil gets to a dangerously high price--it's going to be very hard
for new technologies to enter or dominate the market. We already have
plenty of technologies to improve automobile fuel economy just
``sitting on the shelf,'' to cite just one sad example.
So I see this whole supply debate as largely beside the point.
Until we change the market, developing new technologies is just going
to be the equivalent of filling up a warehouse of a company that's
already out of business. But the demand side isn't in our jurisdiction.
But, that said, obviously improving the technology supply wouldn't
hurt. But is the supply problem due primarily to a lack of fundamental
research, or are the problems further down the research ``pipeline'' to
use that outmoded metaphor? Our witnesses have a range of views on
that, which need to be heard.
Similarly, our witnesses differ on the applicability of the DARPA
model. And I have to say that I haven't heard a very good explanation
of how the DARPA model can be reasonably employed in situations, unlike
defense, where the government is not the primary or initial customer.
For starters, the politics surrounding technology choices are going to
be completely different in a commodity market.
And finally, we need to decide whether, even if ARPA-E were a good
idea, whether it would be a better use of funds than granting the
President's proposal to increase the DOE Office of Science by 14
percent. Because in this budget environment, we surely are not going to
be able to do both. And increasing the Office of Science budget was an
even higher priority Academy recommendation than ARPA-E.
So we've got some serious, thorny, critical questions before us
today that ought to provoke some good conversation not only with those
of us on the dais, but among our impressive witnesses as well. I look
forward to hearing the debate.
What we hear today will be an important factor in deciding how we
proceed legislatively over the next couple of months as we prepare
competitiveness legislation.
Mr. Gordon.
Mr. Gordon. Thank you, Mr. Chairman, for bringing this
group together for a hearing today, and I think you had some
very thoughtful remarks and questions that we need to dwell on.
Let me--I want to depart from my statement today and have a
conversation with the Majority Members that are here today. I
wish there were more, but I know that many of the staffs are
here, and others will be coming in.
Let me first start with a brief history, I won't say
lesson, but refresher.
A couple of years ago, Senator Lamar Alexander and Senator
Bingaman, Chairman Boehlert, and myself asked the Academies of
Science to put together a commission to talk about the
competitiveness of our country in the 21st century, what
would--what could we do about it. The National Academies came
together. They brought together some significant CEOs, Nobel
laureates, academic individuals, and they came forward with
what we know as ``Rising Above the Gathering Storm.'' And you
might remember that Norman Augustine was the Chairman of that
commission and reported to us a few months ago.
I want to read to you just quickly a couple of the
statements that he made to us at that hearing.
``It is the unanimous view of our committee that America
today faces a serious and intensifying challenge with regard to
the future competitiveness and standard of living. Further, we
appear to be on the losing path. The thrust of our findings is
straightforward. The standard of living of Americans in this
and the years ahead will depend to a very large degree on the
quality of jobs that they are able to hold.''
Now my wife is out of town, so I am picking up my five-
year-old daughter this afternoon. I am going to have to bring
her back here, so you may see her on the Floor, but I am very
concerned that she, and probably your kids and grandkids, very
well--this is not rhetoric, but very well could inherit the
first national economy and standard of living that is lower
than their parents. You know, this is a very real possibility.
And by no misunderstanding, Mr. Augustine laid that out to us.
Now they didn't do a lot of what you might call original
research. They didn't do a lot of--plow a lot of new ground.
What they did was take the recommendations that had been made
over and over and over and just brought them together. And I
think it is time that we stop, you know, trying to have new
commissions, and it is time to get ready to do something. And
with that in mind, the Senate has put together--they took the
Augustine recommendations--the legislation--or they took the
Augustine report and made it into legislation. Two-thirds of
the Senators, an equal amount of Democrats and Republicans,
have signed on to that. Two-thirds of the Senators have done
that. Now if we were to take that legislation and bring it here
to the House, it would go to seven different committees, and
you know what that would mean. So Lamar called me a while back
and asked me to participate with this. I said of course I
would, and we had already been started, but I didn't want to
take their exact bill, because it would just get lost over
here.
So what I have done is I have taken the bulk of the
``Rising Above the Gathering Storm.'' I didn't get into the tax
credits and the ways and means stuff. Dr. Thomas thinks he
knows what he is doing, and I don't think he wanted
recommendations from the Science Committee. There were some
patent things that, again, judiciary can handle, but the rest
of it, the guts of it was education, investment in research,
and the--to a lesser extent, the ARPA-E proposal. I have put
those into three different bills. I have sent, I guess, two
personal letters for dear colleagues and direct staff contacts
with all of your offices.
Now we have, I think, virtually all of the Democrat Science
Committee Members on the bills. We have a few Republicans on
the bills at large. But let me say, folks, if we can't get
together on something that two-thirds of the Senate can, it is
going to be a long damn year. And you know, I don't know
whether it is going to be next year or it is going to be two
years or 10 years, but there is a pretty good chance I am going
to be Chairman of this committee. And one of the rules is going
to be I don't care, you know, who introduces a bill. A good
idea is a good idea, and we need to go forward with it.
And I want to, again, put to your attention these bills
today. ARPA-E is a little more controversial. Now we did this
in a way that gave the Secretary a lot of flexibility, tried to
build it around the DARPA model, and it may not be what
everybody wants. The objective is to reduce our energy
dependency by 20 percent over the next 10 years. I agree with
the Chairman that, you know, conservation is a part of that.
You know, I am not a big nuke fan, but that is a part of it.
You know, I am for everything, quite frankly. I think we are
going to have to deal with everything.
It is some more controversy, but when it comes to
education, science education, there should be no
misunderstanding. And what we are going to do, we are going to
screw around, if you are not careful, and we are going to see
the science education taken away from the National Science
Foundation. It is already--you know, that is where it is
heading right now. You are going to have something put in the
Department of Energy or the Department of Education, and when
that happens, it is going to get lost and be poorly managed.
So again, I would like for you to take another look at
these bills. You know. We--it was a rough start, but we finally
got together on an authorization to NASA. We got an
overwhelming vote in the House, and the reason was, I think,
that folks were glad to see a bipartisan bill. You know, this
could be a bridge not only for good legislation here but bring
some camaraderie and civility to the House in general.
So I would, once again, follow up on those two letters for
dear colleagues and request that you take a look at this so
that we could move forward.
[The prepared statement of Mr. Gordon follows:]
Prepared Statement of Representative Bart Gordon
Mr. Chairman, thank you for holding this hearing today to consider
the merits of the ARPA-E proposal. This proposal arose from a
recommendation by a Committee of the National Academy of Science,
National Academy of Engineering and the Institute of Health. The
Committee was established at the request of certain Senators and House
Members, including Chairman Boehlert and me.
The Academies were asked to look at what actions ``federal policy-
makers could take to enhance the science and technology enterprise so
that the United States can successfully compete, prosper, and be secure
in the global community of the 21st century.'' We also asked the
Academies to tell us what strategy could be used to implement each of
their recommended actions. The result was the Committee's report
entitled, Rising Above the Gathering Storm, which was released late
last year.
I have taken a different approach from the Senate in casting the
report's recommendations into legislative language. Rather than
introducing a comprehensive package as the Senate did, I have
introduced a package of three bills that are primarily in the
jurisdiction of the Science Committee. My bills deal with those
recommendations in Science Education, and Science and Engineering. The
third bill establishes an ARPA-E organization within DOE.
My ARPA-E bill, H.R. 4435, has a very defined goal--to reduce
imports of energy from foreign sources by 20 percent within 10 years
through the development of transforming energy technologies. The
Director of ARPA-E reports to the Secretary. However, the bill provides
great flexibility to the Director in structuring and managing the
organization to meet the goal.
The Rising Above the Gathering Storm Report was very vague in how
its proposed ARPA-E would be organized and exactly what it would
accomplish. I, too, am flexible in considering how this organization
should be put together and how it should accomplish meeting the 20
percent goal. I do worry, however, that overly prescriptive legislation
could inhibit the willingness of smart men and women to join ARPA-E and
the ability of ARPA-E managers to accomplish whatever goals are
ultimately established.
Mr. Chairman, I believe this hearing will be a learning experience
for all the Members of the Committee. Today's witnesses will bring us a
variety of perspectives on how this organization should be put together
and what it should do. I look forward to hearing their testimony today.
Norman Augustine, the Chairman of the Academies Committee, gave the
Science Committee this sobering assessment in his testimony last fall:
``It is the unanimous view of our committee that America today faces a
serious and intensifying challenge with regard to its future
competitiveness and standard of living. Further, we appear to be on a
losing path.''
I trust that this is only the first of a number of hearings to
address how the Nation will remain competitive. All the outside studies
we need are complete; now is the time to act--not only on ARPA-E--but
on all the other recommendations in this committee's jurisdiction.
I look forward to working with the Chairman as we go forward on
this important issue.
I yield back the balance of my time.
Chairman Boehlert. Thank you very much, Mr. Gordon. Thank
you for your thoughtful commentary.
Let me make a couple of observations in response.
First of all, I couldn't agree more with the Augustine
report, and he is, and they are, in the report, absolutely
correct. We are on a ``losing path'' if we do nothing, and that
is the sad fact.
But the reality is we are determined to do something, and
we have repeatedly indicated not only in response to this
issue, but all of the issues that come before this panel, that
we will work cooperatively with all Members to take meaningful,
decisive action.
Let me point out that in December, we had an innovation
summit, which we had captains of industry, like Augustine,
university presidents, Cabinet officers to talk about this very
important subject of competitiveness. That very morning, I had
a meeting in the White House with Josh Bolten, the Director of
the Office of Management to once again lay out the compelling
case that we had to do more to invest on the part of the
government in basic science. We have to do more to improve the
performance in K-12 science and math literacy. I was gratified,
as I know you were, too, as all of us were concerned about this
subject when the President, in his State of the Union message
announced the American Competitiveness Initiative. More
funding. It put both the--all three, National Science
Foundation, which finances most university-based research in
this country, the Office of Science at the Department of
Energy, and NIST, very valuable agencies, directly in the front
lines in this war dealing with competitiveness on a path to
double the budget over 10 years. And I said following that
State of the Union message to all who asked, that those
eloquent words were very important, but they have to be
followed by meaningful deeds.
This is a town where a lot of eloquent words are expressed
and there is no follow-through beyond the headline and the
story of the next day. Two weeks later, there was the follow-
through. The eloquent words were followed by meaningful deeds.
The budget submitted to Congress and the American people called
for billions more in all of the areas of primary concern to you
and to me, putting the National Science Foundation, the Office
of Science, NIST on a path to double their budget over 10 years
with significant increases in the first year, recognizing that
we have to pump hundreds of millions of dollars more into
science and math education K-12. They have heard our message,
``they'' being the Administration, the leadership of our
government in the Executive Branch. Not only have they heard
our message and we have implored them to act, they have heeded
the message.
So now we are on a path to do what you and I have worked so
hard over the years to encourage them to do. The fact of the
matter is that we have to be very thorough and very
deliberative as we do this. We have to, as I say, make haste a
little bit slowly, but we are determined to move in a
significant, meaningful way. And one of the issues under
discussion is the ARPA-E proposal from the ``Rising Above the
Gathering Storm'' report. And we want to examine them.
So this is how we work, as you well know, in this
committee. We get experts, the foremost experts in our country,
on the subject matter being discussed before us, and we thank
all of you for being facilitators. And it shouldn't surprise
anyone that not every single one of these people agree on the
whole package, as presented.
So for thoughtful analysis and commentary, we invite them
to have a dialogue with this committee, and we are looking
forward to it. And I assure you, Mr. Gordon, and I assure all
the Members of this committee, that we are determined to go
forward, not next year or next month, but we have got to set
the stage. We have got to sort of build the foundation for our
action. A lot of the programs that are talked about in ``Rising
Above the Gathering Storm'' are already in. Just yesterday, I
met with the Chairman of the Appropriations Committee, Mr.
Lewis of California, and said you know and everyone knows that
the most important thing in this tight budget environment is
the allocations you, Mr. Chairman of the Appropriations
Committee, give to the individual subcommittees. And there are
two subcommittees critically important, one chaired by Frank
Wolf of Virginia, the other by David Hobson of Ohio, both of
whom are on the same wavelength as we are. And so I said you
have got to give them the allocations so that they cannot only
embrace what the President is proposing but what we might add
on to it. And I had that same message in a meeting yesterday
afternoon at the White House. So we are on full alert. All
systems are on go, and I look forward to a continuing working
partnership with you.
And now I will recognize----
Mr. Gordon. Mr. Chairman, I have two comments. May I--would
he yield for----
Chairman Boehlert. But the Chairman didn't exceed your time
limit, and what I want to do is get--recognize Ms. Biggert so
we can have her commentary and then recognize someone on your
side. And then we will go to the witnesses, because that is how
we are going to learn the most. You and I could talk to each
other all day and all night. We have a nice relationship. But
let us hear from our witnesses, but first, Chairwoman Biggert.
Ms. Biggert. Thank you very much, Mr. Chairman, and thank
you for holding this hearing. I--for I know that you share my
deep concern for our nation's future energy security. And I am
pleased to be working with you to examine this interesting
proposal by the National Academies of Science to support
transformational research that could lead to new ways of
fueling the Nation and its economy. And I--on that goal, I
think that all of us agree, and I see no debate.
However, I just don't see how the creation of a new agency
and new bureaucracy achieves this goal, even if it is patterned
after the famed DARPA. I remain open to the ARPA-E concept, but
I will readily admit that I need some convincing.
And why am I so skeptical? Well, let me count the ways.
First, it is not clear what problems we are trying to solve
with the creation of an ARPA-E.
Is it a lack of private-sector investment in long-term or
basic research? If so, how do we solve the problem by creating
a brand new agency to distribute scarce federal resources to
companies to conduct research that they wouldn't otherwise
conduct? Correct me if I am wrong, but it doesn't--but doesn't
the Academy's version of ARPA-E put the Federal Government in
the position of picking which companies are winners?
Is it a lack of federal funding for high-risk,
transformational research? If so, how would you characterize
DOE's current FreedomCAR and Hydrogen Initiatives? How about
the President's Global Nuclear Energy Partnership or U.S.
participation in ITER, the international fusion experiment? I
don't know about my colleagues, but I would put these in a
category of high-risk, transformational research.
Is it a failure of the Department of Energy to effectively
transfer new energy technologies from the laboratory to the
market? If so, wouldn't it make more sense to closely examine
the legal and policy obstacles to the transfer of technology
from our universities, national laboratories, and other
research institutions?
In short, is this a solution in search of a problem?
Second, this proposal to create an ARPA-E is largely based
on the mythology of the agencies, namely the myths that DARPA
can't do anything wrong and that DOE can't do anything right.
Well, let me just relay a story about what I think is a
DARPA failing. A number of scientists in my district developed
a way to produce inexpensive, high-quality, titanium powder.
You would think any technology to improve the processing or
reducing the cost of titanium would be of obvious value to DOD
because titanium is strong and lighter than steel.
The scientists took their ideas to DARPA and DARPA turned
them down. But they knew that they had a good idea, so they
brought the idea to Congressman Bartlett and me. Despite the
fact that the Army quickly recognized the transforming
potential of this technology, DARPA had to be convinced. Only
after the scientists had obtained the private sector capital,
built a pilot plant, and demonstrated that the technology
worked did DARPA decide to provide a relatively small sum of
funding. Now in my book, that is not very high risk.
And how does this story end?
Well, just this week, DOE's National Energy Technology Lab
and Boeing, the largest consumer of titanium in the world,
joined the Army in my office to discuss plans to rapidly scale-
up the technology DARPA rejected in 2003.
And third, we tried to replicate DARPA at the Department of
Homeland Security, and did it work? Not according to most
accounts. If it didn't work at DHS, why do we think it will
work at DOE where the private sector, rather than the
government, will be the primary customer?
Finally, I think it is important to note that ARPA-E was
one of 20 recommendations in the National Academy of Sciences
``Gathering Storm'' report, and it was the only one not to
receive the unanimous support of the Committee. Norm Augustine,
who chaired the NAS panel, testified to this fact before the
Committee in October of last year. And interestingly enough,
opposition came from the one Member of the Committee with,
arguably, the most expertise in energy markets and the energy
industry.
As the Chairman of the Energy Subcommittee, I take my
responsibility for overseeing the research and development
programs at the DOE very seriously. And I think that we need to
find the right solutions, not just any solution. If ARPA-E is
the right solution, I will support it. But to get to the right
solution, we have an obligation to ask tough questions, and I
think that is our purpose here today.
I am anxious to hear this distinguished panel and to have
them share their insight with us. And I think they represent a
wealth of talent and expertise.
And with that, I yield back the balance of my time.
[The prepared statement of Ms. Biggert follows:]
Prepared Statement of Representative Judy Biggert
Thank you, Mr. Chairman, and thank you for holding this hearing,
for I know you share my deep concern for our nation's future energy
security. I am pleased to be working with you to examine this
interesting proposal by the National Academies of Science to support
``transformational research that could lead to new ways of fueling the
Nation and its economy.'' On that goal, I see no debate.
However, I just don't see how the creation of a new agency--a new
bureaucracy achieves this goal, even if it is patterned after the famed
DARPA. I remain open to the ARPA-E concept, but I will readily admit
that I need some convincing.
Why am I so skeptical? Let me count the ways. First, it is not
clear what problems we are trying to solve with the creation of an
ARPA-E.
Is it a lack of private sector investment in long-term or basic
research? If so, how do we solve the problem by creating a brand new
agency to distribute scarce federal resources to companies to conduct
research they wouldn't otherwise conduct? Correct me if I'm wrong, but
doesn't the Academy's version of ARPA-E put the Federal Government in
the position of picking what companies are winners?
Is it a lack of federal funding for high-risk, transformational
research? If so, how would you characterize DOE's current FreedomCAR
and Hydrogen Initiatives? How about the President's Global Nuclear
Energy Partnership, or U.S. participation in ITER, the international
fusion experiment? I don't know about my colleagues, but I would put
these in the category of high-risk, transformational research.
Is it a failure by the Department of Energy to effectively transfer
new energy technologies from the laboratory to the market? If so,
wouldn't it make more sense to closely examine the legal and policy
obstacles to the transfer of technology from our universities, national
laboratories, and other research institutions?
In short, is this a solution in search of a problem?
Second, this proposal to create an ARPA-E is largely based on the
mythology of the agencies--namely the myths that DARPA can't do
anything wrong, and that DOE can't do anything right.
Well, let me relay a story about a DARPA failing. A number of
scientists in my district developed a way to produce inexpensive, high-
quality, titanium powder. You would think any technology to improve the
processing or reduce the cost of titanium would be of obvious value to
the DOD because titanium is strong and lighter than steel.
The scientists took their idea to DARPA, and DARPA turned them
down. But they knew they had a good idea. They brought their idea to
Congressman Bartlett and me. Despite the fact that the Army quickly
recognized the ``transforming'' potential of this technology, DARPA had
to be convinced. Only after the scientists had obtained private sector
capital, built a pilot plant, and demonstrated that the technology
worked did DARPA decide to provide a relatively small sum of funding.
By my book, that's not very ``high-risk.''
How does the story end? Well, just this week, the DOE's National
Energy Technology Laboratory and Boeing--the largest consumer of
titanium in the world--joined the Army in my office to discuss plans to
rapidly scale-up the technology DARPA rejected in 2003.
Third, we tried to replicate DARPA at the Department of Homeland
Security. Did it work? Not according to most accounts. If it didn't
work at DHS, why do we think it will work at DOE, where the private
sector--rather than the government--will be the primary customer?
Fourth, where exactly are we going to get the money for ARPA-E?
Many of my colleagues here today advocating for the creation of an
ARPA-E couldn't stop criticizing the Administration just last month for
failing to ``adequately'' fund such energy programs as energy
efficiency and renewable energy. With growing demands on our limited
federal resources, is there really ``new money'' available for this
agency? Realistically, no; the money will come from other basic and
applied DOE research programs.
Finally, I think it is important to note that ARPA-E was one of 20
recommendations in the National Academy of Science's ``Gathering
Storm'' report, and it was the only one not to receive the unanimous
support of the Committee. Norm Augustine, who chaired the NAS panel,
testified to this fact before the Committee in October of last year.
And, interestingly enough, opposition came from the one Member of the
Committee with arguably the most expertise in energy markets and the
energy industry.
As Chairman of the Energy Subcommittee, I take my responsibility
for overseeing the research and development programs at the DOE very
seriously. I can't think of anything more important to our national
security, our economy, and our standard of living than energy. And I
know everyone here is genuinely interested in finding solutions to our
nation's energy challenges.
But we need to find the ``right'' solutions, not just any solution.
If ARPA-E is the right solution, I will support it. But to get to the
``right'' solution, we have an obligation to ask tough questions.
That's my purpose here today.
I'm anxious for this distinguished panel to share their insight
with us. You represent a wealth of talent and experience, and we are
privileged to have you here with us today. Thank you for participating.
With that, I yield back the balance of my time.
Chairman Boehlert. And let me congratulate the
distinguished Chair of the Subcommittee on Energy. She used
exactly five minutes, her time.
Now here is the deal. We are told that about 11:20, 11:25,
we are going to have just one vote. I hope it is delayed even
more, but our hope would be that we could retain the panel, we
would dash over to vote, and come right back. And while you are
inconvenienced, but you have got a lot that we need to hear.
And so--and secondly, the Chair would recognize the Ranking
Member of the Subcommittee, who is not here at the time, he has
another commitment, and I will then recognize Mr. Gordon to
consume that time, but then we want to get to the witnesses.
Mr. Gordon. Thank you, Mr. Chairman. I will be brief. You
were generous in your allocation of my time in my opening
statement, so let me just follow along on a couple of things I
was saying earlier.
After the Chairman's opening remarks, at 90 percent or more
of our hearings here, my opening remarks begin with ``I agree
with the Chairman,'' which is the case so often on so many
things.
But I do feel compelled to point out that it is nice that
he has talked to the appropriators, but just spending money
doesn't help if you don't get it right. In the President's
budget, he dramatically cut, on the way to doing away with, the
50-year program of math and science education in the National
Science Foundation. You know, that is bad policy, in my
opinion.
We need an authorization. I think we need to move forward
here. Two-thirds--I will remind everybody. Two-thirds of the
Senate, equally between Democrats and Republicans, have come
together in a base bill. And surely, they will make some
changes as they go forward, but they had a--it came out of the
subcommittee yesterday. So I think it is time for us to take
some action.
Now I--the Chairman was very eloquent about the earlier
science forum that they had. I will remind you, the Democrats
were not invited to come. There was no effort to put our,
hopefully, somewhat thoughtful comments in there.
Now I signed on to a Republican bill yesterday, I do it
almost every day, to Duncan Hunter's bill. You have got--you
know, we have got three bills before us now. You know. It is
time to start working together. You know, we can--it is time to
stop studying. This is--again, today is a little more
controversial. Certainly, the education bill shouldn't. The
train is going to move out if we don't get moving.
Thank you, Mr. Chairman.
Chairman Boehlert. Thank you very much.
I want to make sure that we have got a ticket on that
train.
I will tell you what I tell my constituents. As you well
know from my record, oftentimes my view and my votes are
somewhat different from the Administration position, and what I
tell my constituents, when you see me differ from the
Administration, you can assume the Administration is wrong.
[The prepared statement of Mr. Costello follows:]
Prepared Statement of Representative Jerry F. Costello
Good morning. I want to thank the witnesses for appearing before
our committee to discuss the possibility of establishing an Advanced
Research Projects Agency (ARPA-E) in the Department of Energy.
The report released by the National Academy of Sciences (NAS) on
October 12, 2005 entitled, Rising Above the Gathering Storm: Energizing
and Employing America for a Brighter Economic Future, recommended the
creation of an ARPA-E to fund research that could lead to new ways of
fueling the Nation and the economy. I commend Chairman Boehlert and
Ranking Member Gordon for holding this hearing today because the
recommendations this report issued will provide our committee with good
policy options that ensure new ideas and innovation. I look forward to
learning more about APRA-E and how it would be structured.
The second component of the Augustine report focused on ways to
enhance America's competitiveness. In June of this year, Chairman
Boehlert and Ranking Member Gordon wrote to the NAS to endorse the
Senate request for a study of ``the most urgent challenges the United
States faces in maintaining leadership in key areas of science and
technology,'' to provide advice and recommendations for maintaining
U.S. leadership in science and technology in the face of growing global
competition. Today, Americans are feeling the effects of globalization
because a substantial portion of our workforce finds itself in direct
competition for jobs with lower-wage workers around the globe. It comes
as no surprise that high-tech jobs are being outsourced to foreign
countries like China and India. Without high-quality, knowledge
intensive jobs and the innovative enterprises that lead to discovery
and new technology, our economy will suffer and our constituents will
face a lower standard of living. I am very concerned about the issue of
off-shoring and outsourcing and how these trends will affect current
scientists and engineers, as well as the future employment
opportunities and career choices of students.
Despite claims to the contrary by the Administration, the federal
research and development budget is not faring well, particularly the
non-defense component which has been flat for 30 years. In FY07, the
Administration proposed a one percent spending reduction in the federal
science and technology budget. Reductions like this continue to chip
away at the U.S. research base and jeopardize our economic strength and
long-term technological competitiveness. Innovation does indeed drive
our economic growth, but we must have the research base to drive new
energy technologies.
I welcome our panel of witnesses and look forward to their
testimony.
[The prepared statement of Ms. Johnson follows:]
Prepared Statement of Representative Eddie Bernice Johnson
Thank you, Mr. Chairman and Ranking Member.
Our nation is experiencing an energy crisis. America's dependence
on oil has begun to cripple its economy.
As demand from developing nations such as China increases, simple
economics tell us the price of oil will increase.
More and more money must come out of hard-working Americans'
pocketbooks for gasoline, and so they are spending less on other
things.
All indicators agree that the price of oil will likely continue to
go up. It is becoming more apparent that national leadership will be
required to push initiatives forward to lessen our dependence on oil.
Alternative fuels should be studied. More efficient engines should be
designed. There are many directions to take.
Private industry is not moving as quickly as it needs to be moving
in the development of alternative or more efficient fuels and engines.
Therefore a proposal has been made by leading research experts at the
National Academy of Science for the creation of an Advanced Research
Projects Agency within the Department of Energy--ARPA-E.
Ranking Member Gordon has proposed legislation based on the
National Academy's recommendation, and I am a co-sponsor.
This hearing comes at an opportune time, as Members of the Science
Committee are interested to know the best way such a department would
be organized and directed.
I would like to thank our witnesses for being here today. The
Committee will undoubtedly have many questions and benefit from your
expertise and leadership in cutting-edge research.
It is my hope that this hearing will help us as we provide the
leadership necessary to get our energy economy back on track.
Thank you, Mr. Chairman. I yield back.
[The prepared statement of Mr. Honda follows:]
Prepared Statement of Representative Michael M. Honda
I thank Chairman Boehlert and Ranking Member Gordon for holding
this important hearing today, and I thank our distinguished witnesses
for making the time to be here.
I've been in enough hearings of this committee to know that most of
us on this committee, from both sides of the aisle, are on roughly the
same page when it comes to recognizing that our nation is faced with
significant energy challenges in the future and that science and
technology will play an important role in addressing those challenges.
Where we differ is in the details. Some of us would prefer to see
more solar electricity generation, others nuclear, and still others
clean coal. Should we focus on hybrids, hydrogen fuel cell vehicles, or
liquid fuels produced from non fossil sources? I could go on all day
listing all of the options that are probably supported by one member or
another of this committee.
The breadth of these short lists makes it clear that how we
approach energy in the future is something we need to put a lot of
thought into. Are we going to need to focus on research dollars in some
very basic areas to generate new knowledge? Should we focus on bringing
technologies that have already been invented within DOE labs but which
are currently sitting on the shelf into the marketplace? Do we need to
provide the private sector with assistance to overcome market failures?
Each of these approaches probably requires a different kind of
program or agency to implement it. At this point, we don't know which
one we are thinking about, so it is essential that we talk about all of
the possibilities. The ARPA-E model is one of those options, and I've
co-sponsored Ranking Member Gordon's ARPA-E bill because I think it is
an idea we should be talking about. I'll admit that in the wake of a
hearing we had about DARPA's current directions in the area of computer
science I'm a bit wary of creating another organization like it that
might lose its way after being around for a long time, but if we take
care we can design ARPA-E to avoid those problems.
I look forward to hearing from our distinguished witnesses today,
including my friend and Nobel Laureate Dr. Steve Chu of Lawrence
Berkeley National Lab, about their thoughts on the directions we should
be taking with our future energy policy.
[The prepared statement of Ms. Jackson Lee follows:]
Prepared Statement of Representative Sheila Jackson Lee
Let me first thank Science Committee Chairman Boehlert and Ranking
Member Gordon for holding this hearing today on the idea of an
``Advanced Research Projects Agency for Energy'' (ARPA-E). Modeled
after the Department of Defense's Defense Advanced Research Projects
Agency, the goal of ARPA-E, under Congressman Gordon's proposition,
would be to reduce U.S. foreign energy dependence by 20 percent over a
10-year period. The idea of ARPA-E is intended to implement the
recommendation of the National Academy of Sciences' (NAS) report Rising
Above the Gathering Storm: Energizing and Employing America for a
Brighter Economic Future.
The idea of ARPA-E holds great potential, and if done right, the
agency could yield great returns in the future. As a Member of Congress
who represents Houston, often called the ``Energy Capital of the
World,'' I am very interested in this matter. Through the past year, I
have been working with many of the companies in an effort to get a
better understanding of high gasoline prices and the many disruptions
in production caused by Hurricanes Katrina and Rita. These now infamous
hurricanes showed how vulnerable this country is to price spikes in our
energy costs.
Hurricanes Katrina and Rita, as well as the war in Iraq, increased
energy demand from abroad. In addition, a host of other factors have
contributed to sky-high oil prices, and increased dependence on oil
from abroad. Crude oil prices at one point even exceeded $70 a barrel.
Americans suffered greatly from the high cost of gasoline, at one point
being forced to pay over $3 a gallon at the pump in many areas. And now
that winter has arrived, the price of natural gas, and the subsequent
cost of heating one's home, has been exceedingly high.
The problem is further exacerbated when one considers our addiction
to foreign oil. In President Bush's latest State of the Union address,
he pointed out the United States' addiction to oil.
It is due to these reasons that I am so interested in the
possibilities ARPA-E provides. We need a proactive, concerted effort to
change the state of our energy policy in the United States today, or
things will only get worse. ARPA-E would support high-risk, high pay-
off research projects in energy technologies that could lead us to new
realms of energy production, usage and efficiency. New and daring
research must be conducted in the energy technology field; our economy
depends on it, our security depends on it, our independence depends on
it, and our environment depends on it. We need to be able to include
the energy industry in the forward-thinking research opportunities that
ARPA-E will make available. I look forward to the witnesses sharing
their visions of an ARPA-E that could actually accomplish these goals.
Thank you Mr. Chairman, I yield the remainder of my time.
Chairman Boehlert. Now here we go to our witness list, and
a very distinguished panel that we have.
Dr. Steven Chu, Director of Lawrence Berkeley National
Laboratory. Dr. Chu, good to have you here. Dr. David Mowery,
William A. and Betty H. Hasler Professor of New Enterprise
Development at the Haas School of Business, University of
California at Berkeley. Dr. Mowery. And Ms. Melanie Kenderdine,
Vice President, Washington Operations for the Gas Technology
Institute. Ms. Kenderdine. Dr. Fernando Fernandez, President of
F.L. Fernandez, Inc. Dr. Fernandez. And Dr. Catherine Cotell,
Vice President for Strategy, University and Early Stage
Investment at In-Q-Tel, and as someone who has served for the
eight years on the Intelligence Committee, I know what In-Q-Tel
is.
Dr. Chu, you are first up. Don't be nervous when you see
that red light go on. It is an arbitrary--we want you to try to
summarize your statements in five minutes or so, but the Chair
is a little bit lenient. I mean, we have some of the most
distinguished thinkers in our country before us, and I am not
going to limit you to 300 seconds. But the shorter your initial
presentation is, the longer we have to pick your brains. And
boy, that is fertile territory for us.
Dr. Chu.
STATEMENT OF DR. STEVEN CHU, DIRECTOR, LAWRENCE BERKELEY
NATIONAL LABORATORY
Dr. Chu. Thank you, Chairman Boehlert, Ranking Member
Gordon, Members of the Committee.
I am Steven Chu, Director of Lawrence Berkeley National
Laboratory for 111/2 years. Before that time, I served at
Stanford University in Bell Laboratories for a total of 26
years, and I was the co-winner of the 1997 Nobel Prize in
Physics.
I was privileged to serve under Norman Augustine as a
member of the committee that produced the report ``Rising Above
the Gathering Storm.'' And I come before you today as a
representative of the Augustine Committee, not the Department
of Energy.
I thank you for providing me with the opportunity to
contribute to today's discussion on the proposal for Advanced
Research Projects Agency-Energy, known as ARPA-E.
The Nation needs to develop clean, safe, secure,
sustainable energy for three reasons: our national security is
directly linked to energy security; economic competitiveness is
intimately tied to how much energy costs and how efficiently it
is used; and there are serious environmental concerns
associated with energy usage from local pollution to climate
change.
Because of these concerns, I believe that the energy
problem is the single most important problem that has to be
solved by science and technology in the coming decades. At
present, there appear to be no magic bullets, and we need to
follow a dual strategy. We must improve efficiencies and use
our energy more wisely. And I will depart and say that that is
primarily a question of regulation, taxes, fiscal policy, and
things of that ilk, but we also must develop a diversified
portfolio of investments to develop sustainable sources of
energy.
The Augustine Committee recommended the establishment of
ARPA-E as one of 20 recommendations. They want to provide added
opportunities to Department of Energy to develop new
technologies to solve the energy problem. We conceived ARPA-E
as an organization reporting to the DOE under the Secretary of
Science that should achieve four objectives: one, bring a
freshness and excitement to energy research that will attract
many of our best and brightest minds, especially students and
young researchers, including those in the entrepreneurial
world; two, focus on creative, out-of-the-box, transformational
research that industry cannot or will not support due to its
high risk but where success would provide dramatic benefits for
the Nation; three, utilize an ARPA-like organization that is
flat, nimble, and sparse projects whose promise remains real
should be sustained while programs whose promise has faded
should be terminated; four, create a new tool to bridge the
gaps between basic energy research development and industry
innovation.
The agency would perform no research itself but would fund
work conducted by universities, start-ups, established firms,
and national laboratories, and forge links between these
research entities.
Another goal of ARPA-E is to bring teams of the best
researchers across departments and schools and to encourage the
best and brightest to pursue more applied work than they would
normally have pursued. It could also serve as a model of how to
improve the transfer of science and technology research in
other areas that are essential for our future prosperity.
The Committee considered several models before deciding to
use ARPA as a template, and I have indicated in my written
testimony why we settled on ARPA as a guide. However, we
believe the specific implementation is best determined by
policy-makers in Congress and by the Department of Energy.
Funding for ARPA-E would start at $300 million the first
year and increase to $1 billion per year over five or six
years. And at that point, the program's effectiveness should be
evaluated and appropriate actions taken.
It is critical that funding of ARPA-E not jeopardize the
basic research supporting the Department of Energy's Office of
Science, and I have to inject that I believe that part does do
things right.
The Committee's recommendations are prioritized and its top
recommendation in the area of research is to increase funding
for basic research by 10 percent per year over the next seven
years. The Augustine Committee applauds the Administration's
American Competitiveness Initiative.
We also applaud the courageous efforts of Secretary of
Energy, Sam Bodman, to make basic research activities a high
priority in the Department of Energy budget. The Augustine
report strongly recommends that support of ARPA-E come from new
funding.
I also note that the number one priority of our report is
to fix K-12 science and mathematics education.
A critical factor in ARPA-E's success is that funds be used
to fund ideas bubbling up from the bottom. By placing ARPA-E
under the Under Secretary of Science, the Committee believes
that this goal can be reached and the earmarking of funds can
be avoided.
What research might be funded by ARPA-E?
Here are some examples.
The development of a new class of solar cells. Photovoltaic
solar cells using conventional semiconductor technology are
efficient at converting sunlight into electrical energy, but
their fabrication costs remain too high. Organic and polymer
solar cells can be made at low cost but have poor efficiencies
and degrade in sunlight. One promising avenue toward
inexpensive, efficient, and long-lasting solar cells is to
create novel materials based on four or more elements that can
be manufactured with thin-film technologies. Another approach
is to create inexpensive, nano-particle devices that can use
different nanostructures for the conversion of sunlight into
electrical charges and for the collection of those charges.
Another avenue worth exploring is to combine photovoltaic
electrical generation with novel, biologically-inspired,
electrochemistry.
Biomass substitutes for oil. Ethanol for transportation is
currently produced from sugar cane, corn, and other plants
designed for food. However, the most cost-effective bio-fuels
will come from the conversion of cellulose. If done right, bio-
fuels produced in America can have the potential of supplying
us with enough oil substitutes to eliminate foreign imports.
The creation of crops raised for energy will take--also take
full advantage of our great agricultural capacity.
ARPA-E can fund the creation of new plants by introducing
dozens of genes into existing plants. Recently, a team of
scientists at Berkeley Lab inserted many genes into bacteria to
produce an extremely effective anti-malarial drug. The Gates
Foundation has given this team $42 million to commercialize
this technology at a target cost below 25 cents a cure. Similar
technologies can be used to make plants self-fertilizing,
drought-resistant, and pest-resistant.
Research on more efficient conversion of cellulose into
liquid fuel will yield even greater dividends. Current methods
use high temperature, high acid processes that are very energy-
intensive. The breakdown of cellulose into ethanol is also
accomplished with bacteria or fungi, but this process can be
made much more efficient if improved micro-organisms are
developed.
I have listed several examples of what might be considered
ARPA-E-like research. Many of these ideas cut across
disciplines. The potential for ARPA-E, if designed and executed
well, will yield tremendous benefit.
Chairman Boehlert, Ranking Member Gordon, and Members of
the Committee, thank you for the opportunity to present the
National Academy's recommendations before you. It has been a
privilege to working together to enable our nation to prosper
in the 21st century. I would be glad to respond to questions.
[The prepared statement of Dr. Chu follows:]
Prepared Statement of Steven Chu
Chairman Boehlert, Ranking Member Gordon, Members of the Committee,
I am Steven Chu, Director of Lawrence Berkeley National Laboratory.
Prior to my current job, I was at Stanford University for 17 years and
at AT&T Bell Laboratories for nine years. I was the co-winner of the
1997 Nobel Prize in Physics.
I was privileged to serve under Norman Augustine as a member of the
National Academy of Sciences, National Academy of Engineering, and
Institute of Medicine's Committee on Prospering in the Global Economy
of the 21st Century that produced the report Rising Above the Gathering
Storm: Energizing and Employing America for a Brighter Economic Future.
I come before you today as a representative of the Augustine Committee,
and not the Department of Energy.
Thank you for providing me with the opportunity to contribute to
today's discussion on the utility of the committee's proposal for the
Advanced Research Projects Agency-Energy (known as ARPA-E).
INTRODUCTION
We live in a truly magical time. With the flick of a finger, the
power of 10 horses flows from a small wire in the wall of our homes to
clean our carpets. We go to the local market under the pull of hundreds
of horses and fly across our continent with tens of thousands of them.
Our homes are warm in the winter, cool in the summer and lit at night.
We live well beyond the dreams of Roman emperors.
What has made all of this possible is our ability to exploit
abundant sources of energy. The worldwide consumption of energy has
nearly doubled between 1970 and 2001. By 2025, it is expected to
triple. The extraction of oil, our most precious energy source, is
predicted to peak sometime in 10 to 40 years, and most of it will be
gone by the end of this century. What took hundreds of millions of
years for nature to make will have been consumed in 200 years. We have
abundant forms of fossil fuel such as coal, shale oil, and tar sands
that will last for hundreds of years. However, in my opinion, if the
world substantially increases the generation of greenhouse gases by
relying heavily on fossil fuels, we run the risk of causing disruptive
climate change.
The Nation needs to develop clean, safe, secure, and sustainable
energy for three reasons:
1. Our energy security is directly linked to national
security.
2. Economic competitiveness is intimately tied to how much
energy costs, and how efficiently it is used.
3. There are serious environmental concerns associated with
energy usage from local pollution to climate change.
Because of these concerns, I believe that the energy problem is the
single most important problem that has to be solved by science and
technology in the coming decades. At present, there appear to be no
magic bullets to solve the energy problem. While efficiencies play a
huge role in defining how much energy we consume, we must also have a
diversified portfolio of investments to develop sustainable sources of
energy.
ARPA-E
The committee that developed the report, Rising Above the Gathering
Storm, included amongst its 20 recommended action steps, the
establishment of the Advanced Research Projects Authority-Energy (ARPA-
E).
The committee intends ARPA-E to provide a new field of opportunity
to the Department of Energy as it works to develop new technologies to
supply this nation and the world, with safe, clean, affordable, secure,
and sustainable energy. We simply must find energy supplies that will
not degrade our environment. If we do not do this, there will be no
future prosperity.
We must take concerted action and make the investments necessary to
enlist our most talented researchers and innovators. Our committee,
therefore, conceived ARPA-E as an organization reporting to the DOE
Under Secretary for Science that can achieve four objectives:
1. Bring a freshness, excitement, and sense of mission to
energy research that will attract many of our best and
brightest minds--those of experienced scientists and engineers,
and, especially, those of students and young researchers,
including those in the entrepreneurial world.
2. Focus on creative ``out-of-the-box'' transformational
energy research that industry by itself cannot or will not
support due to its high risk but where success would provide
dramatic benefits for the Nation.
3. Utilize an ARPA-like organization that is flat, nimble, and
sparse, capable of sustaining for long periods of time those
projects whose promise remains real, while phasing out programs
that do not prove to be as promising as anticipated.
4. Create a new tool to bridge the gap between basic energy
research, and development/industrial innovation.
The agency would itself perform no research, but would fund work
conducted by universities, start-ups, established firms and national
laboratories. Although the agency would be focused on energy issues, it
is expected that its work (like that of DARPA or NIH) will have
important spin-off benefits, including aiding in the education of the
next generation of researchers.
Another goal of ARPA-E is to bring teams of the best researchers
across departments and schools to get the best results for the Nation.
ARPA-E would provide an incentive to encourage the best and brightest
researchers to pursue more applied work than they would normally
pursue. It could also serve as a model for how to improve the transfer
of science and technology research in other areas that are essential to
our future prosperity.
The committee considered several models before deciding to focus on
energy and to use ARPA as a template. Among these were In-Q-Tel (which
engages the entrepreneurial community with technologies of potential
interest to the intelligence community), HSARPA (the Department of
Homeland Security Version of ARPA), SEMATECH (a jointly funded research
venture of the Federal Government and the semiconductor industry),
Advanced Technology Program (ATP), Small Business Innovation Research
program (SBIR), Civilian Technology Corporation (recommended in a
previous 1992 National Academies report chaired by Harold Brown), and
Discovery Innovation Institutes (recommended by a 2005 National
Academies report chaired by James Duderstadt).
In-Q-Tel is a fine model for its mission. However, the objective
set out by the Gathering Storm report is to perform research and to
sponsor the early development of transformational new approaches to
energy. In-Q-Tel operates in a different context. Its goal is not basic
research, but the application of those ideas already in business and to
act as a bridge from one industry to another. On the other hand, the
goal of ARPA-E is to conduct applied research and to act as a bridge
from basic research to development of new technologies.
Also, In-Q-Tel has one customer, the Intelligence Community, with a
well-specified set of mission activities that they want to accomplish
differently or better. Developing new energy technologies is an
earlier-stage, much less focused activity. If ARPA-E is successful,
then technology transition will be from the research laboratory to
small and large companies, not into the government. Arguments compel
the conclusion that DARPA is better model for ARPA-E where the
challenge is to transform U.S. energy dependence.
Three congressional bills, H.R. 4435, S. 2196, and S. 2197 call for
the establishment of ARPA-E. Although the National Academies do not
endorse legislation, we can say that each of these bills is harmonious
with the general principles outlined for ARPA-E in the Gathering Storm
report. We believe the specifics of implementation are best determined
by policy-makers in Congress and at the Department of Energy.
FUNDING OF ARPA-E
Funding for ARPA-E would start at $300 million the first year and
increase to $1 billion per year over 5-6 years, at which point the
program's effectiveness would be evaluated and any appropriate actions
taken.
In funding ARPA-E, it is critical that its funding not jeopardize
the basic research supported by the Department of Energy's Office of
Science. The committee's recommendations are prioritized and its top
recommendation in the area of research is to increase the funding for
basic research by 10 percent per year over the next seven years. The
Augustine Committee applauds the Administration's American
Competitiveness Initiative, particularly the courageous efforts of
Secretary of Energy Samuel Bodman, to make basic research activities a
high priority in the Department of Energy budget .The Augustine Report
strongly recommends the support of ARPA-E come from new funding.
I also note that the number one priority in our report is to fix K-
12 science and mathematics education.
A critical factor in ARPA-E's success is that the funds be used as
wisely as possible to fund the best ideas. These ideas should bubble-up
from the bottom and should not be directed from the top. By placing
ARPA-E under the Under Secretary of Science, the committee believes
that this goal can be reached and earmarking of funds can be avoided.
WHAT RESEARCH MIGHT ARPA-E FUND?
Some examples of what ARPA-E might fund include:
1. The development of a new class of solar cells.
Photovoltaic solar cells using semiconductor technology can be very
efficient at converting sunlight into electrical energy, but the
fabrication cost remains too high. Organic and polymer solar cells can
be made at low cost, but the efficiencies are low and existing
materials degrade in sunlight. One promising avenue towards
inexpensive, efficient and long lasting solar cells is to create novel
materials based on multiple elements that can be manufactured with
thin-film technologies. Another approach is to create nano-particle
devices (distributed junction solar cells) that use different
nanostructures for the conversion of sunlight into charge carriers and
for the collection of those charges onto electrodes.
2. Biomass substitutes for oil.
The ethanol for transportation is currently produced from sugar
cane, corn or other plants. However, the most cost effective bio-fuels
will come from the conversion of cellulose into chemical fuel. When the
fuel is burned, CO2 is released into the atmosphere, but the
overall cycle can, in principle, be carbon neutral. The creation of
crops raised for energy will also take full advantage of our great
agricultural capacity.
ARPA-E can fund the creation of new plants to be grown for energy
by incorporating a number of genes are introduced into plants.
Recently, a team of scientists at Lawrence Berkeley National laboratory
inserted many genes into bacteria to produce an extremely effective
anti-malarial drug. The Gates Foundation has given this team a $42 M
grant to commercialize the technology so that the drug can be made
available to the developing world. Similar technology can be used to
make plants self-fertilizing, drought and pest resistant. Note that
about 25 percent of the energy input in growing corn comes from
fertilizer, which is made from ammonia derived from natural gas.
Research on more efficient conversion of cellulose into liquid fuel
would also yield great dividends. Current methods use the high
temperature/high acid processes that are very energy intensive. The
breakdown of cellulose into ethanol is also accomplished with bacteria
or fungi, but this process can be made much more efficient if the
micro-organisms are modified with these methods.
COMMITTEE'S QUESTIONS ABOUT ARPA-E
In your request asking me to testify at this hearing, you asked me
to respond to three questions about ARPA-E. I will now address each
question.
1) Should ARPA-E be designed more to foster directed basic research or
to get products into the marketplace? If the focus were basic research,
what steps would ARPA-E or other entities have to take to affect the
marketplace? If the focus were technology transfer, what specific
barriers would ARPA-E be designed to overcome, how would it do so, and
would that be the most effective way that government could transform
the energy marketplace?
The purpose of ARPA-E is not to get products into the marketplace,
but to conduct the research necessary to transform the energy
marketplace by creating platform technologies. ARPA-E would identify
and support the science and technology critical to our nation's energy
infrastructure and act as the bridge between the basic research,
predominantly supported by the Office of Science and the more applied
areas.
The committee believes that there are great researchers and great
ideas out there which are not currently being utilized to address the
Nation's energy challenge. Because the benefits of long-term energy
research would accrue to all, it is not necessarily beneficial for one
company to make the long-term investment needed for a transformational
technology today.
Historically, this role was served by the great industrial labs
such as Bell Labs which created devices such as the transistor. In the
1930s, there was a need to develop a low-power, reliable, solid-state
replacement for the vacuum tube used in telephone signal amplification
and switching. Materials scientists had to invent methods to make
highly pure germanium and silicon and to add controlled impurities with
unprecedented precision. Theoretical and experimental physicists had to
develop a fundamental understanding of the conduction properties of
this new material and the physics of the interfaces and surfaces of
different semiconductors. By investing in a large-scale assault on this
problem, the transistor was invented in 1948, less than a decade after
the discovery that a semiconductor junction would allow electric
current to flow in only one direction. Fundamental understanding was
recognized to be essential, but the goal of producing a vacuum tube
substitute was kept front-and-center. Despite this focused approach,
fundamental science did not suffer: a Nobel prize was awarded for the
invention of the transistor. During this and the following efforts, the
foundations of much of semiconductor-device physics of the 20th century
were laid.
ARPA-E could fund research at universities start-ups, established
firms and national laboratories for similar focused goals. ARPA-E may
be especially useful in funding projects whose success will require
coordinated efforts from several fields of science. It would also meet
the Nation's need for transformational, high-risk, high payoff R&D that
would be a challenge for today's electric utilities, petroleum
companies, and large energy equipment manufacturers to address and
which are not very attractive to the entrepreneurial world.
2) What kinds of entities should receive funding from ARPA-E? Should
the National Laboratories be able to receive funding from ARPA-E? How
should the work funded by ARPA-E differ from work funded under existing
DOE basic and applied research programs? How could Congress structure
ARPA-E to ensure that ARPA-E did not end up carrying out programs that
are substantially similar to those already in DOE's portfolio?
The research work supported by ARPA-E would fall between DOE's
Office of Science and its energy technology programs such as the
offices of Energy Efficiency & Renewable Energy, Nuclear Energy,
Science, and Technology, Fossil Energy, Electricity Delivery and Energy
Reliability. By its nature, ARPA-E would fund activities more applied
than DOE basic research programs and too basic for its applied research
programs. ARPA-E would also be looking for ways to harness basic
science discoveries that are supported by other agencies.
Some key differences between ARPA-E and existing DOE organizations
include:
Small staff of smart, vigorous, creative minds with
deep knowledge in relevant research areas hired from the best
performing organizations in energy research and advanced energy
industry.
Creative, challenging programs that attract the
brightest researchers in industry and the university to work on
them.
Programs designed with no constraint to fund existing
organizations.
Staff would also rotate on a regular basis as is the
case at DARPA today to ensure that new ideas are constantly
part of the mix. Staff's performance would be evaluated on
their basis to identify and support transformative research.
Programs with clear and challenging goals. For
example, the DARPA speech recognition program started with a
clearly defined goal such as recognizing a) continuous speech
(words not disjointed), b) spanning a 1,000 word vocabulary, c)
using conventional microphones, and d) performing recognition
in real time.
Programs defined to perform R&D of the multiple,
complementary elements that enable new energy approaches to
eventually become commercialized.
Objective is breakthrough, new workable ideas--not
incremental research.
Flat management.
Jumpstarts the adoption of a technology by inserting
prototypes to demonstrate effectiveness. For example, it was
DARPA not the military, that developed the Predator, an
unpiloted air vehicle that was used in theatre in the 1990s and
greatly accelerated the adoption of such vehicles for
surveillance and reconnaissance.
Merit review of proposals.
Operates with special authorities that enable the
hiring of the needed talent, and that permit the agency to
rapidly and nimbly make investments.
The criteria used to select proposals for research funding would be
very important. Among them could be criteria that would describe how
the proposed research is similar or different from existing research
activities that DOE (or other organizations) is funding.
Another critical criteria would be that the research be
transformational--not just incremental progress on existing ideas.
Anyone could compete for funding from ARPA-E including
universities, industry, businesses, and national laboratories or
ideally, a consortia of these organizations. Those managing the process
would need to be very independent and not favor one group over another.
3) Is it credible to develop a solution to U.S. energy needs based on
the Defense Advanced Research Projects Agency (DARPA), given that DARPA
is developing ideas for a market in which the government itself is the
primary customer and cost is not a primary concern?
The agency's basic administrative structure and goals would mirror
those of DARPA, but there would be some important differences. DARPA
exists mainly to provide a long-term ``break-through'' perspective for
the armed forces. As previously stated, DOE already has excellent
mechanisms for supporting long-term fundamental research in the Office
of Science and shorter-term research in its other branches. ARPA-E
would identify and support the science and technology critical to our
nation's energy infrastructure by focusing on problem-driven research.
It also could offer several important national benefits:
Promote research in the physical sciences,
engineering, and mathematics.
Create a stream of human capital to bring innovative
approaches to areas of national strategic importance.
Turn cutting-edge science and engineering into
technology for energy and environmental applications.
Accelerate innovation in both traditional and
alternative energy sources and in energy-efficiency mechanisms.
Foster consortia of companies, colleges and
universities, and laboratories to work on critical research
problems.
Although DOD is the primary direct customer for most successful
DARPA-developed technologies, i.e., the military procures the ultimate
systems, and devices, DOE would not in this sense be the direct
customer for ARPA-E. In other words, it is really the defense industry
that is the customer for DARPA who then in turn uses its research to
develop products it hopes is useful for DOD. DOD rarely builds products
itself. Similarly, the energy industry could use the results of ARPA-E
to similarly turn its research to develop technologies for itself,
utilities, and the general public.
There are, however, vast potential world markets for successful new
technologies that generate and distribute safe, clean, affordable,
secure, and sustainable energy. Thus capital for proven technologies
should not be a problem and an organization such as In-Q-Tel (which
serves as a venture capital firm for the intelligence community) may or
may not be necessary.
ARPA-E could be a catalyst to drive technologies into industry. It
can take early high risk positions and access a talent base that
generally is not available in the industry. Some ARPA-E projects would
be conducted by industry, and would help to expand high-tech
capabilities within companies, just as has been the case of DARPA
projects in the defense industry.
Our committee did not believe it appropriate for us to specify the
organization and mission of ARPA-E in great detail. We believe that
must be worked out by the Secretary of Energy and the Under Secretary
for Science in consultation with experts from the scientific and
engineering communities. Defense visionaries who realized that the
military had to reach out to new communities for the technologies that
would be required to counter the rapidly changing threats of the post-
Sputnik era established the original ARPA in the DOD. It was enormously
successful. We believe that ARPA will provide the right general
framework on which to design ARPA-E. It is a proven model.
CLOSING COMMENTS
The potential payoff of ARPA-E through engaging new researchers,
exciting a new generation to confront the looming energy crisis, and
operating with an agility to involve scientists and engineers who
otherwise might not contribute to meeting our energy and environmental
challenges is great. ARPA-E can be goal-oriented, flexible, yet
possible to start, stop, and sustain programs and projects according to
their promise and performance.
Chairman Boehlert, Ranking Member Gordon, and Members of the
Committee, thank you for the opportunity to National Academies report
Rising Above the Gathering Storm. It is a privilege to work together to
enable our nation to prosper in the 21st century.
I would be glad to respond to any questions.
Biography for Steven Chu
Steve Chu, 57, became Berkeley Lab's sixth Director on August 1,
2004. A Nobel Prize-winning scholar and international expert in atomic
physics, laser spectroscopy, biophysics and polymer physics, Dr. Chu
oversees the oldest and most varied of the Department of Energy's
multi-program research laboratories. Berkeley Lab has an annual budget
of more than $520 million and a workforce of about 4,000.
His distinguished career in laboratory research began as a
postdoctoral fellow in physics at the University of California's
Berkeley campus from 1976-78, during which time he also utilized the
facilities of Berkeley Lab. His first career appointment was as a
member of the technical staff at AT&T Bell Laboratories in Murray Hill,
N.J. where, from 1978-87, his achievements with laser spectroscopy and
quantum physics became widely recognized. During the last four years
there he was Head of the Quantum Electronics Research Department,
during which time he began his groundbreaking work in cooling and
trapping atoms by using laser light. In 1987, he became a professor in
the Physics and Applied Physics Departments at Stanford University,
where he continued his laser cooling and trapping work.
This work eventually led to the Nobel Prize in Physics in 1997, an
honor he shared with Claude Cohen-Tannoudji of France and United States
colleague William D. Phillips. Their discoveries, focusing on the so-
called ``optical tweezers'' laser trap, were instrumental in the study
of fundamental phenomena and in measuring important physical quantities
with unprecedented precision.
At the time, Dr. Chu was the Theodore and Francis Geballe Professor
of Physics and Applied Physics at Stanford University, where he
remained for 17 years as highly decorated scientist, teacher and
administrator. While at Stanford, he chaired the Physics Department
from 1990-93 and from 1999-2001.
He is a member of the National Academy of Sciences, American
Philosophical Society, American Academy of Arts and Sciences, Academia
Sinica, and Honorary Lifetime member, Optical Society of America. He is
also a foreign member of the Chinese Academy of Sciences and the Korean
Academy of Sciences and Technology.
Dr. Chu has won dozens of awards in addition to the Nobel Prize,
including the Science for Art Prize, Herbert Broida Prize for
Spectroscopy, Richtmeyer Memorial Prize Lecturer, King Faisal
International Prize for Science, Arthur Schawlow Prize for Laser
Science, and William Meggers Award for Laser Spectroscopy. He was a
Humboldt Senior Scientist and a Guggenheim Fellow and has received six
honorary degrees.
Born in St. Louis and raised in New York, Dr. Chu earned an A.B. in
mathematics and a B.S. in physics at the University of Rochester, and a
Ph.D. in physics at UC-Berkeley. He maintains a vigorous research
program and directly supervises a team of graduate students and
postdoctoral fellows. He is author or co-author of more than 160
articles and professional papers, and over two dozen former members of
his group are now professors at leading research universities around
the world.
Chairman Boehlert. Thank you, Dr. Chu.
Dr. Mowery.
STATEMENT OF DR. DAVID C. MOWERY, WILLIAM A. & BETTY H. HASLER,
PROFESSOR OF NEW ENTERPRISE DEVELOPMENT, HAAS SCHOOL OF
BUSINESS, UNIVERSITY OF CALIFORNIA AT BERKELEY
Dr. Mowery. Mr. Chairman, Mr. Gordon, Members of the
Committee, I appreciate the opportunity to appear and discuss
proposals for the Energy ARPA that have been embodied in
legislation--legislative proposals and in the Augustine
Committee report.
I confess to some skepticism about the ARPA-E model, as it
applies to energy R&D, while at the same time, I share many of
the goals embodied in the Augustine Committee report. It seems
to me, the biggest question concerning the proposal for an
Energy ARPA really is the--concerns the problem within the
energy R&D system that this entity is--seeks to solve. I share
the concerns expressed by the NAS panel and other expert groups
over the disparate growth in federal funding for biomedical and
physical sciences R&D during the past two decades, and I think
a strong case could be made for increased federal investment in
energy efficiency, conservation, and alternative energy
programs in the face of essentially flat funding since the
early 21st century. But many of these concerns, if not all of
them, can be--in my view, can be addressed through mechanisms
other than the establishment of a new entity within DOE. And I
think the proposal for an Energy ARPA overlooks some critical
features of energy R&D, some of which were eluded to by
Chairman Boehlert, that make the DARPA model less applicable to
the field of energy R&D.
So let me just kick off the areas in which I agree with the
panel's recommendations and then spend more of my time on the
areas in which I disagree, in hopes of sparking some debate.
I think that the proposals for expanded R&D in energy--in
alternative energy R&D are very positive. I served on another
National Academy of Sciences panel that assessed the value of
DOE investments in alternate energy, energy conservation, and
energy efficiency programs, and our consensus was that the
returns to these investments was positive. And we felt that the
Department of Energy had, overall, done an effective job of
managing these.
I think, also, that the spirit of the Augustine Committee's
recommendations for energy R&D and, more broadly, for retooling
the national investment, particularly the federal investment in
R&D, on extramural research with a focus on the physical
sciences and engineering is a strong positive. I note, as well,
that the expanded funding of research in these areas in higher
education, in particular, embodies a very effective technology
transfer mechanism, the movement of people to and from the
university. And I think that that is an important area for
expansion and continued activity.
Let me move to the areas in which I disagree with the
utility of the DARPA model for energy.
The first, and I think the most important, is the demand
side. I--it seems to me that the area of energy R&D is one in
which much of the benefit, if not all of the benefit associated
with energy R&D, is embodied in the adoption of these
technologies. The technologies yield benefits only to the
extent they are applied broadly within the civilian economy.
Moreover, broad application of these new technologies often
contributes and accelerates their improvement in use. What we
know about the first version of many technologies, in energy
and elsewhere, is that they tend to be rather user-unfriendly,
they, in many cases, are less reliable, and are certainly
oftentimes far more costly. Over time, as users learn to
operate, maintain, and improve these technologies in the field
and as producers incorporate feedback from users, costs drop
and performance improves.
The demand side in the energy R&D field seems, to me, is
the big--is a big problem. It is not the only problem, but it
certainly is a very large problem precisely because federal
policy fails to create the kinds of market signals to both
support more widespread adoption by users and federal policy,
by failing to create those market signals, also tends to
discourage private sector investment in the commercialization
of the technologies already developed.
So we have, I think, a serious issue on the demand side.
And this is clearly something that DARPA and the Defense
Department generally have in their quiver of policy weapons
that an ARPA-E really doesn't. And as the Augustine panel's
report acknowledges, the absence of a strong procurement lever
to support the adoption and lower the costs and improve the
performance of technologies in use is, I think, an important
failing in energy R&D that an ARPA-E cannot overcome.
A second area in which I think the ARPA-E proposal is,
perhaps, a bit unrealistic is, and here I am going to opine a
bit on politics to a group of experts, but nevertheless, the
political environment for energy R&D is clearly much different
from the environment within which DARPA achieved a great deal
of success in at least two respects. DARPA had a clearly
identified client and mission, the uniformed services and the
mission on which there was fairly broad political consensus of
improving and sustaining U.S. national security. That is not to
say that politics did not enter. That is not to say that
clashes within the Defense Department over DARPA programs did
not exist. Nevertheless, there was a very clearly defined
mission and a very clearly defined client, if you will, for the
research.
I think this really is lacking on the energy side, making
energy R&D far more complex. We have many more user groups with
often clashing interests, as is well known, certainly, to this
panel and to other witnesses. And we also have a more unstable
political environment. Both the economic environment, the price
of energy fluctuates over time, and the priorities, the
political priorities and goals of energy R&D programs shift
over time. That further destabilizes, if you will, the
environment within which users adopt and prospective investors
commit funds to commercialization.
So let me wrap up here.
First, I want to express my appreciation, and I think we
all owe a great debt to the National Academy panel, to its
members and its staff, for putting together a very ambitious
report that synthesizes a great deal of information and makes a
number of important recommendations. And while I don't agree
with all of the recommendations in their totality, I think the
contribution of this panel's report to sparking and catalyzing
a debate over issues that, for too long, have been frozen in
the political debate is extremely important. And I think we are
all indebted to them for that.
So thank you, Mr. Chairman, Mr. Gordon, and I am happy to
answer your questions.
[The prepared statement of Dr. Mowery follows:]
Prepared Statement of David C. Mowery
I appreciate the opportunity to appear before the Committee to
discuss the legislative proposals for an ``ARPA-E'' that will support
R&D on energy technologies that can reduce U.S. dependence on foreign
suppliers of oil, reduce pollution, and reduce emissions of other
materials that contribute to global climate change. Overall, I agree
with the NAS panel's goals in recommending such a program, although I
am skeptical about the usefulness of a ``DARPA model'' for energy R&D.
The Federal Government (and agencies including but not restricted
to DARPA) has a long history of supporting R&D that has contributed to
the introduction and deployment of technologies ranging from the 19th-
century telegraph to civilian aircraft, hybrid corn, and the Internet.
Moreover, federal R&D programs in energy efficiency and fossil energy
between 1978 and 2000 produced significant economic, environmental, and
other benefits.\1\ This long history raises some important questions
for the design of an ARPA-E.
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\1\ See Energy Research at DOE: Was It Worth It?, National Research
Council Committee on Benefits of DOE R&D on Energy Efficiency and
Fossil Energy (National Academy Press, 2001).
---------------------------------------------------------------------------
The biggest question concerning the proposal for an ARPA-E concerns
the problem that this entity seeks to solve. I share the concerns
expressed by the NAS panel and other expert groups over the disparate
growth in federal funding for biomedical and physical-sciences R&D
during the past two decades, and a case can be made for increased
federal investment in energy efficiency and conservation programs in
the face of flat funding since fiscal 2001. But these concerns can be
addressed through mechanisms other than the establishment of a new
entity within DOE. And the proposal for an ARPA-E overlooks some
critical features of energy R&D that make the ``DARPA model'' less
tenable in this field.
1. Who should perform the R&D funded by ARPA-E?
The NAS panel's report emphasized the importance of ``rebalancing''
the national R&D ``portfolio.'' A combination of factors (including the
end of the Cold War) has produced a significant shift in the federal
R&D budget in favor of biomedical research. The trends are well known,
but bear repeating: federal funding for life sciences R&D grew by 6.2
percent per year from 1982 to 2003, outstripping annual growth rates in
federal funding for engineering R&D (2.2 percent) and physical sciences
R&D (one percent). ``Life sciences'' R&D grew from 41 percent of
federal R&D funding in fiscal 1994 to nearly 54 percent by fiscal 2003,
and the share of federal R&D spending accounted for by ``environmental
sciences, physical sciences, mathematics, and engineering'' R&D shrank
from more than 50 percent to less than 40 percent in the same
period.\2\ In addition, most observers suggest that the ``time
horizon'' of federal and private-sector investments in physical-
sciences and engineering R&D has shrunk. The share of overall Defense
Department R&D devoted to ``basic'' research (``6.1'') declined from
more than five percent in fiscal 1965 to just over 2.5 percent in
fiscal 2003.
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\2\ See also Engineering Research and America's Future: Meeting the
Challenges of a Global Economy (National Academies Press, 2005).
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A more balanced U.S. R&D portfolio should include greater public
funding for R&D in the physical sciences and engineering undertaken by
extramural performers, notably industry and higher education. Expanded
funding for university R&D in particular could increase the supply of
U.S. citizens trained in these fields and attract the ``best and
brightest'' from other nations to conduct research and obtain long-term
employment in the United States. Moreover, U.S. research universities
transfer knowledge and technology very effectively through the
placement of graduates in industrial and academic positions.
Although many components of the DOE laboratory system are closely
linked with university education and research, the NAS panel rightly
emphasizes the importance of extramural R&D performers (defined in this
case as entities other than the DOE labs) in its description of ARPA-E.
In fiscal 2003, only nine percent of DOE's total R&D budget (including
defense programs) went to research universities, while 16 percent was
allocated to industry. Implementing new programs that follow the spirit
of the recommendations in the NAS panel report requires an increase in
the share of the DOE R&D budget that is allocated to extramural R&D
performers.
It is not clear, however, that an ARPA-E is necessary to achieve
this goal. For example, DOE might award grants on a peer-reviewed basis
to university research teams that commit to using DOE laboratory
facilities, incorporating competition among DOE laboratories to attract
high-potential academic research teams. Alternatively (and following
the example of DARPA in information technology), DOE could commit to
multi-year support for ``Centers of Excellence'' in interdisciplinary
energy R&D at universities through a competitive process. Yet another
model for expanding financial support for academic research in the
physical sciences and engineering is the Engineering Research Centers
established at many universities by the National Science Foundation.
2. What types of R&D will ARPA-E focus on?
The NAS panel report's description of the ARPA-E research agenda
suggests that this entity will support R&D on ``generic'' technologies
that are slightly ``downstream'' from basic research, yet are
sufficiently long-term and risky that private industry will not fund
them. DARPA's research agenda included both long-term and more applied
work, but more discussion is needed on exactly what ``gap'' the ARPA-E
research agenda will fill. As I note below, one of the most significant
obstacles to the translation of fundamental research advances into
energy-conserving applications is the lack of incentives for users to
adopt such technologies.
Another question for an ARPA-E concerns funding levels. Where does
the proposed first-year funding of $300 million for ARPA-E fit into the
President's requested increase of $391 million for non-defense DOE R&D
in fiscal 2007?\3\ Would the $300 million in first-year funding for
ARPA-E consist entirely of ``new money'' in addition to the $391
million in increases for R&D requested in the FY 2007 budget document,
or would this new entity be funded from a reallocation within the DOE
R&D budget? Since one goal of an ARPA-E appears to be a substantial net
increase in DOE support for extramural research, the answers to these
questions are crucial.
---------------------------------------------------------------------------
\3\ This estimate is taken from the AAAS 2/24/06 R&D funding report
for FY 2007 DOE R&D, and includes ``facilities'' funding in addition to
R&D. See www.aaas.org/spp/rd; accessed March 7, 2006.
3. Is R&D investment a sufficient condition for advancing U.S. energy
---------------------------------------------------------------------------
goals?
Along with other expert groups, the Committee on Prospering in the
Global Economy of the 21st Century highlighted the urgency and
significance of energy-related challenges faced by the United States.
The development of new technologies is an essential step in addressing
these challenges. But realizing the benefits of these technologies
requires more than their development by public- or private-sector
researchers; widespread adoption of these technologies is necessary.
Indeed, more rapid adoption by users of new technologies can
accelerate innovation, as users learn to operate, maintain, and improve
them (the Internet in the United States is a classic example). And the
need for widespread adoption highlights an important issue for ARPA-E
that DARPA did not face: the creation of a market for new technologies.
Federal programs supporting technological innovation have proven
especially effective when funding for R&D was combined (often through
different programs or policies) with complementary policies supporting
the adoption of the innovations flowing from publicly funded R&D.
The Defense Department has been an important early purchaser of new
technologies ranging from semiconductor components to computer hardware
since the late 1940s. This ``lead purchaser'' role had several
important effects: (1) the military market generally paid premium
prices, enabling new suppliers to quickly achieve profitability; (2)
the military market was sufficiently large that suppliers could exploit
learning in production to reduce their manufacturing costs and
eventually, lower the prices on new technologies sufficiently to make
them competitive in civilian markets; and (3) suppliers used military
markets to improve the design and ease of use of new products in ways
that further enhanced their attractiveness to civilian purchasers. The
procurement budget of the Defense Department aided in the translation
of DARPA-supported military innovations into technologies that
penetrated large civilian markets, increasing demand and accelerating
improvements in the reliability and price-competitiveness of these
technologies.
The translation of DOE-funded innovations (whether funded by an
ARPA-E or another entity) into technologies that are deployed
extensively within the U.S. economy will require cost reduction and
quality improvement of these innovations. Moreover, this
``translation'' will rely on investments from private firms and
entrepreneurs seeking to profit from the commercialization of these
technologies. DOE-supported R&D therefore should be complemented by
policies that support end-user demand for these new technologies.
Examples of such policies include mileage standards for automobiles and
energy-efficiency requirements for other technologies; taxes on the
carbon content of energy sources; and other mechanisms that create
market signals to guide and create incentives for the long-term
investment decisions of entrepreneurs and the purchase decisions of
consumers.
Indeed, policies supporting the adoption of existing technologies
could produce significant near-term improvements in U.S. energy
efficiency and, potentially, reductions in pollutants. Wider adoption
of these technologies would contribute to more rapid incremental
improvements in their reliability and cost-effectiveness. And the
cumulative effect of such incremental improvements can be very large
indeed.
4. ARPA-E faces a very different political environment than DARPA
Another contrast with ARPA-E is DARPA's single customer and clear
mission. Although its relationship with the uniformed services has not
been free of conflict, DARPA enjoyed relatively close links with a
clear primary ``customer.'' In addition, of course, the broad mission
of DARPA--enhancing U.S. military capabilities--was widely accepted
across the political spectrum. By comparison, the energy policy arena
in which an ARPA-E would be a central actor is characterized by a
higher level of political conflict over ends and means, as well as a
large number of user constituencies whose needs and priorities may be
mutually inconsistent.
Investment in the commercialization of new technologies takes
substantial funds and substantial time. Private-sector investment will
respond to market-based incentives created by federal policy only to
the extent that these federal policies are perceived to be credible,
i.e., lasting and reasonably stable. Partly because of wide swings in
energy prices and partly because of a lack of political consensus on
ends and means, U.S. energy policy has experienced frequent change in
goals, political saliency, and program content. Policy instability has
raised the risks of investments by private firms in commercializing
alternative energy technologies, and almost certainly has reduced the
flow of capital into R&D and commercialization in these fields.
Although one cannot describe U.S. defense R&D policy as
``nonpolitical,'' the fact remains that the higher level of political
consensus on external threats and responses to them since the 1950s has
meant that DARPA has operated in a more stable policy environment that
enhanced the credibility of its policies and meant that public
investments effectively complemented private-sector funding.
It seems likely that the political conflicts that characterize U.S.
energy policy will remain significant and that the instability in
policy will persist. Such policy instability compounds the
technological risks faced by an ARPA-E and will complicate the
development of complementary policies to support the adoption of
energy-efficient technologies.
Conclusion
I support the broad goals of the Committee on Prospering in the
Global Economy of the 21st Century in recommending an ARPA-E. I believe
that expanded federal investment in long-term R&D that supports the
training of tomorrow's scientists and engineers is needed, and I share
the Committee's view that the energy field is one in which the public
interest would be well served by greater investment in new
technologies. I also believe that the track record of federal R&D
investments in the energy field, like many other fields of technology,
is a mixed but on the whole positive one. But I am not convinced by the
Committee's arguments that a new entity within the Department of Energy
is the best means for achieving these goals.
On balance, I believe that a stronger case for an ARPA-E should be
based on a clearer analysis of the deficiencies in the current energy
R&D structure that includes more detail on how an ARPA-E will address
these problems. And as I noted above, there are very important
differences between DARPA and the proposed ARPA-E (some of which
reflect the differences in their missions) that seem likely to impede
the effectiveness of an ARPA-E.
The members (and staff) of the NAS panel should be congratulated
for producing an important report (and doing so very quickly) that
contains numerous policy recommendations in addition to that for an
ARPA-E that merit serious consideration by Members of Congress. It is
especially important for members of the Science Committee to attend to
the NAS panel's overall analysis of the health of the U.S. innovation
system. Actions that reduce federal support for basic research, such as
potential cutbacks in NASA space science programs, or policies that may
reduce access to higher education, such as cutbacks in federal support
for student higher-education loans, do not advance the goals of Rising
Above the Gathering Storm. All decisions concerning the allocation of
public resources are difficult, and the current (and prospective)
environment of revenues and spending pressures has created unusually
severe challenges. But federal investments in the future are essential
to maintaining the living standards and global leadership that this
nation has enjoyed for much of the past century, and a consistent
commitment to funding these investments in the future is no less
essential.
Biography for David C. Mowery
Education
BA, economics, Stanford University
MA, economics, Stanford University
Ph.D., economics, Stanford University
Positions Held
At Haas since 1988
1988-present--Professor, Haas School of Business, UC-Berkeley
1988-present--Director, Ph.D. Program, Haas School of Business, UC-
Berkeley
1988-present--Deputy Director, Institute for Management, Innovation,
and Organization
1988--Research Associate, National Bureau of Economic Research
1982-88--Assistant and Associate Professor, Social and Decision
Sciences Department, Carnegie-Mellon University
1987-88--Assistant to the Counselor, Office of the United States Trade
Representative
1987-88--Fellow, Council on Foreign Relations International Affairs
Fellow
1986-87--Study Director, Panel on Technology and Employment of the
National Academy of Sciences
1984-86--Visiting scholar, Center for Economic Policy Research,
Stanford University
1981-82--Post-doctoral Fellow, Harvard Business School.
External Service and Assignments
Expert Witness, Congressional hearings on science and
technology policy issues
Member, National Research Council panels, including
Competitive Status of the U.S. Civil Aviation Industry, Causes
and Consequences of the Internationalization of U.S.
Manufacturing, Federal Role in Civilian Technology Development,
U.S. Strategies for the Children's Vaccine Initiative, and
Applications of Biotechnology to Contraceptive Research and
Development
Member, Committee on Science, Engineering, and Public
Policy, American Association for the Advancement of Science,
1997-2003; Member, Presidential Commissions on Offsets in
International Trade, 2000-2001
Co-Editor, Industrial and Corporate Change, ``Special
Issue in Honor of Richard Nelson,'' 2001
Co-Editor, Management Science, ``Special Issue on
University Technology Transfer and Entrepreneurship,'' 2001
Adviser, Organization for Economic Cooperation and
Development and various federal agencies and industrial firms.
Current Research and Interests
Impact of technological change on economic growth and
employment
Management of technological change
International trade policy and U.S. technology
policy, especially high-technology joint ventures.
Selected Papers and Publications
``The Sources of Industrial Leadership:
Introduction,'' (with R.R. Nelson), in D.C. Mowery and R.R.
Nelson, eds., The Sources of Industrial Leadership (Cambridge
University Press, 1999).
``The Global Computer Software Industry,'' in D.C.
Mowery and R.R. Nelson, eds., The Sources of Industrial
Leadership (Cambridge University Press, 1999).
``The Evolution of Strategy in the World's Largest
Chemical Firms,'' (A.D. Chandler, T. Hikino, and D.C. Mowery),
in A. Arora, R. Landau, and N. Rosenberg, eds., Strategy for
Competitiveness: The Global Chemicals Industry (John Wiley &
Sons, 1998).
``Collaborative R&D: How Effective Is It?'' Issues in
Science and Technology, 1998.
Paths of Innovation: Technological Change in 20th-
Century America, (with N. Rosenberg). Cambridge, MA: Cambridge
Univ. Press, 1998.
Editor. The International Computer Software Industry:
A Comparative Study of Industry Evolution and Structure.
Oxford, England: Oxford University Press, 1996.
Science and Technology Policy in Interdependent
Economies. Norwell, MA: Kluwer Academic Publishers, 1994.
Teaching
BA 292B-1, Behavioral Science, Fall 1998
Honors and Awards
Earl F. Cheit Award for Excellence in Teaching (Ph.D.
Program), 1996, 2001
Raymond Vernon Prize, Journal of Policy Analysis and
Management, 1992
Co-author of paper named a ``Significant Article,''
20th Anniversary issue of Research Policy, 1993
Fritz Redlich Prize, Economic History Association,
1987
Newcomen prize, Business History Review, 1984
A.B. with Honors and Distinction; Phi Beta Kappa,
1974
Chairman Boehlert. Thank you so much, Dr. Mowery.
Ms. Kenderdine.
STATEMENT OF MS. MELANIE KENDERDINE, VICE PRESIDENT, WASHINGTON
OPERATIONS, GAS TECHNOLOGY INSTITUTE
Ms. Kenderdine. Chairman Boehlert, Mr. Gordon, Members of
the Committee, thank you for the opportunity to testify this
morning.
Listening to all the Members' opening statements and being
the third witness, as opposed to the first, makes me want to do
what I shouldn't do, but I will anyway, which is deviate from
my prepared text.
The--I was also the Director of the Office of Policy at the
Department of Energy. I worked at the Department of Energy for
all eight years of the Clinton Administration. My portfolio
also included being the Senior Policy Advisor to the Secretary
on Oil, Gas, and Coal. I am the only person here without a
``Dr.'' in front of my name. I have a lot of practical
experience at DOE, and I approach this from a policy
perspective. And after I left the government, I continue to
work in both formal and informal energy policy groups, and we
always get down to debating. Nobody debates the need to get off
oil. That is kind of a fundamental point of agreement, and I do
oil and gas, so it is a little bit dangerous to say that. But
no one ever really debates that in the groups that I work with.
But we always--our discussions always fall apart when we
get to the point of determining how we get off oil. And I would
agree with Dr. Mowery. It is a very, very complicated problem.
But I also think that it is a very urgent problem. And I would
make--starting out, looking at my testimony, writing my
testimony, trying to figure out what the real market failure
is, on oil. And what are we trying to address? What market
failure are we seeking to address? And I would take that to its
highest level.
I have spent a lot of time in OPEC countries when I was at
the Department of Energy. And we do have a cartel. And when I
watch what happens to prices in the market and see what the
cycle has been on oil prices, what I can say to you is the OPEC
Saudi Arabia dream market is four years of the extremely high
prices, which we are in that cycle now, and then one year of
extremely low prices. Because what that does is disincentivizes
the private sector and the public sector from investing in the
research that we need to get off oil.
And so I think my first point is that it is a fundamental,
long-term commitment that we need to be making. It is
expensive, and it is complicated.
And as such, now I go back to the prepared text.
The ARPA-E proposal constitutes a welcome effort to respond
to critical energy needs by accelerating research in game-
changing technologies. I think, given the attributes of DARPA,
it makes sense for ARPA-E as a starting point. There are,
however, fundamental differences between the DOD and DOE
cultures and customers that would have to be addressed for an
ARPA-E to succeed. And as Chairman Boehlert and Congresswoman
Biggert and others have pointed out, the difference in the
customer base for DARPA. The customer base is the military. It
has a lot of researchers out in the community. Those are
performers; they are not customers. And, as other panelists
have noted, DOE customers are the industry that--the private
sector measures the value of R&D in terms of the price of a
commodity. The technology winners from DOE research could
strand energy assets in investments. And consequently, there is
a huge aversion to picking winners in the DOE culture and
applied energy R&D programs.
I also think there will be a temptation to fund an ARPA-E
from existing programs, most likely at lower than recommended
levels. There are two risks to this approach. First, it would
likely intensify internal DOE program resistance to ARPA-E and
could jeopardize its establishment. And second, inadequate
funding levels could set the program up for failure and confirm
the prognostications of the skeptics, some of whom are at the
table today.
The following are some thoughts about how to make ARPA-E
actually work at the Department of Energy in practice.
To a large extent, the policy focus of ARPA-E, as I
understand it, having read the report, is energy
sustainability, and that duplicates the mission of a lot of the
existing programs at DOE. There are, however, some inherent
gaps in the DOE structure that I think an ARPA-E could address.
First, DOE's applied research programs are organized around
fuel sources: coal, oil, gas, nuclear, and renewables. This
structure runs the risk of--for--and I saw this many times at
DOE, runs the risk of, for example, isolating oil supply
research from transportation research, when we are developing
engines in one program at the Department of Energy and we don't
have fuels to run them on from the other part of the Department
of Energy that is responsible for doing that.
Our fossil fuel program at DOE is completely separated
culturally and bureaucratically from the efficiency programs
when 86 percent of our energy consumption is fossil fuels.
Efficiency and fossil fuel programs should be connected much
more so than they are in the current structure at DOE. I think
this promotes a tendency to focus on incremental or discreet
technologies as opposed to systems.
Second, the organizational separation of DOE's basic and
applied energy research programs, and that is organization
separation, makes the migration of basic research findings to
applied research solutions undisciplined, difficult, and often
serendipitous.
To some extent, an ARPA-E would provide a formal
integrating function that fosters a portfolio or a systems
approach to an energy problem. Also, replicating DARPA's formal
extraction of value from the entire research continuum from
basic to applied to demonstration would be unique to the DOE's
system. There are exceptions to that. Those are usually within
programs, not across programs.
There is, however, a danger in this kind of structural
distinction of ARPA-E from the DOE programs, as opposed to
policy-driven distinctions. ARPA-E could risk becoming an
organization in search of a mission if there is not a lot of
discussion and articulation of a clear mission by the policy-
makers in charge.
ARPA-E could accommodate the DOE's customer-based
differences by aggregating, through projects and advisory
groups, and DARPA does a lot of that as well: one, technology
investors who fund research at all stages of all technology
development; two, technology developers who conduct basic and
applied research, the entrepreneurs who provide ideas and
expertise to technology deployers; and technology deployers who
are the purchasers and users of advanced technologies. This
would also maximize opportunities for successful technology
transfer.
Consortia provide another avenue for accommodating DOE's
unique base--customer base as well as mitigating concerns about
winners--picking winners. An example of this approach is seen
in the natural gas supply R&D program included in EPACT last
year. Like ARPA-E, this program provides an additional research
management tool for DOE, requiring that the program be managed
by a competitively-selected consortium that includes
representatives of all sectors of the gas supply value chain.
Finally, if Congress decides to establish ARPA-E, it should
provide new money at full funding, either through
appropriations or through alternative energy--or through
alternative funding sources. I appreciate the tight budget
constraints. I was distressed at the debate for the energy bill
a couple years ago when--the one that failed by filibuster that
the argument was over--we were going to--that the $30 billion
price tag over 10 years. I thought that $3 billion a year for
our energy future was not a lot of money to spend. I think that
the--we are in perilous energy times. Just as we need new
innovative programs to address critical energy imperatives, we
also need innovation in how to pay for them.
The Natural Gas Supply Research Program described earlier
is funded through a trust fund at Treasury, and it receives
mandatory funding from the federal oil and gas royalties. Given
the fundamental role energy plays in our national and economic
security, perhaps it is time to put energy on par with highways
and historic preservation, both of which have statutorily-
directed trust funds.
Thank you. I look forward to your questions.
[The prepared statement of Ms. Kenderdine follows:]
Prepared Statement of Melanie Kenderdine
Chairman Boehlert, Mr. Gordon, thank you for the opportunity to
testify before your committee this morning.
Mr. Chairman, rising energy demand, constrained supplies, high and
volatile energy prices, the geopolitical entanglements associated with
the concentration of energy resources, and suggestions of sooner-than-
anticipated impacts of global climate change, test the resilience of
our economy and our scientific and engineering preparedness. They also
test our policy choices, including the investment of scarce federal
research dollars.
These and other pressing energy issues suggest that we have a
relatively short time frame to initiate fundamental changes in how we
produce, distribute and consume energy. Not only do we need to develop
new technologies to provide sustainable energy supplies but the lead
times for infrastructure investment and construction and capital stock
turnover are daunting.
One of the most significant challenges facing energy policy-makers
is how to calibrate our energy policy responses and investments to
overcome these time constraints, and to do so in ways that minimize
price volatility, environmental impacts, global geopolitical tensions,
and the stranding of industry assets.
The ``ARPA-E'' proposal constitutes a welcome effort to respond to
these and other critical energy needs by accelerating research in game-
changing technologies. I applaud the National Academy for its success
in bringing this issue into focus in its recent report ``Rising Above
the Gathering Storm,'' Congressman Gordon for introducing legislation
in support of ARPA-E, and Chairman Boehlert and the Committee for this
hearing today which provides us with an opportunity to discuss how an
ARPA-E and its possible refinements might advance key energy policy
objectives.
DOE's programs, researchers and laboratories conduct high quality
and important work on behalf of the Nation. DOE's applied research
programs were deemed fundamentally ``worth it'' in a previous and
relatively recent National Research Council report. Implicit in the NAS
Committee recommendation for an ARPA-E, however, is the need for a new
way to conduct a portion of the Nation's energy research business at
the Department of Energy. This should not be read as an indictment of
DOE's energy research programs. Rather it represents an attempt to
effectively address serious and gathering energy needs in a compressed
time frame--an additional tool for accelerating the transformation of
the energy marketplace.
Before a discussion of some general concerns with the specifics of
ARPA-E, it is instructive to review some of the desirable features of
DARPA that are highlighted in the NAS report (presumably for
replication):
A small, relatively non-hierarchical organization
Flexible hiring and contracting practices that are
atypical of the Federal Government
The ability to hire quickly from the academic world
and industry at wages substantially higher than those of the
federal workforce
Short tenures, turnover of personnel enabling fresh
leadership and ideas on a continuous basis.
It is noteworthy that these attributes focus primarily on process--
relative freedom from the restrictions and requirements under which
most federal research programs operate including burdensome
contracting, reporting, and oversight orders and regulations, low pay
grades, the rigidities of the civil service system, and multi-leveled
management hierarchies.
Other structural or research model features of a DARPA that are
highlighted as desirable for translation into an ARPA-E include:
A lean, effective, agile--and largely independent--
organization that can stop and start targeted programs based on
performance and. . .relevance
Creative, out of the box transformational research
that could lead to new ways of fueling the Nation. . .as
opposed to incremental research on ideas that have already been
developed
Longer-term research funding in a highly flexible
program--risk taking.
While not specifically highlighted in the NAS report, some
additional desirable features of DARPA (included in presentations by
Dr. Richard Van Atta, formerly with DARPA) are:
Development of integrated concepts beyond the purview
of a single service
Taking on large-scale proof of concept demos with a
scientific process and a willingness to fail
Working with the OSD leadership to broker the
commitment of the services.
Given these attributes and features, the NAS recommendation of the
DARPA model as a starting point makes sense. There are however some
fundamental differences between the DOD and DOE cultures, bureaucracies
and customers that necessitate significant calibration of the DARPA
model for an ARPA-E like program to be successful at DOE. We have been
asked to respond to a set of questions about the ARPA-E approach. I
will briefly discuss certain issues raised by ARPA-E as proposed by NAS
then address the questions you have asked me by offering some thoughts
on possible refinements of the ARPA-E concept.
General concerns with ARPA-E as described in the NAS report fall
into the following areas:
Program objectives
Organization/reporting
Customer base
Funding/matching funds.
Objectives of ARPA-E. It is unclear from the NAS report precisely
what type of research outcomes and objectives the Academy contemplates
for an ARPA-E. The report indicates that ARPA-E should fund and manage
``transformational'' and high-risk, high-payoff research, which is
defined earlier in the report as a ``subset of basic research.'' The
report, in discussing the need for ARPA-E says that, ``In particular,
ARPA-E could invest in a broad portfolio of foundational research. .
..'' This objective is not easy to distinguish from that of DOE's
Office of Science; this office is already funded at around $3.6 billion
per year and has received a half-billion dollar plus-up in the
President's FY07 budget request.
The NAS report also describes ARPA-E's benefits to include
``[accelerating] innovation in energy and the environment for both
traditional and alternative energy sources and in energy efficiency
mechanisms.'' Further, the report's description of ARPA-E identifies
very specific research structures and technologies, indicating that one
of ARPA-E's benefits would be ``[fostering] consortia of industry,
academe, and laboratories to work on critical research problems, such
as the development of fuel cells.'' These program benefits and targets
suggest an applied research program and appear to conflict with the
definition of basic research which eschews timeframes, specific
applications and products and focuses instead on ``gaining knowledge or
understanding of the fundamental aspects of phenomena.''
These descriptions beg several questions. Is ARPA-E primarily a
basic research program, an applied research program, a program to
``turn cutting edge science and engineering into technology,'' an
effort to accelerate commercialization, or all of the above? Each of
these suggests different leadership, organizational structures,
personnel capabilities, and reporting chains, as does a single program
that contemplates performing all these functions (an approximation of
DARPA). A clarification of program objectives will drive the research
management model and is fundamental to program success. Further, there
needs to be a clear delineation between DOE's existing basic and/or
applied research programs and ARPA-E's mission, research targets,
reporting chain, etc.
ARPA-E Organization/Reporting. The NAS recommends that the ARPA-E
program director report to the Under Secretary of Science. The ARPA-E
proposal represents a fairly significant departure from how DOE
currently conducts business. It is bound to raise issues of
coordination with existing programs, concerns about picking winners,
and other potential oversight issues as the program breaks new and
controversial ground.
These are sensitive issues both internally and externally and may
require the imprimatur of the Secretary or Deputy Secretary whose
portfolios are the broadest and authorities are sufficient to manage
and mediate the controversies that could arise from such a fundamental
change in approach to DOE research management. Also, the unique
contractual, personnel and pay scales contemplated in an ARPA-E program
may require greater organizational separation from existing programs
(organizational independence is identified as a key positive feature of
DARPA) than is possible in a reporting structure through the Under
Secretary with line authority for other programs.
ARPA-E Customer Base. The nature of the customer base serves as a
key point of departure from a pure ARPA-E replication of DARPA and what
might actually work at DOE; this difference is not trivial and should
inform this discussion and its outcomes.
DARPA funds a large network of researchers outside of the Defense
Department; these are, however, DARPA-funded ``performers'' as
distinguished from its ``customers.'' DARPA's sole customer and the
focus of its mission--``to maintain the technological superiority of
the U.S. military and prevent technological surprise from harming our
national security by sponsoring revolutionary, high-payoff research
that bridges the gap between fundamental discoveries and their military
use''--is the military. As such, the peril of ``picking winners'' by
DARPA is very manageable as there is only one customer valuing the
results.
This is contrasted with the ultimate customers for the products of
DOE's applied energy research programs--literally thousands of players
in a single energy sector, multiplied by the many different sectors
that comprise our energy industry. Further, most of these customers are
private industry stakeholders for whom the value of research is
measured in the price and availability of a commodity. This places high
value on short-term results. Also, picking winners and losers could
affect both the value of that commodity and the relative worth of the
research beneficiaries; cost and price are critical measures of
success. Finally, picking winners threatens to strand existing industry
assets. As such, the peril to bureaucrats, researchers and program
funding is significant and much more subject to external political
pressures; picking winners, as a matter of DOE policy, is often
actively discouraged or resisted.
Funding Mechanism/Cost Share. The NAS report recommends funding
levels of $1 billion a year for ARPA-E after an initial ramp-up period,
a level deemed necessary for program optimization and success. Needless
to say, finding new money at this level will be difficult and there
will be a temptation to carve out funds for ARPA-E from existing
programs, most likely at levels that are substantially lower than those
recommended in the Academy report.
There are two risks to this approach: 1) seeking funds from
existing programs will likely intensify internal DOE program resistance
to ARPA-E and could jeopardize the establishment of the program, and;
2) an ARPA-E program, by virtue of its new and unique approach to
research management at DOE, will be controversial. Inadequate funding
levels, through either appropriations or a re-programming of funds from
existing programs, could help ensure program failure, confirming the
prognostications of program skeptics.
It is worth noting that at DOE an ARPA-E that is focused primarily
on applied R&D (or includes a substantial applied R&D component) would
typically require industry cost share (which is not the case at DARPA).
Federal procurement, intellectual property, contract management
provisions, DOE orders and other federal requirements are off-putting
to many industry players, placing de facto barriers to industry
participation and cost share commitments--essential elements to
successful applied energy R&D, including demonstration, deployment and
technology transfer.
Federal energy R&D is performed under the constraints of annual
appropriations which are inconsistent from year-to-year,
administration-to-administration and secretary-to-secretary. Also,
program funds are largely ``mortgaged'' from the start, and
increasingly line-itemed. The risks and limitations of the funding
process further discourages industry participation and its commitment
of matching funds, making it more difficult to optimize the migration
of technologies into the marketplace. If ARPA-E is funded at relatively
low levels in its early years, the ramp-up in the out years as
contemplated in the NAS report would place that important increment
(likely necessary when projects get to the demonstration phase, for
example) in competition with other DOE programs as well as with
programs in other agencies that are funded through the Energy and Water
Appropriations Committee; this lack of certainty in out-year funding
could further complicate and discourage longer-term industry
commitments to critical projects.
Making ARPA-E Work. The following are some thoughts and
recommendations (strictly my own, there are many alternatives and
options) on how an ARPA-E might accommodate some of the idiosyncrasies
of the DOE culture, structure and customer base that could maximize
program effectiveness and address some of the concerns articulated in
the Committee's questions.
Role of ARPA-E at DOE. There are many high level policy objectives
that could serve as the basis for ARPA-E research investments, given
the broad range of energy needs facing the Nation. I would recommend
four areas that could provide focus as well as an organizing function,
although ARPA-E program managers should be given wide latitude in
addressing these challenges including the freedom to deviate from core
focus areas if warranted. Also, these focus areas do not approximate
the ``strategic thrusts'' of DARPA, which for a new ARPA-E would have
to be identified after significant analysis and discussion. General
focus areas for ARPA-E, however, should include:
development of economically sustainable energy
sources, which implies a reduction in oil consumption and U.S.
reliance on imported energy from unstable regions of the world,
and the development of domestic, hemispheric and alternative
energy sources
environmental mitigation, particularly greenhouse gas
capture and sequestration,
energy infrastructure development to produce, refine
and distribute new sources of energy
energy efficiency, with a focus on end use
efficiencies.
To a large extent, these focus areas duplicate those of existing
DOE programs, which have developed numerous high-impact technologies,
and have enhanced the Nation's knowledge base in critical areas. There
are however, some gaps inherent in the structure of DOE programs:
DOE's applied research programs are organized around
fuel sources, e.g., coal, oil, gas, nuclear, renewables (the
efficiency program is an exception). The existing
organizational structure and focus provides a solid foundation
for the Department's applied research and the support of strong
constituencies; it runs the risk however of isolating oil
supply from transportation or fossil fuels from efficiency, for
example, and promotes a tendency to focus on incremental or
discrete technologies (exceptions are generally within
programs, not across programs) as opposed to systems that
integrate research needs from supply to distribution to end
use.
The organizational separation of DOE's basic energy
research program from its applied research programs makes sense
in many instances, but it also makes the migration of certain
basic research findings to applied research solutions
undisciplined, more difficult, and often, serendipitous.
There are both ad hoc and, in some instances, formal structures at
DOE that encourage communication and coordination between the various
applied research programs and between the applied research and basic
research programs. In the final analysis, however, the competition for
funding from the same appropriation, bureaucratic separation, and
different program cultures and performance measures, ultimately work
against optimum levels of cooperation and coordination across programs.
An ARPA-E like program could help fill these gaps and supplement
but not supplant the missions of existing DOE programs. As noted
earlier, the ``development of integrated concepts beyond the purview of
single service [program],'' is one of the features of DARPA that is
desirable for replication. To some extent, on certain key problems to
be identified, an ARPA-E could provide the formal integrating function
that fosters a portfolio approach to a problem. In addition, providing
ARPA-E with administrative flexibility in contracting, hiring, etc.,
and the easy transfer of personnel and ideas between the government,
industry and academia will further distinguish ARPA-E from existing DOE
programs.
Finally, replicating DARPA's formal extraction of value from the
entire research continuum--from basic to applied to development to
deployment--would be largely unique to the DOE system (DARPA's budget
reflects the research continuum including basic and applied to large
scale demonstration). Directing a minimum percentage of program funds
to basic research--for both the national laboratories and
universities--would protect against the tendency of DOE's energy R&D
customer base comprised largely of industry to focus on near-term
research and results. Congress might also consider setting aside a
portion of ARPA's funds as venture capital for promising, innovative
opportunities in the private sector.
In short, ARPA-E would be distinguished from existing DOE programs
more by its structure than by the policy objectives its research would
address. There is, however, a danger in a ``structural'' as opposed to
policy-driver distinction; without an upfront, clear articulation of
some fundamental strategic research thrusts, an ARPA-E could risk
becoming an organization in search of a mission. Nevertheless, the
drivers described above do not differ substantially from similar gaps
DARPA seeks to fill--``research that the services are unlikely to
support because it is risky, does not fit [the services] specific roles
or missions, or challenges their existing systems or operational
concepts.''
ARPA-E Reporting Structure. From an organizational/reporting
perspective, it is essential to program success that the ARPA-E program
director be a direct report to either the Secretary or Deputy Secretary
for the reasons articulated earlier in this discussion. This would be
especially important in the start-up years of the program to help
maximize opportunities for success and tracks the development of DARPA,
which also reported to the Secretary and Deputy Secretary in its early
years.
The size and nature of the program also raises the issue of whether
or not the program director should be Senate-confirmed. ARPA-E would be
both controversial and engaged in high-risk, high-payoff research,
which suggests, at times, high-profile failures. Also, depending on the
final shape of ARPA-E, the program director will require a very unique
skills set, likely to include a combination of research, government and
industry experience. Selection of the best individual as program
director is critical, as is continuity in that position. This should
not be considered a political job; insulating the director's position
from the confirmation and/or political appointment process is
desirable, as would be assistance in the search for the right
individual with the right credentials from, for example, a subcommittee
of the Secretary of Energy's Advisory Board (SEAB).
DOE Customer Base. Accommodating the differences between the DARPA
and DOE customer bases is one of the biggest challenges for an
effective ARPA-E. Ideally, an ARPA-E would aggregate these key players
in the research value chain: (1) technology investors who fund research
at all stages of technology development; (2) technology developers who
conduct basic and applied research; (3) entrepreneurs who provide ideas
and expertise to technology deployers; and (4) technology deployers who
are the purchasers of technology and use advanced technologies for
energy production, distribution and end use. A formal advisory
committee structure that includes representatives from each of these
stakeholder groups could provide important strategic direction and
real-world input, but care would need to be taken to ensure that this
does not limit the flexibility of program managers. Accommodating the
views and interests of these key players in the research value chain
would also maximize opportunities for successful technology transfer
and diffusion in the energy marketplace.
Research management and research performing consortia provide
additional avenues for accommodating the interests of diverse and
numerous industry customers as well as for mitigating concerns about
picking winners. An example of this approach is seen in the Ultra-
deepwater and Unconventional Natural Gas Supply R&D program included in
EPACT last year. Like ARPA-E, this program provides an additional tool
for managing DOE research. While directing substantial oversight by the
Department, including strict conflict of interest provisions, it
requires that the program be managed by a competitively selected
research management consortium that includes industry, academia,
national laboratories, venture capital firms, service companies,
private research institutions and large end users representing all
sectors on the gas supply value chain. The consortium is not a research
performer; rather, with the approval of DOE, it establishes the
research agenda, develops project specifications, selects and manages
research projects, and transfers the technology into the marketplace.
The program also includes a complementary research program element at
the National Energy Technology Laboratory.
Funding ARPA-E. If ARPA-E is designed to fill the gaps in the
current DOE structure as an agile ``integrator'' that extracts value
from the entire research value chain--as well as a high-risk, high-
payoff and long-term research manager--it needs to be insulated from
external pressures and the natural resistance of existing DOE programs
to the maximum extent practicable. In this regard two things are worth
noting: the NAS report indicates that in the beginning DARPA was
``threatening'' to the DOD research establishment; and high risk
research projects are bound to have a relatively high failure rate. As
such, at a minimum, ARPA-E should be a Congressionally-endorsed program
funded with new money, at the full one billion dollar level. It should,
however, be given the flexibility of ``no year'' money in order to ramp
up in the early years and accrue funds for the more expensive out
years.
Funds for new program are however extremely tight. As such, the
Congress should also consider other options to pay for ARPA-E. The
Natural Gas Supply Research Program described above is funded through a
Trust Fund at Treasury and receives mandatory funding from federal oil
and gas royalties. The Energy Information Administration analyzing an
earlier version of this program indicated that it would result in
increased domestic gas supplies and attributed its probable success to
the funding certainty of the Trust Fund. There is an attractive policy
synergy in utilizing oil and gas royalties to develop sustainable
energy sources; the royalty stream would, however, have to be
sufficiently robust over time to help fund this transition.
Another option the Congress might consider is the mechanism used to
fund DOE's Clean Coal program, which received it entire multi-year
funding in a single year and from which it has been drawing down over
time as projects are approved and implemented. This does not address
concerns over the funding of new starts. It would however address key
issues with respect to maintaining industry support and cost share by
demonstrating that the government would be a reliable partner over a
long period of time.
Finally, the Congress might consider the results of a recent poll
that indicated the American public would support an increase in the
gasoline tax if the funds generated from the tax were directed to
reducing our oil reliance and addressing climate change. To ensure the
public that these funds were being wisely spent, the funds would need
to be segregated into an innovative and cross-cutting program like an
ARPA-E. A one cent per gallon gasoline tax would pay for the entire
ARPA-E program at levels recommended in the NAS report.
Mr. Chairman, generating sufficient energy to power the world in
ways that protect the environment and promote global economic growth is
one of the most significant imperatives of our time. To meet this
challenge, we should be prepared to commit significant resources,
consider all options, and empower the innovators.
There are significant issues that must be addressed and refinements
that would have to be made to make ARPA-E succeed in the DOE culture
and bureaucracy. If properly organized, empowered, and funded, however,
an ARPA-E type program could provide a new and aggressive link between
the needs of the energy marketplace and research directions, operating
as a primary interface between the energy industry and DOE's national
laboratories and experts in academia.
Thank you for this opportunity and I look forward to the
Committee's questions.
Biography for Melanie Kenderdine
Melanie Kenderdine of Gas Technology Institute (GTI) provides
commentary on the natural gas industry and issues related to U.S.
energy policy and legislation. With more than two decades of experience
in both federal and private energy sectors, she understands and
communicates effectively about energy issues and policies, as well as
the latest developments in pursuit of natural gas and other energy
sources. She is particularly knowledgeable about trends in domestic and
world energy supplies and in technologies that will impact energy
supply and demand.
Trend: Industry is the single largest consumer of natural gas in
the United States. But the high cost of natural gas is driving natural
gas dependent industries overseas, despite abundant technically
recoverable domestic natural gas reserves. Making these reserves more
economic to produce and developing efficiency technologies to enhance
natural gas consumption are crucial to the Nation's industrial base, to
residential consumers and to its economic security.
Trend: In an age of heightened domestic security, protecting our
nation's energy infrastructure is crucial to protecting our economy.
With 1.8 million miles of natural gas pipeline connecting the majority
of U.S. homes and workplaces, working with industry and government to
secure the infrastructure in ways that are easily integrated into
industry is critical. GTI is working with industry and the Federal and
State governments to ensure that we maintain the security, integrity,
safety and reliability of this infrastructure.
Accomplishments:
Director, Office of Policy, U.S. Department of Energy
(DOE)
Senior Policy Advisor, DOE, oil, gas, coal and
nuclear issues
As Senior Policy Advisor was the Architect for:
R&D initiatives for ultra-clean fuels and
energy grid reliability
Strategic Petroleum Reserve royalty-in-kind
initiative
National Energy Technology Laboratory
Strategic Center for Natural Gas Studies
DOE response to Japan nuclear accident, 1999.
Presentations & Speeches:
``Issues for Evolving LNG Markets,'' Montreux Energy
Roundtable XV, Montreau, Switzerland, Sept. 27-29, 2004
``Energy and Nanotechnology: Strategy for the
Future,'' Natural Gas Technologies For The Future, Houston,
Texas, May 2-4, 2003
``The 10/50 Solution,'' Pew Center on Global Climate
Change/NCEP, Washington, D.C., March 24, 2004
Sixth Annual International Energy Experts Conference,
Abu Dhabi
Congressional Testimony--numerous appearances on
energy related issues.
Publications & Interviews:
Harts E&P, ``Offshore Report: Ultradeepwater R&D
program needed,'' September, 2001
Physics Today, ``Meeting Energy Challenges:
Technology and Policy,'' April, 2002.
Education:
B.A., Political Science, University of New Mexico.
Chairman Boehlert. Thank you very much.
Dr. Fernandez.
STATEMENT OF DR. FRANK L. FERNANDEZ, PRESIDENT, F.L. FERNANDEZ,
INC.
Dr. Fernandez. Mr. Chairman, Members of the Science
Committee, I am pleased to have been asked to give you my views
on DARPA and the possible utility of a similar organization in
the Department of Energy.
Now I am not an expert on energy matters, so my comments
are structured to describe the way things work at DARPA
actually and to provide suggestions to things that the
Committee might want to consider if it does decide to create an
ARPA-E.
My experiences with DARPA goes back almost as far as DARPA.
I have been working as a contractor for DARPA. I worked as a
representative of the Chief of Naval Operations in negotiations
with DARPA, and finally as the Director of DARPA from 1998 to
2001.
In my experience, the fundamental reason for the existence
of DARPA in the Department of Defense has never really changed
since it was created in 1958, a reaction to stove-piped
military services' disconnected space programs that led to
America's Sputnik failure.
DARPA began as a result of a serious political
embarrassment, not as a result of well-meaning panels. The
reason--this reason for DARPA, then, is a belief that in order
to maintain United States technological superiority into the
future over potential adversaries, the Department needs a
central organization reporting to the Secretary to create and
fund the high-risk, potentially high return R&D projects, and
that this activity needs to exist in addition and independent
of the military service funded research and development, even
if this is perceived to be in competition for important
resources.
This belief is based on the very critical observation over
the years that in many R&D organizations, and in the DOD in
particular, stove pipes always seem to rise and thrive and that
they develop risk-averse parochial views, which can seriously
misjudge the potential for new high-risk, technologically-
enabled opportunities and threats.
The recommendation to create a central agency in the
Department of Energy makes sense to me if it turns out that the
Department also has this stove pipe problem that exists in the
Department of Defense.
DARPA's function, then, is to work across and around these
stove pipes for important, national defense problems.
To do this, DARPA utilizes a two-pronged approach.
First, it opportunistically finds and funds long-term,
outcome-focused R&D projects, using the best talent in
universities, laboratories, and industry, even if it doesn't
always get everything right.
In parallel, it demonstrates and tries to make a market for
these technologies by helping to fund developments needed for
the military and commercial adoption.
I think that this ability to simultaneously fund focused,
long-term research and to act as a market-maker with potential
customers is a critical difference between DARPA and other DOD
research and development entities. DARPA is basically the DOD
agent for change.
If the Committee decides that ARPA-E is to be such a
central organization, then I think, like DARPA, it should have
such a two-pronged approach to its funding investment
activities.
Now balancing these often conflicting activities requires
an organization with special structure, authorities, and
operating style.
DARPA is currently an example of such an organization in
the Department of Defense. Like DARPA, I think the ARPA-E
should be the central agency, and should have a clear, national
purpose for its projects that differentiates it from the
laboratories and other energy agencies. It should have
visibility and access to the top management of the Department
and not be a part of an established R&D bureaucracy.
Like DARPA, I think it should have a mandate to create,
demonstrate, and transition high-risk, high-return technologies
to maintain the United States' technical superiority in energy.
Like DARPA, I think it should be a funding agency with very
little infrastructure, a flat organization, and a small, very
competent entrepreneurial technical staff. Budget and program
control should rest with the Director and the program managers,
and the agency should enforce constant turnover of both
programs and staff.
Like DARPA, it should have both the special authorities and
the resources needed to exercise these authorities. For
example, it doesn't do any good to give an organization special
hiring or special contracting authority if it doesn't have the
contracting and hiring resources in house to implement those
authorities, problems that I think existed with the current HS
ARPA when they first started.
Unlike DARPA, however, as has been said several times,
ARPA-E would be in the energy business, not the defense
business. I don't think that it should be a strict clone of the
Defense agency. Instead, I think it should receive the funding,
flexibility, and leadership authorities, and most importantly,
the time necessary to let it become the change agent for the
Department of Energy.
DARPA's evolution, especially during its beginning, was not
without a lot, and a lot, of problems, and Congressional
support was one of the reasons why DARPA is still here today,
long-term Congressional support.
Now the final point, if an ARPA-E is created, I think that
a DARPA-like model might make some sense, even if the
Department of Energy is not the primary consumer of its
technologies. This condition is not always necessary for the
creation and transition of revolutionary technology.
Let me give you a couple of examples.
In 1962, DARPA found and funded a support network of early
information technology researchers at universities and firms
that, over time, built a dominant, non-Defense technological
capability in something--in personal computing and something
called the Internet.
And though the DOD never represented a major market for
this capability, and it never did, okay, it was able to take
advantage of it quickly and affordably.
In 1987, SEMATECH was created with private and federal
funding. And DARPA managed the federal programs, in partnership
with industry. SEMATECH succeeded in reestablishing the United
States' dominance in semiconductor manufacturing. And without
having to make a market, the Department of Defense profited
from a very, very competitive industrial base that it could use
without fear of control by a foreign power.
The current revolutionary working concept of network-
centric warfare in the military, which has enabled the United
States to achieve unparalleled dominance, rests, to a great
extent, on commercial IT infrastructure, the use of commercial,
off-the-shelf technology, much of which is the result of DARPA
investments.
In each of these examples, DARPA technology went first to
the commercial sector and then got bought by the military, a
transition path which is still being followed at DARPA for some
of its newer technologies.
Finally, and with all due respect to the Committee, even
though I am extremely proud of my association with DARPA, I
think it might be helpful if the Committee considered a
different name for this new organization, if it creates it, a
name that reflects the uniqueness of the 21st century energy
needs of this nation.
Thank you.
[The prepared statement of Dr. Fernandez follows:]
Prepared Statement of Frank L. Fernandez
Mr. Chairman and Members of the U.S. House of Representatives'
Science Committee, I am pleased to have been asked to give my views on
the pros and cons of creating an ARPA-E organization in the Dept. of
Energy. I hope that this brief statement addresses your major
questions.
At the outset, I need to tell you that, since I have spent most of
my career in the defense R&D business, I am not an expert on energy
matters. Nevertheless, I hope that my comments will be helpful to the
Committee.
For the past forty years I have worked with DARPA as a research
contractor representing both small and large companies, as a Navy
consultant, representing the Chief of Naval Operations, as Director of
DARPA, from May 1998-January 2001, and, most recently, as a consultant
to the current DARPA Director. This variety of views of DARPA forms the
basis for what follows.
In my experience, the fundamental reason for the existence of DARPA
in the Department of Defense (DOD) has never really changed since 1958,
when President Eisenhower created the Agency in reaction to the stove
piped military services' disconnected space programs that led to
America's Sputnik failure.
The reason for DARPA is a strong belief, currently held by both the
executive and legislative branches of the government, is that, in order
to maintain U.S. technological superiority over potential adversaries,
the DOD needs a central organization, reporting to the Secretary, to
create and fund high risk, potentially high return R&D projects. This
is in addition to service funded R&D.
This belief is based on the fact that, regardless of intentions,
within the DOD, organizational ``stove pipes'' develop and these
``stove pipes'' often have risk-averse, parochial views which can
misjudge the potential for new, technologically enabled, opportunities
and threats, especially if the technology is high risk.
The idea of a central agency, ARPA-E, may make sense if the DOE
shares some of these organizational and management problems with the
DOD.
DARPA's function is to work across and around these stove pipes for
important, national defense problems.
Achieving this mission for almost fifty years has required that
DARPA continuously adapt and to a defense environment that has
undergone large change because of changing adversaries and, also,
because of technology, much of which was the result of DARPA
initiatives.
In order to accomplish its mission, DARPA employs a two pronged
approach.
It opportunistically, finds and funds long-term, outcome focused
R&D projects using the best talent in universities, laboratories and
industry.
In parallel, it demonstrates and ``makes a market'' for these
technologies by helping to fund developments needed for military and
commercial adoption.
I think that this ability to, simultaneously, fund focused long-
term research and to act as a ``market maker'' with potential customers
is a critical differentiator between DARPA and other DOD R&D entities.
DARPA is not bound by DOD acquisition requirements for technology
or systems projects. DARPA often mixes basic research, applied research
and advanced technology development in its projects to aid the
transition of the understanding to war fighting capability.
It is this freedom to innovate that differentiates DARPA from the
other DOD laboratories and funding agencies.
This following list of characteristics that help DARPA operate at
both the Institutional and personal innovation organization levels is
largely drawn from DARPA's own descriptions of its organizing
elements:\1\
---------------------------------------------------------------------------
\1\ DARPA, DARPA--Bridging the Gap, Powered by Ideas (Feb. 2005);
DARPA, DARPA Over The Years (Oct. 27, 2003)
Small and flexible: DARPA consists of only 100 to 150 professionals;
some have referred to DARPA as ``100 geniuses connected by a travel
---------------------------------------------------------------------------
agent.''
Flat organization: DARPA avoids military hierarchy,
essentially operating at two levels to ensure participation.
Autonomy and freedom from bureaucratic impediments:
DARPA operates outside civil service hiring and the limits of
government contracting rules, which gives it unusual access to
talent, plus speed and flexibility in organizing R&D efforts.
Technical staff drawn from world-class scientists and
engineers: DARPA's talent is drawn from industry, universities,
and government laboratories and R&D centers, mixing disciplines
and theoretical and experimental strengths.
Technical staff hired or assigned for 3-5 years: Like
any strong organization, DARPA mixes experience and change. It
retains a base of experienced experts that know their way
around DOD, but rotates most of its staff to assure fresh
thinking and perspectives.
Project-based, organized around a challenge model:
DARPA organizes a significant part of its portfolio around
specific technology challenges. Although its projects typically
last 3-5 years, major technological challenges may be addressed
over much longer time periods, ensuring patient long-term
investment, but only as a series of focused steps.
Necessary supporting personnel (technical, contracting, administrative)
are used from other agencies on a temporary basis: This provides DARPA
flexibility to get into and out of a technology field area without the
problems of sustaining staff.
Outstanding Program Managers are the heart of DARPA:
In DARPA's words, ``The best DARPA Program Managers have always
been freewheeling zealots in pursuit of their goals.'' The
DARPA Director's most important job historically is to recruit
highly talented program managers and empower them to be
creative.
Acceptance of failure--DARPA, at its best, pursues a
high risk model for breakthrough opportunities, and is very
tolerant of failure if the payoff from potential success is
great enough.
Oriented to revolutionary technology breakthroughs--
DARPA historically has focused on radical, not incremental,
innovation, emphasizing high-risk investment, moving, as noted,
technology advances from fundamental through prototyping, then
handing off the production stage to services or commercial
sector. DARPA often works on solutions to joint service
problems which individual services traditionally are reluctant
to pursue.
Mix of Collaborators--DARPA typically has tried to
build strong teams and networks of collaborators, bringing in a
range of technical expertise and involving technology firms
that are often not significant defense contractors with
outstanding university researchers. The aim is to ensure strong
collaborative ``mindshare'' on the challenge.
If the Committee decides that ARPA-E is to be such a central
organization, then, like DARPA, I think that it should have such a two-
pronged approach to its activities.
It must find and fund long-term outcome focused R&D projects using
the best talent in universities, laboratories and industry. In
parallel, and often in conflict with the first part of the approach, it
should convince selected parts of the energy industry that its
technologies can radically and positively affect the energy business
and that these technologies should be adopted. In addition, in
partnership with industry, it should help fund the developments
necessary to implement these technologies.
Balancing these, often conflicting, goals requires a special
structure and operating style and DARPA is an example of something that
works in the DOD.
Like DARPA, I think that ARPA-E should be created as the central
energy research and development organization in the DOE and should have
a clear, national purpose for its projects that differentiates it from
the laboratories and other agencies. It should have visibility and
access to the top management of the Department and not be part of an
established R&D bureaucracy.
Like DARPA, I think that it should have a mandate to create,
demonstrate and transition high risk, high return technologies that can
dramatically change the U.S. energy posture in the future.
Like DARPA, I think that it should be funding agency, with very
little infrastructure, a flat organization and a small, very competent,
entrepreneurial, technical staff. Budget and program control should
rest with the Director and the program manager and the agency should
enforce constant turnover of both programs and staff.
Like DARPA, I think that it should have both the authorities and
the resources needed to implement these authorities. For example, while
flexible contracting and hiring authorities are necessary, implementing
these authorities requires dedicated, in house, resources.
Unlike DARPA, however, ARPA-E will be in the energy business, not
the defense business. Congress should not try to make this agency
strictly mimic a defense agency that has and continues to evolve to
accommodate a changing defense environment.
Instead, I think that ARPA-E should receive the funding,
flexibility, leadership authorities and, most importantly, the time
necessary to let it become the change agent for the DOE.
I think that a DARPA like model makes sense even if the DOE is not
the customer for the technology because this is not necessary for the
transition of revolutionary technology.
The most famous example:\2\
---------------------------------------------------------------------------
\2\ Provided by William Bonvillian, from a draft 02/19/06 ``DARPA
and the Connected Science Model For Its Innovation--Where Should It Go,
Now?''
President Kennedy and Defense Secretary Robert McNamara were deeply
frustrated with profound command and control problems during the Cuban
Missile Crisis--the inability to obtain and analyze real time data and
interact with on-scene military commanders. DARPA brings in Licklider
to tackle the problem. It is the rare case of the visionary being
placed in the position of vision-enabler. Strongly backed by noted
early DARPA Directors Jack Ruina, Charles Herzfeld and George Heilmeir,
Licklider finds, selects, funds, organizes and stands up a remarkable
support network of early information technology researchers at
universities and firms that over time builds personal computing and the
Internet.
At the institutional organization level, DARPA and Licklider become
a collaborative force among the Defense Department research agencies
controlled by the services, using DARPA investments to leverage their
participation to solve common problems under connected science and
challenge models. DARPA and Licklider also keep their own research
bureaucracy to a bare bones minimum, using the service R&D agencies to
carry out project management and administrative tasks, so that DARPA's
efforts create co-ownership with the service R&D stovepipes.
Institutionally, DARPA becomes more of a research supporter and
collaborator, not a rival competitor to the DOD research establishment.
DARPA provides an institutional example within DOD for a way to create
a flexible, cross-agency, cross-discipline model among stove piped U.S.
R&D agencies. At the personal level of innovation organization,
Licklider creates a remarkable base of information technology talent
both within DAPRA and in a collaborative network of great research
groups around the country.
Because it sees ongoing progress, DARPA is willing to be patient
and look at long-term investments in IT talent and R&D investments in a
way that corporations and venture capital firms are not structured to
undertake. Licklider's DARPA model is also not a flash in the pan.
Internally it is able to institutionalize innovation so that successive
generations of talent sustain and keep renewing the IT technology
revolution over the long-term. At the personal level of innovation, the
great groups Licklider starts, in turn, share key features of the Rad
Lab group previously discussed. Licklider's Information Processing
Techniques group remains the first and greatest success of the DARPA
model. But this success is not unique; DARPA is able to achieve similar
accomplishments in a series of other technology areas.
One more key point: DARPA was willing to spawn technology advances
not only in the defense sector but in the non-defense economy as well,
recognizing that an economy-wide scale, as opposed to a defense sector-
only scale, is needed to speed the advance. The Department of Defense
(DOD) was able to take advantage of this technology evolution speed up,
with its shared, and therefore reduced, development and acquisition
costs, which enabled DOD to obtain the tools it needed to solve its
initial command and control problem more quickly and less expensively.
The DOD was never as major market for personal computing or the
Internet.
Another example:
In 1987, faced with a competitor that threatened to control the
semiconductor market, the SEMATECH venture was formed to improve
domestic semiconductor manufacturing. The federal dollars for SEMATECH
were funneled through DARPA because semiconductor manufacturing was
seen as vital to the defense technology base.
The success of the SEMATECH partnership in reestablishing U.S.
dominance in semiconductor fabrication was in part due to the fact that
DARPA, in partnership with industry, was able to rapidly create and
fund focused high risk, high return programs.
More importantly, the DOD profited from an industrial base that it
could use without fear of control by a foreign power without having to
make a market.
A final example:\3\
---------------------------------------------------------------------------
\3\ Provided by William Bonvillian, from a draft 02/19/06 ``DARPA
and the Connected Science Model For Its Innovation--Where Should It Go,
Now?''
When Andy Marshall, DOD's legendary in-house defense theorist,
announced that U.S. forces were creating a ``Revolution in Military
Affairs,'' this defense transformation was built around many of the IT
breakthroughs DARPA initially sponsored. Admirals Bill Owens and Art
Cebrowski and others, in turn, translated this IT revolution into a
working concept of ``network centric warfare'' which enabled the U.S.
in the past decade to achieve unparalleled dominance in conventional
warfare.
In each of these examples, DARPA technology went, first to the
commercial sector, then to the military, a transition path still
followed at DARPA for many revolutionary technologies.
Finally, and with all due respect, even though I am extremely proud
of my associations with DARPA, I think that it might be helpful if the
Committee considered a different name for this new organization, a name
that reflects the uniqueness of the twenty first century energy needs
of the Nation.
Thank you.
Biography for Frank L. Fernandez
Dr. Fernandez' experience and knowledge encompasses a very broad
range of research and management areas. He has worked with both large
and small research groups and successful start up research companies.
He, personally, founded and helped manage several successful research
and development companies.
At present, he is a member of the Board of Directors of several
companies and leads a consulting company with clients in both the
defense and civilian research and development sectors.
Prior to this he was a Distinguished Research Professor in Systems
Engineering and Technology Management at Stevens Institute of
Technology in Hoboken, New Jersey. He was the creator and first
Director of Institute Technology Initiatives, a position reporting
directly to the President. In this capacity he served as the chief
technical advisor to the President in all matters having to do with
Institute research initiatives, management of Institute intellectual
property and commercialization of Institute technology. He retired from
Stevens in 2005.
Prior to this, he was Director of the Defense Advanced Research
Projects Agency (DARPA), the central R&D organization of the Department
of Defense. Dr. Fernandez was appointed as Director of DARPA on May 10,
1998. Under Dr. Fernandez' leadership, DARPA served as the Department
of Defense's premier change-leader, trailblazing paths in biological
warfare defense, information security, precision strike and robotics.
Until his appointment as Director, DARPA, Dr. Fernandez held the
position of President and Chairman of the Board of Directors for AETC
Inc., a firm specializing in environmental surveillance, which he
founded in 1994. Prior to this position, he was President and Chairman
of the Board of Directors of Arete Associates, a Los Angeles-based
applied research firm that Dr. Fernandez founded in 1976. Arete
Associates has a national reputation in the use of advanced sensors and
signal processing for the detection and classification of concealed
targets. From 1975 to 1976, he served as Vice President at Physical
Dynamics Inc., and from 1972 to 1975, he worked as a Program Manager
for R&D Associates. Before that, Dr. Fernandez worked for the Aerospace
Corporation and the Lockheed Corporation, specializing in re-entry
physics problems associated with missile defense.
Dr. Fernandez was a member of the Chief of Naval Operations (CNO)
Executive Panel from 1983 until his appointment at DARPA. In this
capacity, he provided advice to the CNO on a variety of issues. He was
Director of the Green Foundation, a non-profit endowment for Earth
Sciences from 1995 to 2000 and is listed in Who's Who in Science. Dr.
Fernandez is also a member of the New York Academy of Sciences.
In May 2000, Dr. Fernandez was awarded the Renaissance Engineering
and Science Award by Stevens Institute of Technology. In January 2001,
Dr. Fernandez was awarded the Distinguished Public Service Award by the
Secretary of Defense. Dr. Fernandez has been awarded an Honorary Doctor
of Engineering Degree from Stevens Institute of Technology in May 2001.
Dr. Fernandez received his Bachelor of Science in Mechanical
Engineering and Master of Science in Applied Mechanics from Stevens
Institute of Technology in New York, 1960-1961; and his Ph.D. in
Aeronautics from California Institute of Technology in 1969.
Chairman Boehlert. Thank you very much.
Dr. Cotell.
Okay. Here is what we are going to do. We have got a call
of the House. We will finish your testimony. Some people may
wonder why I don't be more arbitrary with the five-minute rule.
I am with Administration witnesses, because quite frankly, we
know what they are going to tell us. They are going to tell us
what a great job they are doing and all of that sort of thing.
And in many cases, that is exactly the case. But you, we just--
you have got--you are more objective in your presentations, and
that is what we learn from.
Dr. Cotell.
STATEMENT OF DR. CATHERINE COTELL, VICE PRESIDENT FOR STRATEGY,
UNIVERSITY AND EARLY STAGE INVESTMENT, IN-Q-TEL
Dr. Cotell. Chairman Boehlert, Ranking Member Gordon, and
Members of the Committee, thank you for the opportunity to
speak with you this morning.
The National Academy study that recommended the formation
of ARPA-E, also suggested that the Committee might look at In-
Q-Tel as a model of elements of which you might want to emulate
in forming your ARPA-E.
So for those who don't have Chairman Boehlert's familiarity
with In-Q-Tel, let me spend a couple of minutes describing our
mission, how we accomplish that mission for the intelligence
community, and to make some observations about how In-Q-Tel's
model might apply in the case of the Department of Energy's
challenges.
In-Q-Tel is a non-profit, independent, strategic venture
capital firm founded in 1999 by the CIA. We are presently
funded by several agencies in the intelligence community,
including the CIA, the DIA, FBI, National Counterterrorism
Center, and the National Geospatial Information Agency. These
agencies are limited partners.
In-Q-Tel invests in commercial companies that are producing
technology products that are relevant to the intelligence
community's mission. If you were to compare the CIA with any
Fortune 500 company, what you would find in information
technology is almost a complete overlap and the need for
software to gather, analyze, sort, and distribute knowledge. So
In-Q-Tel's approach is, rather than form a government-only
solution to that challenge, is to look to industry and to
invest in small start-up companies that are producing product
for that commercial market and bring those products back into
the government via investment. And typically, those companies
are not actually focused on the government market.
What we can do as an investor is actually buy the product
development roadmap so that the products will, in fact, meet
the needs of the intelligence community as well.
The advantages to that are fairly clear: lower costs,
easier integration, longer technology lifetimes, new versions
that come out, all leveraged with success in the commercial
marketplaces.
In-Q-Tel is overseen--our activities are overseen by an
exception Board of Trustees. In fact, Norm Augustine, who is
the chair of the National Academy's panel, is on our Board. We
rely on an interface center at the CIA, known as the QIC. They
provide us with insight into the end-user's needs, and that is
a very important element of our operations. They also serve as
the executive agent for the other agencies, letting us know
what their challenges and pain points are.
In In-Q-Tel's six-year history, we have reviewed over 5,500
business plans. We have invested in 90 companies. We have
delivered 130 technology solutions to our intelligence
community limited partners. And I think, very significantly, we
have returned about $15 million into our investment pool from
the returns on our early investments. And those returns are
being used to further the support of the intelligence community
mission.
Just to give you a little bit of--compare and contrast with
DARPA, and I defer Dr. Fernandez's first-hand account of DARPA,
In-Q-Tel is a private firm, whereas DARPA is a government
agency. I think that I can say that DARPA funds very forward-
looking research aimed at radical innovations that will be
represented in products. And they, of course, focus on the DOD
mission.
In the case of In-Q-Tel, we generally invest in companies
that are already producing product. And we are, in that case,
really looking for both commercial success and relevance to the
intelligence community's mission. In some cases where we do
feel that there is a compelling need in the intelligence
community and we find a robust technology but there is not yet
a company, we will work to spin a company out around that
technology, but only if there is a compelling commercial
market.
In-Q-Tel's venture capital model is not a substitute for
basic research. Rather, what we do is leverage government and
private sector investments in research. In fact, for every $1
that In-Q-Tel invests, $8 of private investment are leveraged
in order to bring products to the market that the intelligence
community can purchase.
The majority of our companies actually have their roots in
fundamental research that was funded by NSF, DOE, ONR, and
DARPA.
On the development timeline from conception of an idea to
that commoditized product, we don't--we typically enter, more
or less, at the point where a working prototype can be
demonstrated. So we are later stage, typically, than when DARPA
gets involved. And in some cases, we will provide very directed
gap funding to bridge the , so-called, ``valley of death'' that
occurs at about the time that the fundamental research funding
is declining and before the point at which a technology is
mature enough to be represented in an acquisition program, for
example.
So the question has been raised a couple of times this
morning as to whether a DARPA model or an In-Q-Tel model would
apply in the case where the government is not the customer. And
I can certainly that being able to offer the intelligence
community as early adopters and customers, i.e., revenue
generators, to our portfolio companies and to our co-investors
is a huge value proposition that In-Q-Tel brings. And that
wouldn't necessarily be the case in the energy market.
I would note by contrast that the market, in the case of
energy, is really very diverse. It ranges from the individual
consumer who is going to buy an alternative fuel vehicle to
large utilities who are providing power to the grid. And in
that case, also, there is no single procurement vehicle as
there is in the case when the government is the buyer. And I
would also note, as others have, that policy and economic
factors greatly influence the size of that market. And in that
regard, I think that it might be instructive to look at
healthcare as an example. So in that case, rather than a sort
of technology transfer in, to the government case, what you are
looking at is basic research being transferred out to private
companies who are going to produce a product. And in that case,
too, you have the effect of policy and other influences. How
much insurance is definitely affects the size of the market if
I can actually afford to buy a drug or a therapy.
So at the risk of oversimplification, when it comes to
barriers to market entry, I think it all comes down to money,
and whether there is money in that market will really determine
whether companies are going to get involved.
So I hope, in conclusion, that I have provided the
Committee with a description of In-Q-Tel and that it is
adequate to show the strengths of that model for the
intelligence community. Certainly, fundamental research remains
a requirement for creating game-changing innovations in all
fields, including energy. And based on In-Q-Tel's success at
using venture capital tools to accelerate the rate at which the
intelligence community gets access to new technology, I think
there may be some merit in considering incorporating some
elements of In-Q-Tel into an ARPA-E, if that is where we are
going with this.
In particular, I think there is merit in incorporating a
mechanism for the kind of technical and market diligence that
In-Q-Tel conducts prior to making an investment. For example,
the dynamics of venture capital syndicate investing could
provide an effective commercial peer review that would be sort
of parallel to, or at least at a later stage than, the kind of
scientific peer review that goes on when one decides to fund a
proposal. And in particular, I think the investor perspectives
could inform the selection of products from those of which that
are at the edge of the ``valley of death'' that you might want
to consider funding to get to the point of actually making it
into a product.
So finally, if I may, I would like to point out that In-Q-
Tel was founded in 1999 at the height of the internet boom when
the best and the brightest minds in this country were being
attracted to information technology. And indeed, In-Q-Tel,
itself, was founded to tap into that IT genius in the
marketplace. So as the Committee considers alternative
approaches to ARPA-E, I would like to encourage that whatever
model you adopt that it foster a climate of entrepreneurship so
that this decade's best and brightest will be attracted to
energy research.
So I thank you for the opportunity to speak with you and
welcome any questions you might have.
[The prepared statement of Dr. Cotell follows:]
Prepared Statement of Catherine Cotell
Introduction
Good morning, Chairman Boehlert, Ranking Member Gordon, and Members
of the Committee. I thank you for the opportunity to appear before you
this morning to discuss the question of how the government may help
spur innovation in the energy sector, and may best obtain access to the
most innovative energy research and development available.
I would like to first offer a brief description of my own
background which may help put my remarks in context. I spent the first
ten years of my professional life conducting research, first in
graduate school at MIT, funded in part with DOE grants, and later at
AT&T Bell Laboratories and the Naval Research Laboratory. Because my
work has included issues of technology transfer, intellectual property,
Cooperative Research and Development Agreements, and other linkages
between researchers and the commercial sector, I had already become
fascinated by the novel approach to technology development and
deployment taken by In-Q-Tel prior to joining the staff in 2003. At In-
Q-Tel, I have focused on searching for nascent technologies at
universities, federal laboratories, and other emerging sources to help
orchestrate their commercialization for sustainable delivery to the
Intelligence Community.
Background
In-Q-Tel is a strategic venture capital firm that makes investments
to benefit the United States Intelligence Community (IC). Here is how
it works: As an independent, non-profit, government-funded firm, In-Q-
Tel engages start-ups, emerging and established companies,
universities, and research labs to identify technology innovations and
products that can solve the Intelligence Community's most challenging
problems. In-Q-Tel then employs venture capital investments, often
coupled with product development funding, to create sustainable
technology solutions to be delivered to the Intelligence Community from
thriving commercial companies. Our focus is on companies and
technologies principally directed at the commercial market that also
address the needs of our government partners, because of the
significant benefits of commercial technologies I address below.
In-Q-Tel is flexible in how it structures its investments to foster
win-win relationships, providing the Intelligence Community with early
access to emerging technologies and providing In-Q-Tel's portfolio
companies with government business development guidance. We are very
different than a government agency, but we are using the genius of the
marketplace to benefit the government, and it is working. For every
dollar In-Q-Tel invests, In-Q-Tel leverages an average of eight dollars
of private investment to bring technologies to the market, helping to
lower both development costs and total life cycle costs for the benefit
of the Intelligence Community. In addition, returns to date on our
investments have allowed In-Q-Tel to add approximately 15 million
dollars to its investments pool which is being used to further its
mission.
In-Q-Tel is bound by a Charter agreement with the CIA, which sets
out the relationship between the two organizations and which is
supplemented by annual funding through the Intelligence Community. In-
Q-Tel is not part of the CIA and is not a government agency, but the
five-year span of each renewable Charter agreement between the CIA and
In-Q-Tel provides a beneficial perspective that facilitates long-term
planning. And as a government contractor operating as an independent
nonprofit corporation, In-Q-Tel receives regular oversight from the
CIA, which keeps Congress informed of the company's activities.
The company is governed by an independent Board of Trustees
composed of former cabinet officers and officials from defense and the
Intelligence Community, as well as CEOs of major companies, university
leaders, and leaders of the investment industry.
As you know, Mr. Chairman, In-Q-Tel grew out of the recognition in
the late 1990s by the Director of Central Intelligence George Tenet and
others that the CIA and the rest of the U.S. Intelligence Community
needed the very best technology available to fulfill its mission. This
led the Director to ask a group of distinguished Americans to create a
company that would explore creative ways to access private sector
innovation and technology development--a process, resulting in In-Q-
Tel, led by former Lockheed President and CEO Norm Augustine. Today's
hearing acknowledges the insightful contribution to this discussion of
the National Academies panel on American Competitiveness also led by
Norm Augustine, and the panel's recent report, ``Rising Above the
Gathering Storm.'' We are incredibly fortunate that Norm Augustine has
served on our Board of Trustees since In-Q-Tel's founding, and that he
has been joined on our Board by such visionaries as Lee Ault, Anita
Jones, Charles Vest, Jim Barksdale, Bill Perry, and others.
In-Q-Tel has also been the focus of a number of thoughtful studies
that describe and scrutinize the organization, examining its structure
and effectiveness. In one example, an assessment was made by a panel
from Business Executives for National Security (BENS), a national, non-
partisan, and not-for-profit organization of business leaders--30 of
whom formed the independent panel after the CIA selected BENS to
conduct the congressionally mandated study. The report, ``Accelerating
the Acquisition and Implementation of New Technologies for
Intelligence: The Report of the Independent Panel on the Central
Intelligence Agency In-Q-Tel Venture,'' was submitted to the CIA and
Congress (www.bens.org/highlights-InQTel.html). The panel
concluded that In-Q-Tel had achieved significant early progress and
that ``creating a model like In-Q-Tel makes good business sense.'' In a
second example, the Harvard Business School published a Case Study that
examined In-Q-Tel's history, strategy, and effectiveness in the context
of other federal technology development programs such as Small Business
Innovation Research set-asides, the Advanced Technology Program, DARPA,
and Federally Funded Research and Development Centers (Case 9-804-146,
http://harvardbusinessonline.hbsp.harvard.edu).
Since our founding in 1999, we have delivered more than 130
technologies responding directly to CIA and Intelligence Community
missions, bolstered by more than 90 pilot programs and more than 30
specific technology adoptions. Technology delivered by In-Q-Tel, for
example, makes it possible to fuse data from maps, images, text and
other sources; visualize information in ways not previously possible;
rapidly process vast amounts of information in multiple languages; make
sense of seemingly unconnected information; and identify the most
critical intelligence faster and more effectively.
The In-Q-Tel approach
In order to help identify technology solutions that can address
capability needs of the Intelligence Community, In-Q-Tel has a broad
outreach policy. In addition to soliciting business plans via its web
site www.In-Q-Tel.org, In-Q-Tel actively scouts for technologies and
investment opportunities by capitalizing on its technology network that
includes other venture investors, university faculty and technology
commercialization offices, national and corporate laboratory
researchers and their licensing offices, and program managers at
Government funding agencies. We have also engaged with nearly 90
commercial companies, most of which were previously unknown to the
government, and 11 universities and research labs, which In-Q-Tel
identified through its commercial and academic outreach programs. In-Q-
Tel has also received and subsequently reviewed over 5,500 business
plans. As part of this outreach, we have also cultivated a network of
more than 200 venture capital firms and 100 labs and research
organizations, further broadening the Intelligence Community's access
to innovative technologies.
Before In-Q-Tel makes an investment, members of three teams conduct
diligence to ensure that the investment is on firm footing--to use an
analogy, three legs of a stool must be supported. The first team
consists of CIA employees who are members of the In-Q-Tel Interface
Center, or the ``QIC'' (pronounced ``quick''), which serves as the
executive agent for our interaction with partners throughout the
Intelligence Community. The QIC leads an annual and ongoing ``problem
set'' definition process through consultation with end users throughout
the Intelligence Community, to ensure that the solutions being
evaluated by In-Q-Tel experts are likely to be adopted by users among
our government partners. The QIC provides In-Q-Tel with knowledge about
the technology needs of the CIA and other government partners in the
Intelligence Community through regular and ongoing discussions with the
leadership, the policy-makers, and the operators in our partner
organizations--and together we have established an extensive
demonstration, pilot, and adoption program to facilitate technology
transfer.
The team responsible for the second leg of the stool consists of
In-Q-Tel's staff of technology experts who vet each technology
opportunity against Intelligence Community needs, comparing alternative
approaches and validating technical claims to ensure the technical
robustness of the solution.
The third leg of the stool is the responsibility of In-Q-Tel's
venture team members who examine the commercial market, review the
company's business plan and evaluate the management team to gauge the
potential for long-term success in the market.
One of the strengths of the venture investing model is that In-Q-
Tel's own technology, market, and business assessments are validated by
the diligence conducted by its co-investors. Over the six years that
In-Q-Tel has been in operation, In-Q-Tel has developed a reputation for
conducting among the most rigorous technical due diligence in the
investment community, and In-Q-Tel has found that other investors rely
on In-Q-Tel's assessment of the soundness of technologies it examines.
Most of In-Q-Tel's investments involve evaluation of opportunities
in which the technologies are already being commercialized by start-up
companies. In the Information Technology arena, for example, comparing
the CIA and our other government partners with any Fortune 500 company,
one finds a 70 to 90 percent overlap in information technology needs
for collecting, sorting, analyzing and distributing knowledge. Rather
than seeking point solutions or one-off custom products designed
explicitly for the Intelligence Community, In-Q-Tel invests in
companies that build successful technology solutions intended for the
high growth commercial market and introduces these solutions to the
Intelligence Community.
In some cases, however, In-Q-Tel engages at a very early stage,
before the technology has been spun out of the laboratory. In those
cases in which the technology and the commercial market are robust and
the Intelligence Community need for the solution is critical, In-Q-Tel
will strategize to move the technology from the laboratory into a spin
out, by assembling a management team and providing seed funding. In-Q-
Tel uses its network in the venture community to assist with these
activities and will engage only if the spin out can address a
substantial commercial market.
The roles of In-Q-Tel and DARPA contrasted
As the Committee has noted, some have suggested that an ARPA-E
should be designed to foster directed basic research, and other
proponents suggest its role should be to get products into the
marketplace. In-Q-Tel was founded to address a specific and unique
challenge that is somewhat related: namely, how to provide the U.S.
Intelligence Community with access to the technology innovations being
brought to the commercial market by small, start-up companies, or other
sources of innovation such as national labs and universities, who may
not target the government for sales. Like any other venture investor,
In-Q-Tel ``cherry picks'' technologies with high potential for
commercial success. Because In-Q-Tel is a strategic investor for the
Intelligence Community, In-Q-Tel selects from the entire range of
commercially viable technologies those that have relevance to
Intelligence Community mission.
In-Q-Tel's venture capital model is not a substitute for
fundamental research funding, but rather leverages government and
private sector investments in research. In fact, the majority of the
companies in which In-Q-Tel has invested have their roots in
fundamental research conducted at universities and laboratories
supported by NSF, DOE, ONR, and DARPA. Moreover, before the products
are delivered back to the government, other private investment capital
in addition to In-Q-Tel's has been invested in the companies,
leveraging additional private sector resources to deliver a better
product to government.
As you know, Chairman Boehlert, the President's Science Advisor,
Dr. John Marburger, testifying to your committee just last month
alongside Secretary of Energy Samuel Bodman regarding the 2007 budget,
noted the critical role that basic research plays as the foundation of
our nation's economic competitiveness--a message President Bush
supported in his State of the Union address through the announcement of
his American Competitiveness Initiative and the Advanced Energy
Initiative. The American Competitiveness Initiative calls for a
doubling, over ten years, of the support of basic research in the
physical sciences funded through the National Science Foundation, the
National Institute for Standards and Technology, and the Department of
Energy's Office of Science; and the Advanced Energy Initiative provides
for a 22 percent increase in clean-energy research at the Department of
Energy. These initiatives reflect the need to accelerate our
breakthroughs in the vital arena of energy independence and innovation
which your committee is focusing on now.
On the development time line from incipient idea to fully
productized, off-the-shelf commodity, In-Q-Tel typically engages
sometime after the demonstration of a working prototype. That is, In-Q-
Tel does not typically invest in early research the way that DARPA or
other government funding agencies do, but rather, takes the output of
early research and supports its development into technology products
and sustainable commercial outlets from which to buy those products. In
some cases, In-Q-Tel provides very directed ``gap funding'' to assist
in bridging the so-called ``valley of death'' between the basic
research funding and the point at which the technology opportunity is
sufficiently mature as to readily attract institutional investors or,
in the case, of DARPA, be ready for delivery under a DOD procurement or
acquisition program.
As an investor, In-Q-Tel can influence the product development
roadmap to ensure that the commercial products will indeed meet the
Intelligence Community's needs while adding value for the commercial
customers as well. Among the advantages of commercial technology are
lower initial and long-term costs, easier integration, longer
technology lifetime, faster development, better user interfaces,
incremental upgrades, and next-generation improvements, all developed
by leveraging success in the commercial marketplace. Our success stems
from linking commercial viability and technical excellence with our
government partners' needs.
When government is not the primary or early user of a technology
One of the elements that In-Q-Tel considers essential for its
success is a deep understanding of our government partners' needs,
challenges, and pain points, which we derive through our interactions
with the QIC and the interface centers at other various agencies we
work with. Indeed, being able to offer the U.S. Government Intelligence
Community agencies as potential early adopters of the technologies is a
unique value proposition In-Q-Tel brings to its portfolio companies and
co-investors. These early revenue opportunities coupled with the
validation by a discerning customer are quite useful as these companies
work toward commercial market penetration.
By contrast, the ``customers'' for the products of energy research
are diverse, ranging from the individual consumer who buys an
alternative fuel vehicle to the large utility companies who provide
power to the grid. That is, there is no single procurement mechanism,
and this market can be significantly impacted by policy and regulation
that may provide incentives or disincentives to early adoption.
From the customer perspective, the challenge that motivates the
formation of an ARPA-E is similar to that faced by the National
Institutes of Health (NIH). The fundamental research funded by NIH must
be transferred to the commercial sector for maturation and
productization before the customer (ultimately the taxpayer who has
need of a therapy) can benefit. The pathway from research to product in
the case of health care typically involves costly and time-consuming
clinical trials supported by private investment dollars invested with
the expectation of return in the form of profit from lucrative sales in
the pharmaceutical or medical device markets. Moreover, similar to the
energy sector, the health care sector is strongly impacted by external
factors such as cost reimbursement (insurance) that can serve as
incentive or disincentive to making such investments.
Barriers and incentives
At the risk of oversimplification, and assuming a healthy supply of
new technologies being created as a result of basic research funding,
the barriers to such new technologies being brought to the market can
all be distilled down to one factor: money in the marketplace.
Companies will only take on the task of productizing a new technology
if there is a high probability that they will make money selling the
product. That statement is true regardless of whether the customer for
the product is the government or the wider commercial market.
Returning to the NIH example, a company is likely to productize a
new therapy only if there is a likelihood that they will make money
selling the therapy; that is, the patient population is large enough
and both willing and able to pay for the therapy and the cost margins
are such that the company will make a profit. The health care market,
like the energy market, is subject to influence by policy initiatives;
an example would be expanding health insurance coverage to enable
patients to pay for new therapies which would have the effect of
increasing the size of the market and the probability that a company
entering that market with a new therapy could make money. The market in
the energy sector is subject not only to influence by policy
initiatives but also by global economic trends.
One of the observations that led to the founding of In-Q-Tel is
that if the government is the only customer and the government has a
critical need for the product, there is a higher likelihood that the
government will overpay relative to the situation in which the
government's critical needs can be satisfied with a product that can
also be sold in the larger commercial market. In-Q-Tel was designed to
ensure that the government can get access to commercial products that
will address the government's critical needs at the lowest cost and
greatest impact possible. In-Q-Tel does not invest in companies that do
not have a commercial market; the In-Q-Tel model does not apply to
those cases.
The In-Q-Tel model as part of the solution
I hope that in this discussion I have been able to describe the
strengths of the In-Q-Tel model for responding to specific needs within
the Intelligence Community. Certainly, fundamental research remains a
requirement for creating game-changing innovations in all sectors,
including energy. Based on In-Q-Tel's success at using venture capital
tools to accelerate the rate at which In-Q-Tel's customers get access
to new technologies, this committee may wish to consider incorporating
into the design of ARPA-E some elements of the In-Q-Tel model to assist
with bridging the gap between basic research and commercial viability.
We can summarize our approach as follows. By utilizing equity
investments, sometimes coupled with work programs and market guidance,
In-Q-Tel fosters the development of strong companies which produce
commercially viable technologies that at the same time solve critical
Intelligence Community mission challenges. There may be parallels for
the energy market.
Note, however, that the general direction of In-Q-Tel technology
transfer is from the commercial side to the government (tech transfer
in), while the technology transfer challenge for energy is in many
cases to convert energy research into products that can be sold
commercially (tech transfer out)--to a customer set, or market, that is
more diverse and fractured that in the Intelligence Community,
requiring an examination of the implications for the value proposition
to the portfolio company.
There may be merit to incorporating into ARPA-E a mechanism to
provide the kind of technical and market diligence, aimed at commercial
viability, that In-Q-Tel conducts prior to making its investments. This
kind of diligence based on investor perspectives could be very valuable
in informing the selection of research projects for continued
development with ARPA-E support. There is a lot to be said for the
screening that accompanies investing one's own capital in a project,
and the dynamics of a venture capital investing market can provide
effective commercial peer review that for technologies at a later stage
of maturity (at the edge of the ``valley of death'') parallels the
benefits of scientific peer review that occurs on the basic research
and development end of the spectrum.
Returning to the analogy of a stool that for stability requires all
three legs to be well-supported, it is a third leg--the customer
input--that would necessarily differ in the energy market from the In-
Q-Tel model because of the diversity of the customer base, the lack of
a single procurement mechanism and the susceptibility of the energy
market to manipulation by policy initiatives and global economic
events.
Conclusion
Again, I thank the Committee for the chance to speak with you
today, and I congratulate you for tackling the crucial national need
for groundbreaking innovation in the energy market. Creating additional
avenues for basic science and for commercial opportunities may help
attract the best and the brightest to energy research, as it has in the
past to such historic efforts as the space race of the 1960s and the
Internet boom of the 1990s.
Biography for Catherine Cotell
Dr. Catherine M. Cotell received her B.A. in chemistry and
mathematics from Wellesley College and her S.M. and Ph.D. degrees from
the Massachusetts Institute of Technology in metallurgy and materials
science and engineering, respectively. After two years as a member of
technical staff at AT&T Bell Laboratories, Dr. Cotell joined the staff
of the U.S. Naval Research Laboratory (NRL), where she conducted
research in surface modification and thin film coatings for electronic,
optical and biomedical applications. She joined the staff of the
Technology Transfer Office at NRL in June of 1997 and assumed the
position of head of the Office in April of 1999. As head of Technology
Transfer, she evaluated, managed and marketed NRL's intellectual
property portfolio, negotiated Cooperative Research and Development
Agreements (CRADAs) and patent license agreements, and facilitated
collaborations and interactions between NRL researchers and the
commercial sector. In July of 2003, Dr. Cotell joined the staff of In-
Q-Tel, the venture catalyst for the Central Intelligence Agency (CIA)
as Vice President for University Outreach. Dr. Cotell launched In-Q-
Tel's University and Federal Laboratory Outreach program to search for
emerging technologies at universities and federal laboratories and
orchestrate their commercialization for sustainable delivery to the
Intelligence Community. Dr. Cotell's responsibilities at In-Q-Tel have
expanded to include providing strategic direction for the company as
Vice President for Strategy, University and Early Stage Investment.
Discussion
Chairman Boehlert. I thank you, and I thank all of you for
being persons of vast information for us.
Now we have got to respond to the call of the House for a
vote. I think we should be 15 minutes or less. The staff will
talk to you about the comforts of our lounge. It is not
luxurious, but at least it is there. And we will try to
accommodate you on a coffee or some sort of liquid. And we will
be back in about 15.
[Recess.]
Chairman Boehlert. The hearing will resume.
I wish we had note takers back in the lounge, because my
understanding is while we were over voting, we had rather
spirited and very interesting conversation among our panelists.
And that is what we are here to encourage.
Let me start out by asking all of you this.
You know, I know that most of you support, with some
obvious exceptions, Dr. Mowery, the establishment of ARPA-E,
although, for somewhat varying purposes and with somewhat
varying qualifications. And as I mentioned in my opening
statement, we are faced with setting priorities, and Dr. Chu,
as you noted, new money you would like if we have this ARPA-E.
So let me ask all of you. If we have to make a choice, and
we have to make choices around here all of the time, we are--at
least I am inclined to agree with the panel and the report,
that the highest priority is for the Office of Science. We have
got a 14 percent increase, about a $500 million figure
increase. And you are saying that about $300 million would be
the minimum to start. So would you support an ARPA-E if the
money proposed came from the Office of Science?
Dr. Chu, I think I have your answer.
Dr. Chu. Yeah, it is very simple: no.
Chairman Boehlert. Yeah.
Dr. Mowery.
Dr. Mowery. No, I think it would be interesting to see
whether some of the design principles that motivated the panel
to suggest an ARPA-E could be incorporated into the management
of a portion of the funding increases requested for the DOE
generally, for the civilian side of DOE.
Chairman Boehlert. Ms. Kenderdine.
Ms. Kenderdine. I would not support taking money out of the
Office of Science to fund this if it were insufficiently
funded. I think I said in my testimony, you can't set this
program up to fail. And I assume that the Academy knew what it
was talking about when it recommended certain funding levels.
And there has to be a critical mass in order to make a
difference. This is supposed to be transformational. And
insufficient funding would constitute a failure, and I wouldn't
support that.
Chairman Boehlert. Thank you.
Dr. Fernandez.
Dr. Fernandez. I think I agree. Insufficiently funding two
activities instead of sufficiently funding one is the worst of
all management decisions.
Chairman Boehlert. Thank you very much.
Dr. Cotell.
Dr. Cotell. I would third that. I don't claim to know
enough about the Office of Science's operations, but from my
perspective where we are trying to transition technology, you
can't dry up the pipeline. It is critical to have that basic
work done.
Chairman Boehlert. Thanks very much.
Now the next question is an obvious one.
What makes you think that we could insulate ARPA-E from
energy politics as they try to challenge incumbent
technologies? I mean, that is a tall order to fill.
Dr. Chu.
Dr. Chu. You are right. It is a tall order. I look to the
leadership of Congress.
Chairman Boehlert. Thank you.
You know, I am just reminded of the fact, and when we--our
professional staff and I sat down and started talking about
this hearing, and the supply demand, I said, ``Look. We have
got technology right now, off the shelf to make automobiles
more fuel efficient. I think we are nuts for not doing it.''
And I have, year after year, offered an amendment to various
legislative initiatives to increase CAFE standards. I mean, we
don't have to go out and invent something new. And so--yeah.
Dr. Mowery, what do you think?
Dr. Mowery. Well, I think it is very difficult to insulate
it. I think, as your question suggests, one of the problems,
historically , has been that changing priorities and changing
prices tend to produce an ebb and flow both of funding and of
interest and also priorities. And the result is that we are not
moving things out as rapidly as we could into use.
Chairman Boehlert. You know, Ms. Kenderdine, she put it
very well, ``Picking winners threatens to strand existing
industry assets.'' And that, perhaps, is why the head of
ExxonMobil dissented from this recommendation.
Anything you would care to add on that one?
Ms. Kenderdine. I am not surprised that ExxonMobil was a
dissenter. They have never supported anything that I have
supported, but the--it is very difficult. I would just urge the
Committee to consider how imperative it is that we invest in
new ways of doing business, and that, at some point, if you
empower a research organization in a way that assures that it
will pick the best winners, that might be what we need to be
doing right now.
Chairman Boehlert. Dr. Fernandez.
Dr. Fernandez. Like I said at the beginning, I am not much
of an expert in the energy business, but I can tell you this.
For the experts, if it turns out that the next 30 years we
think is a time where there is going to be major changes in the
energy markets, okay, which will put the United States in funny
positions and that technology could help us maintain a
favorable position there, then I think that becomes the major
justification for looking forward as compared to worrying about
the two-years-from-now problem, the way the companies are
thinking now.
Chairman Boehlert. Thank you.
And Dr. Cotell, anything you care to add?
Dr. Cotell. I think, again, from In-Q-Tel's perspective,
which is that of a kind of novel experiment that was started, a
long-term commitment is important. And inasmuch as politics
might impact that, I would say if you do this, you have to
commit to it for a few years and make sure that you give the
organization time to be strategic in what it does and to morph
its model a little bit to make sure that it does the right job.
Chairman Boehlert. Thank you.
Mr. Gordon.
Mr. Gordon. Mr. Chairman, I was shocked, shocked to hear
you say that the Chairman of ExxonMobil voted against looking
at alternative fuels. You know, that--I am just--I am--I don't
know what to say. I mean, it follows along that cow commercial
that says, ``Eat more chicken.'' I mean, of course that is
what--you know, it is a corporate policy not to go into that
kind of research development.
Let me move to another area.
I think most folks--they will say it, and they probably
agree with it, that a part of national--our national defense is
reducing our dependency on foreign oil. Saying it and then
trying to believe it and then doing something seems to be
something else, and I think that we need to take it a little
bit further.
The wrong question was put to you earlier in that where
would you shift funds around the Department of Education or the
Department of Energy. That was the wrong question. The right
question is would you rather put more money in looking at
alternative fuels and energy dependency than having your
capital gain stay at 15 percent rather than go to 20? Would you
rather spend more money in the area of education--or rather of
energy than spending $50 billion on a Star Wars program that
has never once demonstrated that it works? You know, would you
rather spend some more money on energy independence than you
would on other super-duper weapons systems that--when we don't
have a major power that is opposing us? Now--you know, so you
were given the wrong question.
Now let me ask you the question. Do you think it might be
worth rearranging some of our priorities to invest more in
energy dependency--independency?
Dr. Chu. Well, that was the very strong opinion of the
Augustine Committee. It wasn't--we were never thinking you take
money out of basic research in the Office of Science and move
it over into ARPA-E, but within the vast amounts of money that
the U.S. Government funds in total, $1 billion is not much,
considering the stakes that are involved. And----
Mr. Gordon. Well--yeah, we are not going to spend time on
this. If anybody would like to disagree with Dr. Chu, just
raise your hand, otherwise--would you? Okay. Okay. Then we will
just assume that everybody thinks that this would be a priority
that we should look elsewhere and that we should not be putting
the bind of cannibalizing ourselves.
Let me now move to my final question, because I have a
limited amount of time.
There seems to be a general consensus that an ARPA-E
program would be beneficial, if it was done right, and
everybody can decide, you know, how--what is ``done right.'' I
was talking to Mr. Bartlett--Dr. Bartlett coming over here, and
you know, we also share that same kind of concern about are you
going to get it right? But if you don't do something, we are--
we really have a problem. And so I think that we need to move
forward, and hopefully we will get it right.
The bigger question was this area of demand. And you know,
will there be a market for this, and what do we--where do we go
with it? So Dr. Chu gave us some suggestions about the type of
research that he would like to see go forward. Let me ask a
question in general. How do we address this demand issue? I
will just leave it at that.
Dr. Chu. Okay. I know----
Mr. Gordon. You can go ahead, and then we will just flip it
down through.
Dr. Chu. Okay. Let me give you a good example.
The--clean coal. We need to develop clean coal
technologies. The--not only for us, but for the entire world,
because the countries that have the most coal supplies are the
United States--in this order: United States, China, India,
Russia. And it would be very difficult for those countries,
including us, to turn our back on coal, if it is there. So we
need to develop clean coal technologies.
If a carbon tax or a carbon cap and trade is not put in
place, right now the gasification of the coal and the capture
of the CO2 and the sequestration is estimated to be
roughly 30 percent higher, or maybe more, but of that order.
There will be no industry incentive for the next coming
decades.
In the meantime, if industry invests in the next one or two
decades in conventional coal plants, you will have cast the die
for the next 40 or 50 years. So in this case, regulatory tax,
whatever, fiscal policy, is very important. Then industry will
be very motivated to develop efficient coal.
However, there still needs to be an ARPA-like component to
this. Why? Because of sequestration. Right now, oil companies,
BP, for example, is using carbon sequestration to use it for
enhanced oil recovery. So as they bring out--natural gas, for
example, has a lot of extra CO2. They will pump that
CO2 back in to get more oil back out of the ground.
But they would probably not do research in sequestering carbon
dioxide in the major potential reservoir, namely in the salt
water beds deep under the Earth. That is something the
Department of Energy or--should have to do initially until it
looks like it might be able. But say--that is something that is
a long-term research project you don't see industry investing
in for the next decade.
Mr. Gordon. Okay. Let us just go on down the line.
Dr. Mowery. I agree with Dr. Chu that some set of policy is
a combination of fuel economy standards, carbon taxes, other
fiscal or tax-related policies is essential in order to
complement the necessary investments in R&D on the supply side,
if you will, with the creation of stronger market signals for
adoption on the demand side.
We tax cigarettes heavily, and taxes on cigarettes have
gone up substantially in the last decade, precisely because of
a political consensus that growth in consumption of cigarettes
is dangerous to the public health and to the larger welfare of
the citizens. Energy, I think, has a very similar set of
arguments underpinning it. We--tax it more heavily with a
recognition--in the recognition that continued growth in
consumption on the current trends is toxic, from a national
security, environmental, and economic perspective.
Mr. Gordon. You mean as they have done in Europe and most
every other country in the world?
Dr. Mowery. Precisely.
Mr. Gordon. Okay.
Ms. Kenderdine. The recent data shows gasoline prices have
doubled and gasoline consumption has gone up. And so, from an--
from a gasoline/oil perspective, the size of the tax that you
would have to impose would pale in comparison to new--you know,
new money at a billion dollars to fund an ARPA-E program. It
would be politically unpalatable, very, very difficult to do,
in any environment. And so I think you need other kinds of
market conditioning than a huge tax on gasoline, for example, a
carbon cap and trade carbon tax is a way to spread that
incentive, shall we say. There are a whole host of market
pushes and pulls that we need. The technology development, the
R&D that we all want to see invested in as necessary, it is not
sufficient. That is kind of another stove-piping problem within
the government. All of those policy imperatives are established
at different locations in the government, and they are not
sequenced with the investments that we are making in R&D.
Mr. Gordon. Excuse me. If we could--I know we need to move
along. I just wanted to get the others.
Again, the question goes back to are we going to have,
unlike with the Defense Department where you have a built-in
market, is this going to be useless since we don't have a
market here?
Dr. Fernandez. The one thing I think is different, and I am
not sure how it is going to progress in the future, is in this
world now of energy, there are at least two emerging powers
with insatiable appetites for energy. And I think that is going
to change the whole dynamic of energy markets. I don't know
how, because I am not an expert, but I can start to see some
areas where if the United States doesn't start thinking ahead
and doing things that take long-term investment, all of a
sudden we are going to be buying some of our technology from
other places, critical to our energy, and I am not sure if that
is in the best interest of the United States.
Dr. Cotell. I really don't have a lot to add, and I haven't
studied the energy market. What I have studied is the, sort of,
dynamics of small companies entering markets. And I think there
are some good examples here where, you know, if I can drive on
the HOV lane, I am incentivized to buy an alternative fuel
vehicle. And I think, maybe in conjunction with an ARPA-E,
where your focus is really developing the innovations, and I
hope working to transition those innovations, that you can
experiment with some of the policy incentives that you would
provide to companies to get into the market.
Chairman Boehlert. Thank you very much.
The gentleman's time has expired.
Ms. Biggert.
Ms. Biggert. Thank you, Mr. Chairman.
I am a strong advocate of the advanced fuel cycle for
nuclear, and I think that is something that we really have to
address right away and work on. And I think the Science
Committee has been trying to bring attention to the problems
that the Department of Energy faces with developing and
deploying a fully integrated advanced nuclear fuel cycle. So--
but I have been pushing to have the nuclear energy program to
conduct a comprehensive and rigorous systems analysis of the
advanced fuel cycle, because all of the technologies in the
nuclear power system have to work together.
I would like to start with Dr. Chu and ask you how--could
you kind of walk through how ARPA-E would be a better solution
than the improved planning and analysis and prioritization of
the existing programs?
Dr. Chu. Yeah. Okay.
There are two things. First of all, the current existing
technology around the world, there are light water reactors.
The current utility companies are--will not place orders for
anything other than light water reactors, unless they have some
assurances that a new technology will come to being. Now in the
short-term, the Department of Energy is building a test reactor
at Idaho National Lab to test a new, so-called, pebble bed
reactor that is ceiling gas cooled. It has been--these have--
designs have been out there for a decade or more, but there
hasn't been a real solid test of the robustness of this. That
is an intermediate--very--it is a short-term, intermediate
thing that you--that, we see, can go into the marketplace
hopefully within, you know, five or six years, or less than 10
years.
Now if you go to the larger issue, and--of complete fuel
cycling, if you say that we are going to have only one
repository, like Yucca Mountain, the capacity would--of the
statutory limit would be over--it would be filled up by----
Ms. Biggert. 2010.
Dr. Chu.--2010----
Ms. Biggert. Right.
Dr. Chu.--and the physical limit by 2020, meaning the
thermal limit. There are possible technologies that you use
faster neutrons, design a small subset of reactors to burn down
the waste products, and especially to decrease the lifetime of
the nuclear--the spent waste products from--so it becomes
something from a couple hundred thousand-year storage problem
to a 500-year problem. There is a possibility there, and this
long-term research and the simulation of these faster neutron
reactors is something where--that would be something I could
see going to ARPA-E.
Ms. Biggert. But they are already working on----
Dr. Chu. They are working at it, right. But it depends. I
mean, right now, there is a----
Ms. Biggert. I guess the question I am asking is how would
ARPA-E do it better than the programs that are trying----
Dr. Chu. Well, I wasn't really thinking of ARPA-E in terms
of the nuclear sense.
Ms. Biggert. Okay.
Dr. Chu. I was thinking more of ARPA-E of initially like
the analogy of a venture capital fund. One--these problems,
like ITER, like nuclear fuel cycling and all of these other
things that are now well identified, you can assert to
establish a mechanism, you know which way to march, but if you
want to develop a totally new plan that would replace this corn
in--for growing energy, that is more out of the box or a
totally new technology. And so I--we are thinking of ARPA-E as
mostly funding things like that, just totally off the wall,
like the old DARPA did.
Ms. Biggert. But isn't that still a transformational
technology to move the nuclear?
Dr. Chu. It is, but--and--but I think the Department of
Energy sees this as one of its priorities and is moving forward
with its current resources. But there is--we are not--I guess
what I am saying is we are not fully tapping the basic science,
both within the Department of Energy and within the NSF, within
NIST. We are not--there is a potential for recruiting some of
the best and brightest young scientists, who, just as we
recruited them in war time to work on the radar and the bomb, I
think many scientists are beginning to wake up and say, ``This
is so important that I really want to work on this.''
Ms. Biggert. Don't we need something really like the
Sputnik, too, I mean, to bring all of this together with
nuclear energy?
Dr. Chu. Well, that is the trouble. We are not--we don't
have a sudden thing like Nazi Germany or Sputnik.
Ms. Biggert. Maybe that is fortunate, but----
Dr. Chu. It is fortunate, but we are in a slow boil mode,
and I am so glad, starting with the President and his
initiatives and--but with all of the forces at work here, that
we are beginning to wake up, even though there is not a sudden
emergency, it is an emergency.
Ms. Biggert. Well, maybe the ``Gathering Storm'' is really
a good analogy. And I am glad to see that you have some
connection to Stanford, my alma mater, because I was worried
about the two--the both of you sitting there from Berkeley, and
you know, it brings back old competition.
Chairman Boehlert. Thank you very much.
The gentlelady's time is expired.
Dr. Mowery. All of my degrees are from Stanford.
Chairman Boehlert. Mr. Honda.
Mr. Honda. Thank you, Mr. Chair.
And I think Stanford is well represented here, in terms of
background. My--so you know----
Dr. Fernandez. You have got one over here, too.
Mr. Honda. And it is all from the San Francisco Bay area.
So that is good, too.
I found the discussion by all of you very interesting and
sort of engaging, and I think where I probably understand best
right now is that DOD has DARPA, DARPA has one client, one--and
one mission and makes clarity easy. And what I hear you saying
is that with ARPA-E, if it is going to be different, it has to
understand it is going to have, probably, multiple missions and
its client basis probably everybody else except the Department
of Defense.
What would this group look like if we were to sit down as
to hammer out a mission statement or statements and to design a
framework so that we can start looking at how to develop policy
or what to do within that framework?
Mr. Fernandez, you said, you know, there are a lot of stove
pipes and how do you--I don't know if you avoid it, but if--you
know, how do you create the system that would integrate them
all so that they--there is some synergy there, and without
having to wait for shame or fear to drive us, and then--because
that will--only ends up scapegoating somebody or some country
or some form of some other thing, which has been the history of
this country and not waiting for the gathering storm but
looking for the silver lining that we can move towards or the
pot of gold at the end of the rainbow.
Anybody can answer that.
Dr. Fernandez. I think DARPA ARPA-E would sure be some kind
of an experiment. I mean, it is not clear it is going to work
in the Energy Department. You do your best to see what is going
to happen. I think the most important thing, as was mentioned
by several of the Members, is you have got to identify some
initial focus for this entrepreneurial agency to work on. If
you say work on all of energy, that is such a vast problem, I
think ARPA-E is dead in the water. DARPA started with space.
Space was the major--in particular, we were having to do with
space surveillance.
Mr. Honda. Okay.
Dr. Fernandez. Okay. A particular problem to be able to
look into other people's back yards when they could shoot down
your airplanes. That was a very, very big deal, and it was very
hard, and we didn't know how to do it. And the Soviets showed
they could do it first and everything else. I think, for
example--as--an example that might be considered would be, say,
energy for transportation. That is subset, because it requires
mobile capability, and the things that we do now, the things
that we use gasoline for and oil for. Okay. And I am not saying
that should be it, but one area like that that you can say,
``Now you tell me how we are going to be independent in that
area for the next 30 years and what is the technology that is
high-risk, and who are the people we have got to get together
some place to do it?'' And then if it worked there, I think it
would morph. As the energy environment changed, it would change
with the energy environment. That is the essence of DARPA,
which has been allotted to exist.
That is the only thing, I guess.
Mr. Honda. I think you said health.
Dr. Cotell. Let me make a couple of comments.
First of all, I would praise the CIA, because the CIA
actually formed In-Q-Tel two years before 9/11, and so I don't
think you need a Sputnik. I think everybody here says something
needs to be changed. Let us just figure out exactly how and how
to structure it properly. It was that they weren't getting
access to new information technology that was being developed
in small start-up companies, because those companies don't
target the government. It is way too hard to figure out how to
sell to the government. Government wants to put their fingers
in your intellectual property, and there are a whole bunch of
barriers.
So the CIA looked at that problem and they said, ``How do
we solve it?'' And they said, ``Well, who do these companies
work with?'' They work with their venture capitalists. And so
you provide funding, you are an investor, and you get a bit of
mindshare into developing those products that ultimately the
customer needs.
And sort of in the same way that DARPA changed over time
from its original focus on space, In-Q-Tel no longer focuses
exclusively on information technology. We have expanded the
model, because, as an experiment, we showed that it worked, and
we have expanded that model to include other technology areas.
So we work in sensors now. We work in more hardware-oriented
things in addition to the software-oriented things.
So again, I go back to my comment that if you are going to
do this, identify the problem that you are trying to solve, set
it up in such a way that you believe there is a reasonable
expectation of success, make sure you have a long-term
commitment to the experiment, and allow the experiment to morph
over time and improve as it shows success.
Mr. Honda. Mr. Chairman, I know my light turned red, but so
far, what I have been hearing, it still feels like the old--the
same old paradigm. And someone said think out of the box. Is
that really thinking out of the box, or is it thinking within
the box?
It is a question to all of you.
Chairman Boehlert. Dr. Mowery, you haven't had your go at
this one.
Dr. Mowery. Well, I think that, again, a mission statement
is very difficult, in many cases, to translate into something
operational. I think there are a lot of mission statements
around for the energy area. There have been a number of
commissions. And I think there is a mission statement implicit
in the mandate for ARPA-E about reducing dependence by 20
percent on foreign energy sources, I think. Anyway, the point
is, I think that it is translating it into something that is
operational. That becomes extremely difficult and also adapting
and ensuring a mission statement doesn't become a set of
manacle that work against the flexibility that is needed in the
energy R&D area.
So I think a mission statement, alone, may be necessary,
but it is far short of what is necessary--or to catalyze energy
R&D in the way we need to do it.
Chairman Boehlert. Thank you.
The gentleman's time has expired.
Mr. Hall.
Mr. Hall. Thank you, Mr. Chairman.
There has been a lot of discussion here about funding and
importance of funding. For any new and innovative alternative
energy, you have got to have funding, and when you recommend
something like that, you have got to pay for it.
Ms. Kenderdine, in your testimony before the Committee
today, you mentioned that there should be some separate funding
mechanism for ARPA-E. And with my thanks to you and your
associate on advice for the last four or five years as we
passed the Ultra Deep legislation that is in the energy bill
that the President is considering right now of zeroing out, and
I am going to be with him at 2:30 this afternoon to try and
talk him out of it. But you have some suggestions, don't you,
about how that funding could be? And keep in mind that Scott
Tinker, the very brilliant writer from the University of Texas,
that his paper had indicated that for this program would be not
costly to the taxpayers, because it is going to reap energy
sources of its own source until we just can't get up from the
depths.
But it is your recollection that his paper indicated that
for the--for a $10 billion outlay, they get $12 billion back.
Is that--am I thinking about his testimony?
Ms. Kenderdine. Their analysis that they did was that it
would return to the Treasury five times the amount of revenues
that it cost in additional royalties that were produced from
additional production on public lands. The--if I may, for a
minute, the--I have spent a lot of time trying to figure out
how to get programs paid for. Applied----
Mr. Hall. Could royalties from the program be used to
support the ARPA-E trust fund to help develop some sustainable
energy resources? Could that be used?
Ms. Kenderdine. The--yes, sir, it could if the Congress
directed that it be done. The--I--there are time scales that
were focused on here, and everyone is talking about 30 years
out. A lot of the panelists have talked about a
transformational research that will take us to energy
sustainability in 30 years. There is a significant amount of
work that needs to be done in the interim. And I would also say
there is a significant amount of energy in the world. A lot of
it is in the wrong places. And so in the United States, I think
it is going to be very difficult to get off of foreign oil.
Our--there is no way to identify foreign oil in a world
marketplace. I think we do need to invest in the technologies
to produce as much domestic oil as we can to cover the interim
period as we transition. I think we need to have concurrent
efforts, kind of a near to mid-term time scales, long-term time
scales. I would hope that an ARPA-E could cover that.
There is a significant amount of natural gas in the United
States. It is technically recoverable. We have 60 years of
technically-recoverable supply, but it is not--we need
technologies to develop it. We are embarking on a course where
we are going to be importing our natural gas from the same
places that we are importing our oil from.
Having said that, the applied energy research requires
significant industry input and industry leadership. It is very
difficult to get the necessary industry input and leadership to
do applied energy R&D without assured funding. And the trust
fund that Mr. Hall established provides the industry the
assured funding that it needs in order to invest its own assets
in developing new technologies. As Mr. Hall said, it could
generate a lot of additional revenues, and I am always on the
lookout for new revenues and ways that we can fund energy R&D
and with the objectives of ARPA-E which is sustainable, and so
I think it is a--royalties are a good place to look.
Mr. Hall. Well, could the royalties from that program be
used to support an ARPA-E trust fund to help develop these----
Ms. Kenderdine. Yes, it could.
Mr. Hall.--sustainable?
Ms. Kenderdine. Yes, it could, according to----
Mr. Hall. And without stating exactly how much over a
period of time it would bring, I recommend people read Scott
Tinker, I believe is his name, Bureau of Economy Geology at the
University of Texas. And I think that is the team that played
Southern California a couple or three weeks ago. I don't
remember exactly how that came out, but I think that you will
find that article very well written, and it points out a way to
get energy for this generation of youngsters to where they
don't have to fight a war overseas. And that is what energy
does.
So you do believe that that could be used for that, and
there is that five times the federal output? They put up the
money but they get it paid back by known reserves that are
there that are in the base of the Gulf that we can find, but we
can't get them up? And with this view, with the universities
helping us, Southern Cal, Stanford, and all of the other really
bright places, it can get that technology.
Chairman Boehlert. Thank you very much, Mr. Hall.
And the gentleman's time is expired.
Mr. Udall.
Mr. Udall. Thank you, Mr. Chairman.
It is always a privilege to follow Judge Hall, the wisest
and most experienced Member of the Congress Judge.
Thank you all for being here. This is a crucial topic.
Judge Hall just put his finger on it when he talked about
sending men and women in American uniforms overseas to protect
oil supply lines. I don't think any of us want to be in that
position in the future.
Dr. Chu, if I could just direct a question to you. I do--
before I do, I want to just make it clear to the Committee and
all of those assembled that Mr. Gordon has, I think, an
excellent piece of legislation I am proud to co-sponsor, and
the concept of an ARPA-E really makes great sense.
But I would like to understand how it would fit into the
Department of Energy's current renewable energy research. And
specifically, Doctor, I think it is probably no surprise I am a
strong supporter of the National Renewable Energy Laboratory,
which is based in Colorado. And I am curious to what you would
think about the role that ARPA-E would play. Would it
complement NREL, or do you think there is--potentially would be
at odds with each other?
Dr. Chu. I think, to be fair, I--we hope that it would
complement it, but complement always means some necessary--some
overlap, so there might a competition at the fringes. And let
me give you a good example. NREL is working very hard to
produce more efficient solar cells using existing semiconductor
technology. The type of work that I see ARPA-E is funding is
something that is very, very different than that: take
advantage of completely new technology that is just emerging
today. Many of those technologies that are emerging today are
actually emerging in the basic science laboratories, new ways
in making totally new nanomaterials. And so that is why I
specifically said that that would be an example where it is
more out of the box. The--they are working--NREL is working on
enzymes and is actually collaborating with DuPont to work on
enzymes to help break down cellulose. But the--there is a new
field, called synthetic biology, which is a continuation of
recombinant DNA, but instead of one gene, you put in dozens.
But once you put in dozens of genes, the organism usually just
breaks down. But--and so the example I cited, given this new
anti-malarial drug, is an example where one has figured out how
to put in dozens of genes to produce a drug very inexpensively.
It is a very total out of the box way of doing things. And that
scientist, actually, who was working on that was going to go
and solve another disease, and he is now convinced that he
wants to use that talent to work on energy.
So it--that is again something where if the home of ARPA-E
is closer to the basic research, you can get--it is better to
get those really new ideas out into the marketplace and into
innovation and into industry faster.
I just want to make one comment regarding the other
question.
I was just thinking. Dr. Fernandez made an excellent
suggestion about having the focus, like on transportation. And
I think the American public might go for a few pennies. I am
not sure how many billions of gallons of gasoline we use a
year, but it--we are talking now, it could be less than a
penny, it could be a few pennies that goes directly into
looking at improving transportation and an alternative to oil.
That part of it, and you know, the American public might buy
that. I don't know.
Mr. Udall. Doctor, thank you.
If I could now direct a question to the panel.
The Energy Policy Act authorized the Energy Efficiency and
Renewable Energy funding levels at a much higher level than we
have actually appropriated to those levels, and I know you
can't speak for the DOE, but do you believe that there would be
efficient--or sufficient resources, I should say, to continue
EERE funding levels and support ARPA-E at the same time? And
then to follow on, what do you think the appropriate levels for
ARPA-E, when it comes to funding, would be?
Maybe we will start over here with Dr. Cotell.
Dr. Cotell. I have to say, I am completely unqualified to
address that question at all. I am sorry to say, but it is just
not my field, and I wouldn't want to express an opinion.
Mr. Udall. Well, if you would like to weigh in later, for
the record, you feel free to do so.
Dr. Cotell. Thank you.
Mr. Udall. Dr. Fernandez, do you have any thoughts on this
question?
Dr. Fernandez. The only thoughts I have are my experience
at DARPA.
A program--a DARPA program, to be meaningful, has an
impact, runs between $10 to $30 million a year, so that if
DARPA was going to have a half a dozen programs or ten
programs, that would kind of set the yearly budget that you
would have to have for DARPA. A lot of agencies, what they do,
is they wallpaper every particular area by under funding, but
they have got view graph level capabilities, so they are in
everything but nothing is critically funded. And I think in any
one of these areas where you are limited and you are trying to
do these things, somewhere--like that number. And then if you
picked the number of projects, that would tell you kind of what
the number happens that you need. And I think you need a half a
dozen or ten projects, because you don't want to bet the farm
on a single project, high-risk kind of a thing.
So I think that is the kind of--where you make up an
initial budget.
Mr. Udall. Mr. Chairman, do you think we can get a short
answer from the other two panelists?
Ms. Kenderdine. Mr. Udall, the--I think you might have come
in after I said that I think that energy R&D is dramatically
under funded, I think, in a lot of areas. And that is--it has
always been distressing to me. You might have been in Keystone
when I had a concern--expressed concern over the outrage over
the high price tag for the energy bill, which is $3 billion a
year for 10 years, which , you know, depending--regardless of
how you spend it, that is not very much money to be spending on
our energy and national security future. So I would advocate
funding at all authorized levels. I also think that a billion
dollars a year, as recommended by the Academy, in new money so
that it doesn't impinge on the funding for existing programs
is--I would defer to their expertise in that--in what--how they
came up with that funding amount.
Mr. Udall. Doctor, any final thoughts?
Dr. Mowery. I am not very expert. I will simply suggest
that I agree that clearly alternative energy R&D has been under
funded. I think, however, that an ARPA-E may not be the best
vehicle for expanding funding of that, particularly by
comparison with what I will suggest maybe an equally
unrealistic alternative of more intervention on the demand
side, you know, creating incentives for adoption.
Chairman Boehlert. Thank you very much.
The gentleman's time has expired.
Mr. Gutknecht.
Mr. Gutknecht. Well, thank you, Mr. Chairman.
I do think this is a very important hearing, and I want to
thank all of you for coming here today. I must confess, first
of all, my own prejudice. I have been a big supporter of DARPA,
and I have seen some amazing things, and I happen to believe
that success leaves clues. And frankly, when you look at how
much we spend every month, I think the last number that I have
in the month of August, we spent just south of $24 billion to
buy oil from countries that don't particularly like us. So if
you divide that up, we are approaching a billion dollars a day
to buy oil from countries, as I said, that don't particularly
like us. And I think the United States is ready to move
forward.
I like the ARPA-E model, and I like it for a whole lot of
reasons. And I am a big supporter of NREL. I have been out
there, and I appreciate the work that they do. And frankly, I--
one of the things we had a discussion about earlier today with
one of the Administration officials, it is--one of the things
that we have allowed to happen, unfortunately, on our watch is
too much earmarking of monies that are intended to go to labs,
like NREL, that are diverted to projects in people's district,
and which is why I think that the DARPA model makes sense. And
I think we have to protect research dollars at every level. I
think we ought to let scientists, more or less, make those
kinds of decisions.
But you know, I know there are a lot of questions, well,
can we do this, can we do that, and--but I like to quote one of
my favorite scientists who works for a little company in
Minnesota called 3M. Now he probably wasn't the first one to
say it, but he is the first one I have heard it from. He said,
``If we knew what we were doing, it wouldn't be research.'' And
I think there is a certain element of that in all of this. And
which is also why I like the ARPA-E model, and that is that
there is an element of serendipity to research. Sometimes you
start out looking for one thing and you stumble on to
something, and you say, ``Oh, my gosh. This could be very
helpful.''
But the other reason I want to make the case for ARPA-E is
on one occasion, I actually took some business people--I sort
of hosted my own trade mission out to NREL to take a look and
discuss with some of the scientists out there what they are up
to and compare notes with what some of the folks in the private
sector are up to. On the way home, I remember talking to one of
the businessmen, who was working on some, what I think, pretty
interesting technologies in the State of Minnesota. And he
seems to be making progress a lot faster.
For--let me give you an example. One of the things I have
been interested that NREL is doing is the ability to take
energy, when you have excess energy coming from these wind
turbines, and we have a lot of wind turbines in southern
Minnesota in my district. And amazingly, they are twice as
efficient as the ones we were building five years ago. It has
been an amazing thing to watch. But the problem is we don't
have the transmission capacity. When the wind is blowing at 25
miles an hour, we can't--you literally have to shut them down,
because we can't transmit the power. And the idea of using
hydrogen as batteries, and they have had this and they have
been working on this out in Colorado for a long time, what
would look like--we call them harvest stores back in my part of
the world where you actually store the excess electricity in
the form of hydrogen when the wind is blowing hard, and then
you reconvert it. And the only byproduct you get is completely
pure water, which, out in southwest Minnesota, is a fairly
valuable commodity as well.
But they have been working on this technology now for five
years, and it is still not in the marketplace. And I asked one
of the entrepreneurs. I said, ``Why is it that you guys in the
private labs seem to make progress faster than sometimes we see
in the government labs?'' And he smiled and he said, ``Because
we only eat what we kill.''
And so the ARPA-E model really intrigues me, because in
some respects, you are working with private entrepreneurs, and
on, sometimes, very cutting-edge technologies. And as I say,
when you look at the track record of DARPA, I mean, I think it
is a track record we all ought to be proud of. Now have there
been failures? Well, absolutely. I think any time you are
funding any kind of research that is cutting-edge, you are
going to have some of these things that just aren't going to
work out. And I think we have to be big enough on this
committee and in Congress to admit that.
But I do hope you will all give this concept and idea--or
this idea an opportunity to be flushed out, because I think,
long-term, when we are spending the kind of money that we are
spending right now on energy, to import it from countries that
don't like us, I do think America is ready for us to do some
things. And the first of which is not earmark the money that we
do spend on research, to let the scientists make those
decisions, but more importantly, create a way that we can--and
the model that I like is that DARPA calls themselves--one of
the DARPA people told me, like a big venture capital company
that literally helps some of these small guys with great ideas
to find out whether they really work or not. And if only a
handful of them work out, I think I agree with the Judge from
Texas. I think the return to the taxpayers could be really
astronomical.
And I--if you want to respond to that, you are more than
welcome to, but I--this is an issue I think, as Victor Hugo
said, ``This is an idea whose time has come.''
Chairman Boehlert. I thank you.
Here--I will have one last question, and then I will
recognize Mr. Gordon, and then I would ask all of our witnesses
to expect--we will have a couple of more questions we will
submit to you in writing, and we would appreciate a timely
response, knowing the many demands on your time.
But the advisory panel, ``Rising Above the Gathering
Storm,'' concluded that the biggest problem was basic research
rather than later they support. And I am wondering, Dr. Chu,
how the panel arrived at that analysis. And then I would ask
all of the panelists if you would tell us where in the research
sector do you see the biggest barriers to do--developing new
energy technologies?
So let us start with you, Dr. Chu.
Dr. Chu. Well, we talked before about what I would consider
applied research going to the next stage. Nuclear is a good
example of that. The key is research, but it--a path is
charted. And so we are really looking to ARPA-E to bring the
fruits of the newest areas in science, like nanotechnology and
synthetic biology, which haven't even been around long enough
so that most venture capitalists know about it. So it really is
in the spirit of a large venture capital firm making small
investments.
Chairman Boehlert. Could I go right down the panel?
Dr. Mowery, would you have some comments?
Dr. Mowery. Well, I think the big picture premise for the
``Gathering Storm'' document on the balance of the U.S.
research portfolio is a reaction to the dramatic increases in
biomedical R&D over the past 20 years relative to physical
sciences R&D, and I think there is a--that is one of two issues
that they respond to in suggesting energy, in particular, as a
focus for increased basic research.
Again, I think if one is--the issue here, in some respects,
is whether the priority is--if the priority is the health of
the R&D system, which is an important issue, then I think basic
research, particularly in physical sciences and engineering,
and probably with a heavy tilt toward universities, is a very
important priority.
If the priority is affecting energy consumption patterns,
along the lines that we have discussed here this morning, then
I think the demand side, again, really has to play an important
role, because the near-term payoffs, and I am talking five
years to that--to an intervention there are likely to be much
greater than those associated with expanded fundamental
research. In the nature of the fundamental research investment,
it takes a long time to pay off, as Dr. Chu has suggested.
Ms. Kenderdine. Mr. Chairman, I think there are kind of
three areas where the barriers are substantial. The very near-
term, where you have, as you mentioned technologies on the
shelf that are sitting there and pushing them into the
marketplace is very difficult. And that goes to your point. You
really need market conditioning based on policy as much as you
need research. You do need some very near-term research and
pushes. We have an aversion to picking winners at that stage in
the process, and so there is a lot of disincentives to doing
that.
On the--in the long-term, I understand the support for
basic research. I don't read ARPA-E as a pure basic research
program, because basic research doesn't care about pushing
products or developing specific technologies. That is not what
basic research is about. It is unfettered. And if you look at
the DARPA budget, the breakdown of their budget, the largest
amount is for applied; it is not for basic. So they contemplate
applied research functions in DARPA as well.
But I think that there is an enormous disconnect between
the language that the basic researchers speak, between the
language the applied researchers speak, and between the
marketplace, and that is kind of the function I see for ARPA-E.
And I think that that would help break down that barrier.
And I can't remember what my third one was.
Chairman Boehlert. Okay.
Dr. Fernandez, you were talking about DARPA, and that is
referenced a lot. It is In-Q-Tel that is more like the venture
capital operation. It isn't DARPA. Would you care to comment on
that? I mean, you are----
Dr. Fernandez. DARPA is not a venture capital firm.
Chairman Boehlert. No, no, I understand that.
Dr. Fernandez. DARPA is more like an angel funding place,
okay. Venture capitalists will not fund things where there is
not a pretty good market already established. Okay. And DARPA
funds things where the idea is that if you are lucky, what you
end up creating will make a market. That is what DARPA is all
about.
Most importantly, and I think this is one--I am not sure it
is the purview of this committee, one of the things DARPA
forces in its process is interaction between engineers and
scientists, constant, and force that through building a device,
building something as the output of the project. Scientists, a
lot of times, are bent on discovering new phenomena and on
understanding phenomena. It turns out that understanding is
very, very hard to get across to a non-scientific person.
Engineers build things. And we force everybody who works for
DARPA to build something at the end to show what difference
could it make. Now whether it gets adapted or not by DARPA is
another story, all right. But that is a tradition at DARPA that
came back from the Manhattan Project. The same people, these
same ideas that scientists will build things. And that is how
we communicate with the commercial sector. And----
Chairman Boehlert. Dr. Cotell, any commentary?
Dr. Cotell. Yeah, and some of my commentary I think is
going to go back to my history as a research scientist and not
a venture capitalist, and that is the observation that in the
last few years, we have really reduced the budgets for basic
research. And by basic research, I mean those things that are
looking at implementation five years or more out. And that is
where I think you really want to make sure that the pipeline
doesn't dry up. That is important. And what appeals to me about
this concept of ARPA-E is that you would ensure funding for
that kind of thing. And then, because it has been described as
a nimble organization that is lean, there will be some
selection as to which of those ideas you want to cultivate and
pull in.
And I guess what I would say is, from the venture capital
perspective, it would be very useful to inform that decision of
which ones you want to pursue and continue with some market
forces and market analysis, the kind of diligence that a
venture capital firm would do in making that selection.
And so--and that is where I would really have that comment.
Now the one thing I would kind of disagree, perhaps, with
Dr. Fernandez about is that sometimes it is not the same team
that should be doing that entire spectrum of work. Sometimes
you should have the basic research done by the brilliant
scientists and transition it over time to more engineering-
oriented people, either by collaboration or, you know, moving
it out into a company. And I think that is another thing that I
would like to see incorporated in this kind of organization is
the ability to manage that, pull the right teams together to
pursue things over time.
Chairman Boehlert. Thank you very much.
Mr. Gordon.
Mr. Gordon. Thank you, Mr. Chairman, once again, for having
this committee. I will be brief.
Thanks to the witnesses for coming today. I am sorry Mr.
Gutknecht could not be here. I want to--I would like to concur
with his very, I think, persuasive argument for ARPA-E.
You know, at some point, the American public is going to
require the political leadership to step forward on this issue
of--I think, a security issue of reducing our dependency on
foreign energy sources.
Now unfortunately, when that kind of occurs, you don't just
switch the switch. You have to have the basic research, the
other type of research beforehand. I think that is why I--you
know, ARPA-E gets that started. I know that the Majority, in
trying to put this committee together, looked long and hard to
try to find somebody who was against this proposal. The best
they could do was find somebody that said, ``Well, maybe we
ought to do something.'' You know, ``Maybe we should do more
conservation.'' Well, certainly, we should do more
conservation. Certainly, we should do more production. And this
is a part of it, too. We need more of everything. And we are
not going to be able to click that switch later unless we do
this kind of work now.
I think it is time to--you know, to stop talking about all
of the subtleties and get on with action.
So again, thank you all for being here.
Chairman Boehlert. And thank you.
I really appreciate it.
The hearing is adjourned.
[Whereupon, at 12:35 p.m., the Committee was adjourned.]
Appendix:
----------
Answers to Post-Hearing Questions
Answers to Post-Hearing Questions
Responses by Steven Chu, Director, Lawrence Berkeley National
Laboratory
These responses are based my experiences as a member of the
National Academy of Sciences, National Academy of Engineering, and
Institute of Medicine's Committee on Prospering in the Global Economy
of the 21st Century, chaired by Norman Augustine, that produced the
report Rising Above the Gathering Storm: Energizing and Employing
America for a Brighter Economic Future. My responses to the questions
below are as a representative of the Augustine Committee and not as a
staff member of the Department of Energy.
Questions submitted by Chairman Sherwood L. Boehlert
Q1. How did the National Academy panel arrive at the recommended
funding figures for ARPA-E? Is there an initial level of funding below
which it would not be worth creating the agency? If so, what is that
level and how did you determine it?
A1. Although the ultimate decision for funding ARPA-E would be the
prerogative of Congress and the Administration, the Committee felt
strongly that initial funding of at least $300 million was necessary to
launch a significant program with real objectives. This should
gradually increase over five years to $1 billion, at which point the
program's effectiveness would be evaluated.
The budget amount is based on the Committee's review of the initial
funding of other new federal research programs such as ARPA, ATP, In-Q-
Tel, etc., and the degree to which they deemed it to be sufficient or
not.
The report's budget estimate is a floor rather than a ceiling. To
do less would be to risk funding only marginal advances and jeopardize
the transformational goals of the program. Program managers need the
flexibility that adequate resources provide to fund the most exciting
scientific opportunities.
Q2. What role should universities, National laboratories, large
companies and smaller companies play in carrying out ARPA-E projects?
Should any of those categories of institutions be either required or
forbidden to participate? How should participation be structured to
simultaneously ensure that transformational research will be performed
and that its results will be commercialized?
A2. The roles played by the organizations you list would depend on the
particular scientific and technology needs of the particular project.
There should be no barrier, nor any predetermined requirement for
participation. The funding decisions should be made upon clear
adherence to the principles outlined in the report. As I indicated in
my testimony, ARPA-E should:
1. Bring a freshness, excitement, and sense of mission to
energy research that will attract many of our best and
brightest minds--those of experienced scientists and engineers,
and, especially, those of students and young researchers,
including those in the entrepreneurial world.
2. Focus on creative ``out-of-the-box'' transformational
energy research that industry by itself cannot or will not
support due to its high risk but where success would provide
dramatic benefits for the Nation.
3. Utilize an ARPA-like organization that is flat, nimble, and
sparse, capable of sustaining for long periods of time those
projects whose promise remains real, while phasing out programs
that do not prove to be as promising as anticipated.
4. Create a new tool to bridge the gap between basic energy
research, and development/industrial innovation.
The agency would itself perform no research, but would fund work
conducted by universities, start-ups, established firms and national
laboratories. Although the agency would be focused on energy issues, it
is expected that its work (like that of DARPA or NIH) will have
important spin-off benefits, including aiding in the education of the
next generation of researchers.
Part of an ARPA-E program manager's responsibility will be the
creation of appropriate and authorized consortia of laboratories,
universities, and/or industry to ensure the dissemination and
commercialization of new technologies. ARPA-E would begin to build a
pathway for commercialization as soon as the technological objectives
are within reach. How this is done should be left up to the Department
of Energy to decide.
Q3. Why do you believe that the biggest gap in energy research is in
the area of transformational, basic research? To what extent are there
barriers later in the research process--during the prototype stage, or
``the valley of death,'' or even finding funding later in the process?
And to what extent did the National Academy panel consider recommending
tools to stimulate demand for new technologies rather than just
stimulating research on new ideas that may never find a market?
A3. The gap between basic science and technological advancement is
often large and impossible to measure. However, research and
development history has shown that significant leaps in technological
development have occurred from the application of basic science to
fundamental technological barriers when done in a focused and well-
managed way. The Manhattan Project and the Apollo Projects are well-
known U.S. examples.
An example I use often is of the development of the transistor at
Bell Laboratories. Basic scientific problems had to be addressed using
very basic science; however, Bell Labs had a very real and articulated
objective. As science answered the questions and solved the problems,
engineers and product developers saw the opportunities more clearly and
began their work to capture the technology commercially. ARPA-E would
mimic this process. There is no other analogous office within DOE that
has responsibility for the cradle to grave aspect of shepherding
transformational science to transformational technology.
The question of what is likely to have more impact, technological
advances or policy pulls is an interesting one that is worthy of study.
And, even within policy, there are many mechanisms which can be used
whose effectiveness could be evaluated. The Committee focused on where
it saw the largest gap and focused on technological advancements and
included market considerations in the design of ARPA-E. The National
Academies Committee on Science, Engineering, and Public Policy
(COSEPUP), under whose aegis the Rising Above the Gathering Storm
report was developed, is considering undertaking a study that would
focus on the issue of the effectiveness of energy policy mechanisms.
Q4. What would be the pros and cons of Congress, in law, enumerating
some of the general areas of research that an ARPA-E should focus on
(i.e., an initial set of problems to solve, not a list of specific
technologies)? Might this help prevent ARPA-E from gradually looking
like every other Department of Energy (DOE) program?
A4. The Committee did not specifically address this issue, but I am
happy to share my personal thoughts. The key to ARPA-E's success will
be the quality of the program managers and the flexibility and freedom
they are given to fund the science with the most exciting potential.
Limiting the type of science or solution by listing them in legislation
could prohibit funding on areas not even imagined now; however,
focusing on a list of societal problems to be addressed may hold merit
in terms of providing guidance to the program managers.
Q5. Why couldn't the National Academy's goals for ARPA-E be
accomplished by reforming existing DOE programs by, for example,
requiring the Office of Science (or even the National Science
Foundation) to focus more of its research grants on energy problems? Or
why couldn't DOE's applied programs focus on longer-range research?
A5. The Committee saw a gap between DOE's basic research and applied
programs. It believes that each of these already has a full plate and
adding more duties would not lead to the desired results for
transformational research.
As I testified at the ARPA-E hearing, the establishment of an ARPA-
E, or any program that intends the same results, should under no
circumstances take monies away from the Department's basic science
programs. If the Office of Science were more focused on particular
energy problems, then its basic research program that might develop
whole new ways of addressing energy questions might be damaged.
And, given the very specific way that the DOE applied energy
programs is organized, it would be difficult to bring new
transformational ideas that did not fit within one of the existing
organizational boxes.
ARPA-E is needed to provide out-of-the-box transformational energy
solutions that are challenging to achieve in DOE's current structure.
Q6. Can you give us a few examples of research that ARPA-E might
pursue? Is any work being done in these areas now, and who is it funded
by? Why couldn't any current funding agency carry out the ARPA-E agenda
in that particular area?
A6. COSEPUP is considering undertaking a workshop that would address
this issue, but, as was mentioned previously, any identification of a
specific set of technologies is likely to limit the ability of ARPA-E
to reach its goals. In my testimony, I provided the following examples
of what ARPA-E might fund include:
1. The development of a new class of solar cells.
Photovoltaic solar cells using semiconductor technology can
be very efficient at converting sunlight into electrical
energy, but the fabrication cost remains too high. Organic and
polymer solar cells can be made at low cost, but the
efficiencies are low and existing materials degrade in
sunlight. One promising avenue towards inexpensive, efficient
and long lasting solar cells is to create novel materials based
on multiple elements that can be manufactured with thin-film
technologies. Another approach is to create nano-particle
devices (distributed junction solar cells) that use different
nanostructures for the conversion of sunlight into charge
carriers and for the collection of those charges onto
electrodes.
2. Biomass substitutes for oil.
The ethanol for transportation is currently produced from
sugar cane, corn or other plants. However, the most cost
effective bio-fuels will come from the conversion of cellulose
into chemical fuel. When the fuel is burned, CO2 is
released into the atmosphere, but the overall cycle can, in
principle, be carbon neutral. The creation of crops raised for
energy will also take full advantage of our great agricultural
capacity.
ARPA-E can fund the creation of new plants to be grown for energy
by incorporating a number of genes introduced into plants. Recently, a
team of scientists at Lawrence Berkeley National laboratory inserted
many genes into bacteria to produce an extremely effective anti-
malarial drug. The Gates Foundation has given this team a $42M grant to
commercialize the technology so that the drug can be made available to
the developing world. Similar technology can be used to make plants
self-fertilizing, drought and pest resistant. Note that about 25
percent of the energy input in growing corn comes from fertilizer,
which is made from ammonia derived from natural gas.
Research on more efficient conversion of cellulose into liquid fuel
would also yield great dividends. Current methods use the high
temperature/high acid processes that are very energy intensive. The
breakdown of cellulose into ethanol is also accomplished with bacteria
or fungi, but this process can be made much more efficient if the
micro-organisms are modified with these methods.
Q7. To what extent could prizes be used to stimulate longer-range
energy work and particularly work on integrating different scientific
advances or technologies across fields? Could prizes ever be a
substitute for an ARPA-E?
A7. The Committee recommended that the White House establish a
Presidential Innovation Award and certainly one of these could be
directed toward energy. It is unlikely, however, that such a prize
would have the impact ARPA-E would have given it is providing the
funding for research while the prize mechanisms only provides funding
once the goal is achieved. Most researchers are unlikely to have the
ability to fund research themselves. It is certainly possible, however,
that a company could use the results of ARPA-E funded research to
develop technological solutions.
Questions submitted by Representative Bart Gordon
Q1. What do you consider to be the most pressing challenge we face in
energy? Will the cumulative efforts of our current federal civilian,
university and industrial R&D infrastructure give us a solution(s) to
that challenge?
A1. The Committee did not address this issue, but the National
Commission on Energy Policy in its December 2004 report Ending the
Energy Stalemate: A Bipartisan Strategy to Meet America's Energy
Challenges provides a good starting point. The commission recommended
doubling the Nation's annual direct federal expenditures on ``energy
research, development, and demonstration'' (ERD&D) to identify better
technologies for energy supply and efficient end use. Improved
technologies, the commission indicates, will make it easier to:
Limit oil demand and reduce the fraction of it met
from imports without incurring excessive economic or
environmental costs.
Improve urban air quality while meeting growing
demand for automobiles.
Use abundant U.S. and world coal resources without
intolerable impacts on regional air quality and acid rain.
Expand the use of nuclear energy while reducing
related risks of accidents, sabotage, and proliferation.
Sustain and expand economic prosperity where it
already exists--and achieve it elsewhere--without intolerable
climatic disruption from greenhouse-gas emissions.
I do believe that our current research infrastructure has the
intellectual capital to address these challenges; it just needs the
funded to do so.
Q2. If you were the Director of ARPA-E what three potentially
transformational technologies would you be likely to pursue?
A2. Please see response to Chairman Boehlert's question number 6.
Q3. To your knowledge, is the current organizational structure of the
Department of Energy and its various programs conducive to generating
truly transformational energy technologies? Where is it lacking?
A3. Please see response to Chairman Boehlert's question number 5.
Q4. Do you believe that a DARPA-like program for energy can attract
industrial interest sufficient to bring about real change in the energy
technology sector? What are the barriers for industrial participation?
A4. I do believe that there will be sufficient industrial
participation--perhaps from companies that are not the traditional ones
focused on energy research. This will help lead to transformational
solutions as new intellectual capital becomes part of the energy
research enterprise.
The key barrier for industrial participation are likely to be
issues related to intellectual property, but these can be addressed as
they have for DARPA which has produced many commercial and government
spinoffs.
Q5. To the extent that you are familiar with the energy research
conducted in the Department of Defense, do you see potential linkages
between any current research activities at DARPA and the research that
would be conducted through ARPA-E?
A5. I lack sufficient knowledge regarding DARPA to answer this
question.
Questions submitted by Representative Eddie Bernice Johnson
Q1. How do you feel about Mr. Gordon's legislation, H.R. 4435,
establishing an ARPA-E?
A1. The National Academies does not endorse legislation.
Q2. What is your opinion about how an ARPA-E would be organized? Would
the director report to the head of DOE's Office of Science or directly
to the Secretary of Energy?
A2. ARPA-E would report to the DOE's Under Secretary for Science.
Answers to Post-Hearing Questions
Responses by David C. Mowery, William A. & Betty H. Hasler Professor of
New Enterprise Development, Haas School of Business, University
of California at Berkeley
Questions submitted by Chairman Sherwood L. Boehlert
Q1. You suggest in your testimony focusing existing basic research
programs on energy programs and perhaps funding university centers
devoted to energy questions. What could be done to increase the chances
that ideas coming out of such centers were commercialized? How should
one involve industry in a way that would not make the research less
risky?
A1. I believe that expanded funding for university-based research on
energy-related issues will enhance the progress of fundamental
knowledge on a number of current and future solutions to energy-related
challenges. In addition, of course, university-based research
contributes to the training of future generations of the scientists and
engineers who will address these challenges in energy and related
areas. Such research might also address issues of policy design (e.g.,
emissions-trading schemes) to encourage greater conservation of energy
from existing sources, as well as the development of new policies to
encourage more rapid and effective implementation of technological
solutions to these energy challenges.
Commercialization of the results of such research, in my view, is
less a question of designing new ``technology transfer'' mechanisms
than one of developing a set of market-based incentives for industry to
invest in the debugging and market introduction of technologies based
on advances in fundamental knowledge. Indeed, many potential
technological solutions that could reduce climate-affecting emissions
or enhance energy efficiency exist in prototype form, but do not face
commercially attractive markets because of current policies that have
stunted the development of such markets. Congress and the Executive
Branch have created a diverse array of mechanisms to support
university-industry technology transfer since the 1980s, and I believe
that effective management of existing tools, rather than the creation
of additional tools, is the best way to maintain the effectiveness of
technology transfer activities.
The appropriate balance of risk in any such research programs is an
important issue. Most university faculty, especially in fields such as
engineering, pursue a mix of fundamental and applied research, but are
professionally rewarded for work that is perceived by peers to be a
significant contribution to knowledge. As a result, faculty have strong
incentives to pursue high-impact research that may not be supported by
industrial firms from their internal resources. Given these strong
professional incentives, history suggests that a mix of funding sources
(industry and public) can contribute to high-risk research with
potentially significant impacts on knowledge and practice, while also
enabling industrial firms to acquire sufficient familiarity with
technological options to support their commercialization within
industry.
Q2. Where do you believe the biggest barriers are in the energy
research ``pipeline''? To what extent are there barriers later in the
research process--during the prototype stage, or ``the valley of
death,'' or even finding funding later in the process? Are the barriers
you see better removed by tools that would stimulate the supply of new
technologies or demand for new technologies or some combination?
A2. Although the energy R&D ``pipeline'' includes a number of phases
that require the investment of substantial sums in high-risk projects,
I believe that the lack of incentives for commercialization and
adoption are the most significant barriers to commercialization of
technological innovations that can contribute in the near-term to
solutions to energy-related challenges. The United States has a
financial system that is extremely innovative in developing solutions
to risky investment prospects. The biggest problem in the energy field,
in my view, is not the fact that the risks of technology development
and commercialization are too high.
The most important barrier to the commercialization of more
efficient, lower-emission technologies is the perception that the
market for such technologies is too small and/or uncertain to support
the large investments that would be necessary to promote their
commercialization. In other words, the most important barriers are
those at the very end of the ``pipeline,'' in the marketplace.
Q3. What would be the pros and cons of Congress, in law, enumerating
some of the general areas of research that an ARPA-E should focus on
(i.e., an initial set of problems to solve, not a list of specific
technologies)? Might this help prevent ARPA-E from gradually looking
like every other Department of Energy (DOE) program?
A3. I believe that Congress should oversee the strategy, operations,
performance, and finances of an ARPA-E, but avoid involvement in
defining the agency's research agenda. Congress is not well-positioned
to provide detailed guidance on the specific technological areas that
an ARPA-E should pursue, and Congress historically has not micro-
managed the R&D agenda for DARPA. A strong advisory board of
independent experts drawn from federal laboratories, industry, and
academia should provide guidance and oversight of the ARPA-E R&D
agenda. Keeping in mind that DARPA benefited from strong links with its
``customers,'' the armed services, one of the most important roles of
such an advisory board is representing the views and needs of the major
``customers'' for ARPA-E R&D in both the industrial and user
communities.
Answers to Post-Hearing Questions
Responses by Melanie Kenderdine, Vice President, Washington Operations,
Gas Technology Institute
Questions submitted by Chairman Sherwood L. Boehlert
Q1. What role should universities, National laboratories, large
companies and smaller companies play in carrying out ARPA-E projects?
Should any of those categories of institutions be either required or
forbidden to participate? How should participation be structured to
simultaneously ensure that transformational research will be performed
and that its results will be commercialized?
A1. It is my understanding that DARPA program managers are given a
great deal of discretion over project funding; presumably this is one
aspect of the DARPA program that would be replicated in an ARPA-E.
ARPA-E project managers are empowered to select projects and make
investments on merit, regardless of which institutions submit
proposals. Because the customers for ARPA-E projects are, by and large,
energy end users in the private sector, however, care should be given
for proper vetting of activities with requisite technical advisory
committees and peer review organizations, with the understanding that
peer review for applied research necessarily entails different players
than for basic research.
Q2. Why do you believe that the biggest gap in energy research is in
the area of transformational, basic research? To what extent are there
barriers later in the research process--during the prototype stage, or
``the valley of death,'' or even finding funding later in the process?
And to what extent did the National Academy panel consider recommending
tools to stimulate demand for new technologies rather than just
stimulating research on new ideas that may never find a market?
A2. I cannot speak to the National Academy's considerations. I do not
necessarily agree that the biggest gap in energy research is in
``transformational, basic research'' and I do not believe that research
must be basic to be ``transformational.'' As I noted in my written
testimony, there was confusion in the report relative to the NAS
program description,
``These descriptions beg several questions. Is ARPA-E
primarily a basic research program, an applied research
program, a program to ``turn cutting edge science and
engineering into technology,'' an effort to accelerate
commercialization, or all of the above? Each of these suggests
different leadership, organizational structures, personnel
capabilities, and reporting chains, as does a single program
that contemplates performing all these functions (an
approximation of DARPA). A clarification of program objectives
will drive the research management model and is fundamental to
program success. Further, there needs to be a clear delineation
between DOE's existing basic and/or applied research programs
and ARPA-E's mission, research targets, reporting chain, etc.''
Further, I agree that there are significant barriers at later
stages of research, and noted in my written testimony (assuming program
objectives are clarified), ``that at DOE an ARPA-E that is focused
primarily on applied R&D (or includes a substantial applied R&D
component) would typically require industry cost share (which is not
the case at DARPA). Federal procurement, intellectual property,
contract management provisions, DOE orders and other federal
requirements are off-putting to many industry players, placing de facto
barriers to industry participation and cost share commitments--
essential elements to successful applied energy R&D, including
demonstration, deployment and technology transfer.
Federal energy R&D is performed under the constraints of annual
appropriations which are inconsistent from year-to-year,
administration-to-administration and secretary-to-secretary. Also,
program funds are largely ``mortgaged'' from the start, and
increasingly line-itemed. The risks and limitations of the funding
process further discourage industry participation and its commitment of
matching funds, making it more difficult to optimize the migration of
technologies into the marketplace.''
Q3. What would be the pros and cons of Congress, in law, enumerating
some of the general areas of research that an ARPA-E should focus on
(i.e., an initial set of problems to solve, not a list of specific
technologies)? Might this help prevent ARPA-E from gradually looking
like every other Department of Energy (DOE) program?
A3. Congress could enumerate areas ``including. . ..'' which might
provide general policy direction without prescribing or limiting areas
of research. General focus areas for ARPA-E could include:
development of economically sustainable energy
sources, which implies a reduction in oil consumption and U.S.
reliance on imported energy from unstable regions of the world,
and the development of domestic, hemispheric and alternative
energy sources
environmental mitigation, particularly greenhouse gas
capture and sequestration,
energy infrastructure development to produce, refine
and distribute new sources of energy
energy efficiency, with a focus on end use
efficiencies.
These focus areas track those of other programs in the Department.
In my view, an ARPA-E would provide the greatest value to DOE in its
structural differences from other DOE energy programs, not necessarily
in its focus areas (see Question 4).
Q4. Why couldn't the National Academy's goals for ARPA-E be
accomplished by reforming existing DOE programs by, for example,
requiring the Office of Science (or even the National Science
Foundation) to focus more of its research grants on energy problems? Or
why couldn't DOE's applied programs focus on longer-range research?
A4. I would first note that when DARPA was formed, it was not intended
to supplant the research programs of the services and it does not
function in this way. Rather it is designed to add additional
capability to DOD that enables the--
``Development of integrated concepts beyond the
purview of a single service
Taking on large-scale proof of concept demos with a
scientific process and a willingness to fail
Working with the OSD leadership to broker the
commitment of the services.''
An ARPA-E could provide similar capability at DOE. There are some
gaps inherent in the structure of DOE programs:
``DOE's applied research programs are organized
around fuel sources, e.g., coal, oil, gas, nuclear, renewables
(the efficiency program is an exception). The existing
organizational structure and focus provides a solid foundation
for the Department's applied research and the support of strong
constituencies; it runs the risk however of isolating oil
supply from transportation or fossil fuels from efficiency, for
example, and promotes a tendency to focus on incremental or
discrete technologies (exceptions are generally within
programs, not across programs) as opposed to systems that
integrate research needs from supply to distribution to end
use.
The organizational separation of DOE's basic energy
research program from its applied research programs makes sense
in many instances, but it also makes the migration of certain
basic research findings to applied research solutions
undisciplined, more difficult, and often, serendipitous.
There are both ad hoc and, in some instances, formal structures at
DOE that encourage communication and coordination between the various
applied research programs and between the applied research and basic
research programs. In the final analysis, however, the competition for
funding from the same appropriation, bureaucratic separation, and
different program cultures and performance measures, ultimately work
against optimum levels of cooperation and coordination across programs.
An ARPA-E like program could help fill these gaps and supplement
but not supplant the missions of existing DOE programs. As noted
earlier, the ``development of integrated concepts beyond the purview of
single service [program],'' is one of the features of DARPA that is
desirable for replication. To some extent, on certain key problems to
be identified, an ARPA-E could provide the formal integrating function
that fosters a portfolio approach to a problem. In addition, providing
ARPA-E with administrative flexibility in contracting, hiring, etc.,
and the easy transfer of personnel and ideas between the government,
industry and academia will further distinguish ARPA-E from existing DOE
programs.
Finally, replicating DARPA's formal extraction of value from the
entire research continuum--from basic to applied to development to
deployment--would be largely unique to the DOE system (DARPA's budget
reflects the research continuum including basic and applied to large
scale demonstration). Directing a minimum percentage of program funds
to basic research--for both the national laboratories and
universities--would protect against the tendency of DOE's energy R&D
customer base comprised largely of industry to focus on near-term
research and results. Congress might also consider setting aside a
portion of ARPA's funds as venture capital for promising, innovative
opportunities in the private sector.
In short, ARPA-E would be distinguished from existing DOE programs
more by its structure than by the policy objectives its research would
address. There is, however, a danger in a ``structural'' as opposed to
policy-driver distinction; without an upfront, clear articulation of
some fundamental strategic research thrusts, an ARPA-E could risk
becoming an organization in search of a mission. Nevertheless, the
drivers described above do not differ substantially from similar gaps
DARPA seeks to fill--``research that the services are unlikely to
support because it is risky, does not fit [the services] specific roles
or missions, or challenges their existing systems or operational
concepts.''
Q5. Can you give us a few examples of research that ARPA-E might
pursue? Is any work being done in these areas now, and who is it funded
by? Why couldn't any current funding agency carry out the ARPA-E agenda
in that particular area?
A5. I would not pre-judge the research an ARPA-E might perform and
believe this should be left to the energy technologists, not those of
us who reside in the energy technology policy space.
Questions submitted by Representative Bart Gordon
Q1. What do you consider to be the most pressing challenge we face in
energy?
Will the cumulative efforts of our current federal civilian,
university and industrial R&D infrastructure give us a solution(s) to
that challenge?
A1. I believe the most pressing energy challenges we face are meeting
global energy needs at the same time we reduce carbon emissions
sufficient to avoid the most serious impacts of global warming, and; 2)
the transition from fossil fuels to alternative fuels without
significant economic dislocation.
Q2. If you were the Director of ARPA-E what three potentially
transformational technologies would you be likely to pursue?
A2. For the mid-term, I would support a suite of technologies to
promote the interchangeability of fossil fuels sufficient to utilize
the same infrastructure for distribution and key end uses. Carbon
capture and sequestration technology development is also critical.
Finally, longer-term research in methane hydrates could dramatically
enlarge the world's energy resource base.
Q3. To your knowledge, is the current organizational structure of the
Department of Energy and its various programs conducive to generating
truly transformational energy technologies?
Where is it lacking?
A3. DOE's applied research programs are organized around fuel sources,
e.g., coal, oil, gas, nuclear, renewables (the efficiency program is an
exception). The existing organizational structure and focus provides a
solid foundation for the Department's applied research and the support
of strong constituencies; it runs the risk however of isolating oil
supply from transportation or fossil fuels from efficiency, for
example, and promotes a tendency to focus on incremental or discrete
technologies (exceptions are generally within programs, not across
programs) as opposed to systems that integrate research needs from
supply to distribution to end use.
The organizational separation of DOE's basic energy research
program from its applied research programs makes sense in many
instances, but it also makes the migration of certain basic research
findings to applied research solutions undisciplined, more difficult,
and often, serendipitous.
There are both ad hoc and, in some instances, formal structures at
DOE that encourage communication and coordination between the various
applied research programs and between the applied research and basic
research programs. In the final analysis, however, the competition for
funding from the same appropriation, bureaucratic separation, and
different program cultures and performance measures, ultimately work
against optimum levels of cooperation and coordination across programs.
An ARPA-E like program could help fill these gaps and supplement but
not supplant the missions of existing DOE programs.
Q4. Do you believe that a DARPA-like program for energy can attract
industrial interest sufficient to bring about real change in the energy
technology sector?
What are the barriers for industrial participation?
A4. At DOE, an ARPA-E that is focused primarily on applied R&D (or
includes a substantial applied R&D component) would typically require
industry cost share (which is not the case at DARPA). Federal
procurement, intellectual property, contract management provisions, DOE
orders and other federal requirements are off-putting to many industry
players, placing de facto barriers to industry participation and cost
share commitments--essential elements to successful applied energy R&D,
including demonstration, deployment and technology transfer.
Federal energy R&D is performed under the constraints of annual
appropriations which are inconsistent from year-to-year,
administration-to-administration and secretary-to-secretary. Also,
program funds are largely ``mortgaged'' from the start, and
increasingly line-itemed. The risks and limitations of the funding
process further discourages industry participation and its commitment
of matching funds, making it more difficult to optimize the migration
of technologies into the marketplace. If ARPA-E is funded at relatively
low levels in its early years, the ramp-up in the out years as
contemplated in the NAS report would place that important increment
(likely necessary when projects get to the demonstration phase, for
example) in competition with other DOE programs as well as with
programs in other agencies that are funded through the Energy and Water
Appropriations Committee; this lack of certainty in outyear funding
could further complicate and discourage longer-term industry
commitments to critical projects.
Q5. To the extent that you are familiar with the energy research
conducted in the Department of Defense, do you see potential linkages
between any current research activities at DARPA and the research that
would be conducted through ARPA-E?
A5. I am not familiar with specific energy research being done at
DARPA.
Questions submitted by Representative Eddie Bernice Johnson
Q1. How do you feel about Mr. Gordon's legislation, H.R. 4435,
establishing an ARPA-E?
A1. Mr. Gordon's legislation provides a welcome focus on a very
important issue--how to appropriately organize transformational
research and technology at the federal agency of primary jurisdiction.
If properly organized, empowered, and funded, however, an ARPA-E type
program could provide a new and aggressive link between the needs of
the energy marketplace and research directions, operating as a primary
interface between the energy industry and DOE's national laboratories
and experts in academia.
Q2. What is your opinion about how an ARPA-E would be organized? Would
the director report to the head of DOE's Office of Science or directly
to the Secretary of Energy?
A2. The NAS recommends that the ARPA-E program director report to the
Under Secretary of Science. The ARPA-E proposal represents a fairly
significant departure from how DOE currently conducts business. It is
bound to raise issues of coordination with existing programs, concerns
about picking winners, and other potential oversight issues as the
program breaks new and controversial ground.
These are sensitive issues both internally and externally and may
require the imprimatur of the Secretary or Deputy Secretary whose
portfolios are the broadest and authorities are sufficient to manage
and mediate the controversies that could arise from such a fundamental
change in approach to DOE research management. Also, the unique
contractual, personnel and pay scales contemplated in an ARPA-E program
may require greater organizational separation from existing programs
(organizational independence is identified as a key positive feature of
DARPA) than is possible in a reporting structure through the Under
Secretary with line authority for other programs. From an
organizational/reporting perspective, I believe it is essential to
program success that the ARPA-E program director be a direct report to
either the Secretary or Deputy Secretary.
Answers to Post-Hearing Questions
Responses by Frank L. Fernandez, President, F.L. Fernandez, Inc.
In what follows, below, I have tried to provide you with answers to
the questions that you posed. At the outset, I need to make sure that
you understand that I am not an expert in the business of energy. As a
result, I may miss some important points and for this I apologize, at
the outset.
In answering the questions, I am assuming that in creating an ARPA-
E the U.S. decided, as a matter of policy, that technological
superiority is crucial to the energy security of the U.S. and that this
superiority requires revolutionary, technically based innovation.
Otherwise, there does not seem to be a need to do this.
In addition, let me further assume that, if created, ARPA-E would
have a mission and resources somewhat similar to DARPA's. . .to create,
demonstrate and transition high risk, high return technologies in order
to maintain U.S. technological superiority in energy. Also, I assume
that ARPA-E would have the necessary authorities to accomplish the
mission, as I stated in my testimony.
Questions submitted by Chairman Sherwood L. Boehlert
Q1. You said at the hearing that DARPA could not be an exact analogue
for ARPA-E, but that the DARPA model could be useful nonetheless. In
what ways would an ARPA-E have to be different from DARPA?
A1. The common, most important lesson that I have learned in my various
careers is that in order to successfully provide revolutionary,
technically based innovation, there must be a balance of both
``technology push'' and ``operational pull.'' This only comes about
through the use of creative people who can bridge this gap. It is not
just about financial or organizational resources.
If this is correct, I believe that the most important challenge
would be that ARPA-E would need to attract senior technical
professionals who understand both the ``business of energy'' and the
technologies that will affect the future of energy superiority.
In the DOD, DARPA had access to very competent, technically
trained, military officers and operationally oriented, technically
trained DOD civilians in addition to people from the universities and
laboratories. ARPA-E does not appear to have ready access to such a
diverse pool of technical talent with operational backgrounds. From
what I have been able to discern from published material, these kinds
of people do not generally seem to reside in universities or the
national laboratories. Finding and attracting these people in the other
parts of the DOE will require very special recruiting authorities and
capabilities within ARPA-E.
In addition, ARPA-E will need to recruit people with these dual
skills from the relevant energy industries. This will probably require
special arrangements to guarantee that the companies involved would
have their important technical secrets protected, while at the same
time providing the U.S. with the knowledge of the constraints that the
``business of energy'' places on the successful transition of
technologies into the marketplace.
This is the most important difference that I believe exists between
DARPA and ARPA-E. . .the possible lack of a ready pool of available
professional talent in the DOE to link the technology to the user of
the technology. This difference must be addressed at the outset if
ARPA-E is to be successful.
Q2. You say about the examples in your testimony that they went first
to the commercial sector, then to the military. But many experts on
DARPA suggest that the promise of a military market has been a key to
the success of DARPA projects. Certainly, many advances in computing
and networking were put to work first in the military sector. And
SEMATECH is an unusual example in that part of the impetus came from
Congress to help a mature industry. How common has it been for DARPA
projects to succeed commercially first and what might that indicate
about how to set up an ARPA-E?
A2. In the world where the DOD makes the market, i.e., the actual war
fighting systems, the promise of a military market has certainly helped
DARPA, because the DOD could provide industry with a clear indication
that there would, indeed, be an acquisition of a major new aircraft or
missile system, for example. However, it has been shown time and time
again, that unless there is a commercial use for most of the
technologies involved in these systems, the DOD is forced to support
the total cost of the manufacturing and maintenance infrastructure and
ends up with a very cost ineffective system. The Nation chooses to do
this with technologies like stealth, but not with network technologies,
for example.
What DARPA does for the majority of the technologies that it
sponsors, which end up as having both military and commercial use, is
to fund the maturation of the technology and the demonstration in a
realistic operating environment, using the military. By funding this
risky stage before there is a clear market need, DARPA helps to ``make
a market.'' This is the way that revolutionary innovation occurs, when
it does.
ARPA-E does not, generally, have an acquisition partner in the DOE.
As a result, I think that it will need to carefully pick its projects
in selected areas where the DOE, as part of the Federal Government can
provide the energy industry with something special, besides purely
financial subsidies. These subsidies do not require an organization
like ARPA-E.
This initial choice of focus areas for ARPA-E must be well thought
out, in my opinion. DARPA had space, because of Sputnik. It did not,
initially need to deal with all of the DOD technology issues. Space
provided a problem that was both one of national importance and where
technology based innovation was paramount.
As a thought experiment, suppose that ARPA-E initially focused on
the energy needed for transportation in the U.S. A key issue here seems
to be the need to reduce U.S. dependence on foreign, petroleum based
fuels. Applicable technologies will include more efficient and multi-
fuel vehicle propulsion design and possible non-petroleum based fuels.
My very rough estimate is that government owned and fueled vehicles
(federal, state, local, military) represent about ten percent of the
U.S. fuel consumed for transportation. This is a niche market that will
use commercial suppliers but where the government could influence,
mature and demonstrate technologies in a realistic environment and at a
scale where the transition to non-government utilization could be
realistically estimated.
ARPA-E could partner with DARPA and its access to military and
civilian talent in the DOD for the military transportation. It could
tap key, knowledgeable DOE talent in the Federal, State and local
government subsidized transportation areas.
With this arrangement, ARPA-E could establish programs to look at
technologies presently considered high risk but potentially high return
for planned transportation platforms and for kits needed to back fit
legacy platforms. Finally, it could do the same for the many
alternative fuel sources being proposed in order to demonstrate
scalable, environmentally acceptable, technologies to make these
alternatives commercially viable.
The government vehicles could be the test market for these
technologies and the military might even agree to long-term buys of the
best performers. This would be a large, but manageable program and
could form a good basis to test the hypothesis that an ARPA-E could add
significant value to the DOE activity.
This is only one example and is certainly not well thought out, but
might be used to initiate debate and thought.
Q3. You said in your testimony that DARPA has been more like an angel
investor than a venture capitalist. Could you elaborate on what you
mean by that and how it might apply to an ARPA-E?
A3. Angel investors are often individuals with detailed knowledge of
particular industries and quite often will invest in start up companies
with the potential for a new technology and no established business
plan. Venture capitalists generally focus on supplying a market need,
not necessarily on making a market.
Since DARPA works with many companies and individuals who have good
ideas for technologies that can solve problems, even though the markets
for these may not currently exist, I think that DARPA is more like an
angel investor. DARPA is not driven by military requirements and
current acquisition programs.
The major impact that this observation has on the construct of an
ARPA-E is to make sure that, at the outset, it is understood, by all,
that ARPA-E is not the organization to subsidize investments for known
technologies and known markets. It must be the organization with the
charter to try to leapfrog established technology development roadmaps.
It must be allowed to back projects that fail because the technical
reach is too far in return for the market maker program that is truly
revolutionary.
Before I give my answer, I want to repeat my recommendation that if
such an Agency is established, it be given a name more in line with its
mission concerning the 21st century energy needs of the Nation.
Questions submitted by Representative Bart Gordon
Q1. What do you consider to be the most pressing challenge we face in
energy?
Will the cumulative efforts of our current federal civilian,
university and industrial R&D infrastructure give us a solution(s) to
that challenge?
A1. I feel that our most pressing challenge in energy is to see how
much we can use technology to do away with our dependence on foreign
sources of energy and, eventually, to transition to renewable, sources
of energy.
In my opinion, the R&D in the federally funded Laboratories and
Academia, while representing excellent science and potential
innovation, does not link well with the evolutionary, low risk, product
oriented work in the industrial sector. There is a large gap between
discovering new science, demonstrating an invention using this
discovery and fitting this invention into an established business
model. Most revolutionary inventions do not do as well in established
business models as the evolutionary developments, precisely because the
evolutionary products are satisfying current and near-term business
requirements.
To be successful, a revolutionary innovation requires someone who
will bet their career on the seeing how the business model can be
changed to accommodate this innovation (the entrepreneur) and someone
in the particular industry sector who can protect and nurture this
person and the project while the innovation is becoming a competitive
way of doing business (the top cover).
ARPA-E can be the vehicle to fund, provide and connect these
entrepreneurial persons to industry visionaries.
Q2. If you were the Director of ARPA-E, what three potentially
transformational technologies would you be likely to pursue?
A2. As Director of ARPA-E, I think that I would, initially, focus on
technologies to:
a. Reduce the cost of manufacturing the needed amounts of
currently used transportation fuels (gasoline, diesel, aircraft
fuel, etc.) from U.S. alternative energy sources vs. petroleum.
b. Build fission reactors with radioactive waste products
whose lifetime is measured in hundreds of years vs. the many
thousands of years in our current reactor waste, which makes
safe disposal an impossible engineering problem.
c. Accelerate work going on in increasing the efficiency of
cheap, newer, plastic solar cells for direct conversion of
solar power to electricity.
Q3. To your knowledge, is the current organizational structure of the
Department of Energy and its various programs conducive to generating
truly transformational energy technologies?
Where is it lacking?
A3. The current organization generates an incredible array of new
technologies that could be transformational but does not have an Agency
whose charter, culture is to make ``deals'' with industry to fund the
work needed to mature the technology and invent, adapt business
practices to this new technology and where failure can occur for a
variety of reasons.
Q4. Do you believe that a DARPA-like program for energy can attract
industrial interest sufficient to bring about real change in the energy
technology sector?
What are the barriers for industrial participation?
A4. Yes, a DARPA-like program could bring about real change in the
energy business, but only if it, initially focuses on some particular
subset of the problem. The energy problem is too be too be tackled by a
DARPA like organization all at once. I suggest that the subset of fuel
for transportation, near- and far-term, could be a good starting point.
Here, technology for cost competitive, environmentally acceptable fuel
manufacturing processes using non-petroleum domestic energy sources
could be a natural area where there are many ideas but few with the
level of technology readiness that would attract industry.
Q5. To the extent that you are familiar with the energy research
conducted in the Department of Defense, do you see potential linkages
between any current research activities at DARPA and the research that
would be conducted through ARPA-E?
A5. I think that a major linkage between DARPA and ARPA-E could be the
discovery, invention and development of technologies to allow for cost
competitive manufacturing of current transportation fuels from domestic
sources, which is, currently, very important to the military and the
Nation as a whole.
A joint program office could be staffed and funded by both
agencies. The military services could agree to start and sustain a
prototype market for the fuel and to test emerging cost savings
technologies that resulted form the joint venture. The DOE could
provide access to willing industrial sector people who would provide
the non-petroleum energy sources, and who might eventually, create an
industry funded consortium to maintain competitiveness against foreign
fuel suppliers. This project could be very focused in space and time
and would test the ARPA-E concept.
Questions submitted by Representative Eddie Bernice Johnson
Q1. How do you feel about Mr. Gordon's legislation, H.R. 4435,
establishing an ARPA-E?
A1. The legislation proposed by Mr. Gordon is a good start but the
difference in roles, missions between ARPA-E the Labs and Academia must
be crystal clear or the result will be a turf battle for limited
resources.
Q2. What is your opinion about how an ARPA-E would be organized? Would
the director report to the head of DOE's Office of Science or directly
to the Secretary of Energy?
A2. ARPA-E does not fit into the Office of Science. Its job is to use
science to help create, demonstrate technologies and systems for the
industrial sector to implement, as I said earlier in this note. In my
opinion, ARPA-E must report to the Secretary of Energy to give it the
``top cover'' that it will need to be successful.
The culture of scientific, excellence and continuity required for a
department of science is not consistent with the entrepreneurial
culture needed to make an ARPA-E successful. As I said in my testimony:
Like DARPA, I think that ARPA-E should be the central energy
research and development organization in the DOE and should have a
clear, national purpose for its projects that differentiates it from
the laboratories and other agencies. It should have visibility and
access to the top management of the Department and not be part of an
established R&D bureaucracy.
Like DARPA, I think that it should have a mandate to create,
demonstrate and transition high risk, high return technologies to
maintain U.S. technological superiority in energy.
Like DARPA, I think that it should be funding agency, with very
little infrastructure, a flat organization and a small, very competent,
entrepreneurial, technical staff. Budget and program control should
rest with the Director and the program manager and the agency should
enforce constant turnover of both programs and staff.
Like DARPA, it should have both the special authorities and the
resources needed to exercise these authorities. For example, while
flexible contracting and hiring authorities are necessary, implementing
these authorities requires dedicated, in house, resources.
Unlike DARPA, however, ARPA-E will be in the energy business, not
the defense business. I do not think that it should be a strict clone
of a defense agency.
Instead, I think that ARPA-E should receive the funding,
flexibility, leadership authorities and, most importantly, the time
necessary to let it become the change agent for the DOE.
Answers to Post-Hearing Questions
Responses by Catherine Cotell, Vice President for Strategy, University
and Early Stage Investment, In-Q-Tel
Questions submitted by Chairman Sherwood L. Boehlert
Q1. Does In-Q-Tel support any technologies that are primarily energy
technologies? If so, what are they and why are they useful to the
intelligence community?
A1. Yes, In-Q-Tel has made investments in energy-related technologies.
Many of In-Q-Tel's energy investments are motivated by an Intelligence
Community partner problem set which has expressed a need for mobile
power sources. Consumer electronics (cell phones and laptops, for
example) are driving the development for the mass market of high
energy, lightweight, small form factor, reliable power sources that do
not require frequent recharging. In-Q-Tel supports the Intelligence
Community's exposure to emerging commercial energy technology
breakthroughs via its investments in companies aiming at the large
consumer electronics market.
Examples of In-Q-Tel's investments in the energy sector include:
Electro-Energy, Inc., Danbury, CT, with manufacturing
facilities in Colorado Springs, CO (now publicly traded)--
markets a novel, bipolar rechargeable battery design offering
high energy density and high power density.
Nextreme Thermal Solutions, Research Triangle Park,
NC--develops and manufactures embedded thermoelectric
components utilizing novel super lattice nanotechnology to
operate as a power generator for converting heat to
electricity.
Qynergy, Albuquerque, NM--is a portable power
solutions company, focusing on integrated hybrids of
radioisotope-fueled energy cells, photo-voltaics, energy-
harvesting systems and advanced lithium batteries.
Skybuilt Power, Arlington, VA--sells a Mobile Power
Station for rapid deployment of solar, wind, micro-hydro, and
fuel-based power.
In addition to these companies in our portfolio, In-Q-Tel is
actively evaluating other investment opportunities in the energy sector
including companies offering technology products in the areas of fuel
cells, active and passive solar energy, energy harvesting from non-
traditional sources, and novel materials for power applications.
Q2. Is the venture capital market becoming more interested in energy
technologies? Do you have a sense of whether the lack of venture
capital is a significant barrier to commercializing new energy
technologies? What indicators would one consult to determine that?
A2. The Venture Capital (VC) market certainly appears to be showing an
increased interest in alternative energy. According to Clean Edge, a
Portland, Oregon-based research firm and Nth Power, an energy tech
venture firm based in San Francisco, U.S.-based venture capital firms
invested $917 million in energy technologies in 2005, a 28 percent
increase over 2004. This $917 million represented only 4.7 percent of
all VC investments last year, but considering that six years ago, only
one percent of all VC dollars were invested in energy technology, as
observed by the past president of the National Venture Capital
Association, Mark Heeson, VC investment in clean energy has gone from
``a drop in the bucket, to a trickle in the bucket.''
The availability of venture capital can be linked to innovation in
almost any sector, including energy. Increasing the availability of
capital to small firms focused on commercializing energy technologies,
whether the capital comes from venture or government sources, would
likely enhance innovation in the energy sector. From a venture
perspective, the barriers to investment in alternatives to fossil fuels
include the large size of the investments required relative to
investment opportunities in other sectors, the long lead time to
adoption, and the ready availability of inexpensive alternatives to
many of the technologies.
Q3. What would be the key factors in making an energy version of In-Q-
Tel a success? How could such an organization decide what to invest in
since the criterion would presumably not be how useful a particular
technology would be to the government? Are there any dangers in making
the government a venture capitalist in what is essentially a civilian,
commercial market in which the government's needs are not particularly
different from anyone else's?
A3. A fundamental goal of In-Q-Tel is to accelerate the rate at which
the CIA and the Intelligence Community can utilize emerging
technologies in the interests of national security. In-Q-Tel's
investment decisions are driven by the impact the technology will have
on CIA and Intelligence Community performance and operations. In-Q-Tel
uniquely uses the venture capital model to achieve this goal. As a
strategic venture capital firm operating on behalf of the CIA and the
Intelligence Community, In-Q-Tel invests in technologies that ordinary
procurement processes would likely never discover. Moreover, even if
they were discovered, government procurement processes would likely be
so cumbersome as to discourage the small firms--who often spearhead the
development of really new technologies--from cooperating with the
government.
After more than six years of operations, In-Q-Tel has identified
several elements for success of the model for the CIA and the
Intelligence Community. These include strong support from the host
organization; a close partnership structure with a group in the host
organization tasked with assisting in problem definition and subsequent
solution transfer; a good relationship with the procurement office at
the host agency; shared expectations; a long-term financial commitment;
focus on mission impact (more than financial return); emphasis on
transferring solutions to end users and financial commitment from those
users; and the ability to function in the venture community, exercising
best business practices.
Underlying essentially all the elements for success named above is
In-Q-Tel's understanding of the needs of the CIA and the Intelligence
Community. In-Q-Tel derives that understanding from its relationship
with the In-Q-Tel Interface Center (QIC), which is housed at the CIA
and also serves as executive agent for In-Q-Tel's work with other
elements of the Intelligence Community.
As I understand the objectives for DOE funding, there is
consideration of using an In-Q-Tel model to spur the development of new
energy technologies for the commercial market, not the government
market. If that is the case, DOE's challenge will be to understand
clearly what the commercial market demands. In-Q-Tel benefits greatly
from a very close relationship with our primary customers, the CIA and
the broader Intelligence Community. For DOE to succeed, they will, in
my view, need to find means to accurately gauge future demands as well
as opportunities in the commercial energy markets. It is also worth
noting that the demands and opportunities in the energy market are
influenced significantly by policy and regulation in the field. As with
many markets, the regulatory environment may discourage, or conversely,
encourage, venture investment in the energy market.
In-Q-Tel has always positioned itself carefully with respect to its
operations as a government-funded venture capital firm in a civilian
market. In-Q-Tel's position has been that the government should not be
competing with private money--but rather, the government should be
using a small amount of government funds to take advantage of the
genius of the VC system--in a careful and thoughtful way--to benefit
unique government needs and thereby the whole nation. If DOE intends to
use the In-Q-Tel model to develop technology for the commercial market
only, not the government market, I believe some modification of In-Q-
Tel's model will be necessary to adapt it to DOE's purposes.
Questions submitted by Representative Bart Gordon
Q1. What do you consider to be the most pressing challenge we face in
energy? Will the cumulative efforts of our current federal civilian,
university and industrial R&D infrastructure give us a solution to that
challenge?
A1. There are clearly energy challenges facing our country and our
economy including decreasing reliance on foreign sources, increasing
efficiency in energy use, and broadening our set of resource options.
My testimony to the Committee addressed a means by which the
intelligence community accesses the innovations generated by our
country's civilian, university and industrial R&D infrastructure in
order to address some of the hardest challenges the Intelligence
Community faces. In-Q-Tel does not so much invent new innovations as
accelerate the rate at which the intelligence community can benefit
from existing innovations, and find new ways to use technology to solve
problems.
The current federal civilian, university, and industrial R&D
infrastructure has obviously helped American ingenuity become the envy
of the world. In-Q-Tel has assembled an agile team of technology and
business experts who comb through that infrastructure to identify and
strengthen technology solutions that can address capability needs of
the Intelligence Community.
In-Q-Tel has a broad and robust outreach policy aimed at tapping
all sources of technology. In addition to soliciting business plans via
its web site www.In-Q-Tel.org, In-Q-Tel actively scouts for
technologies and investment opportunities by capitalizing on its
technology network that includes other venture investors, university
faculty and technology commercialization offices, national and
corporate laboratory researchers and their licensing offices, and
program managers at government funding agencies.
In-Q-Tel has engaged with nearly 90 commercial companies, most of
which were previously unknown to the government, and 11 universities
and research labs, which In-Q-Tel identified through its commercial and
academic outreach programs. In-Q-Tel has received and reviewed over
5,500 business plans, and we have also cultivated a network of more
than 200 venture capital firms and 100 labs and research organizations,
further broadening Intelligence Community access to innovative
technologies.
Once having identified promising technological solutions, In-Q-Tel
uses the strength of the marketplace to deliver those capabilities to
the intelligence community. For every dollar of investment In-Q-Tel
makes, we leverage an average of $8 of private investment in bringing
technologies to the market. In our six-year history we have delivered
significant mission impact to the CIA and the broader Intelligence
Community, resulting in the application of more than 120 technology
solutions and leveraging more than one billion dollars in private
sector funding to support R&D that matches government needs.
This outreach--and the corollary of strengthened connectivity
between the many different aspects of our national research,
development, testing, evaluation, marketing, and deployment efforts--
has helped In-Q-Tel address many of the most pressing challenges faced
by the intelligence community. A similar approach directed at energy
challenges may be valuable as part of an overall integrated strategy to
address these challenges.
Q2. If you were the Director of ARPA-E what three potentially
transformational technologies would you be likely to pursue?
A2. In-Q-Tel does not purport to have the deep technical experience in
energy that the director of ARPA-E will have. In-Q-Tel does have
experience making bets on technology, however. In-Q-Tel has embraced a
portfolio strategy for delivering value to the intelligence community.
Because our government partners have critical technology needs, when we
do early stage investing, we frequently invest in multiple component
technologies that together provide a viable solution.
One of the strengths of the venture investing model is that In-Q-
Tel's own technology, market, and business assessments are validated by
the diligence conducted by its co-investors. Over the six years that
In-Q-Tel has been in operation, In-Q-Tel has developed a reputation for
conducting among the most rigorous technical due diligence in the
investment community, and In-Q-Tel has found that other investors rely
on In-Q-Tel's assessment of the soundness of technologies it examines.
In the context of your question, if ARPA-E adopted elements of In-
Q-Tel's venture investing model, the selection of research and
development projects to be undertaken by any additional Department of
Energy effort could be guided and informed by realistic insight into
potential market adoption and use.
Q3. To your knowledge, is the current organizational structure of the
Department of Energy and its various programs conducive to generating
truly transformational energy technologies? Where is it lacking?
A3. I will defer to others for the evaluation of the Department of
Energy's structure.
Q4. Do you believe that a DARPA-like program for energy can attract
industrial interest sufficient to bring about real change in the energy
technology sector? What are the barriers for industrial participation?
A4. Assuming a healthy supply of new technologies being created as a
result of basic research funding, as I noted in my written testimony,
the barriers to attracting sufficient private sector resources to bear
on bringing new technologies to the market can all be distilled down to
one factor: money in the marketplace. Companies will only take on the
task of productizing a new technology if there is a high probability
that they will make money selling the product. That statement is true
regardless of whether the customer for the product is the Government or
the wider commercial market.
So while In-Q-Tel's venture capital model is not a substitute for
fundamental research funding, we have provided significant added value
to the Intelligence Community by leveraging government and private
sector investments in research. In fact, the majority of the companies
in which In-Q-Tel has invested have their roots in fundamental research
conducted at universities and laboratories supported by NSF, DOE, ONR,
and DARPA. Moreover, before the products are delivered back to the
Government, other private investment capital in addition to In-Q-Tel's
has been invested in the companies, leveraging additional private
sector resources to deliver a better product to government.
As an investor, In-Q-Tel can influence the product development
roadmap to ensure that the commercial products will indeed meet the
Intelligence Community's needs while adding value for the commercial
customers as well. Among the advantages of commercial technology are
lower initial and long-term costs, easier integration, longer
technology lifetime, faster development, better user interfaces,
incremental upgrades, and next-generation improvements, all developed
by leveraging success in the commercial marketplace. Our success stems
from linking commercial viability and technical excellence with our
government partners' needs.
Q5. To the extent that you are familiar with the energy research
conducted in the Department of Defense, do you see potential linkages
between any current research activities at DARPA and the research that
would be conducted through ARPA-E?
A5. Speaking from the perspective of an independent but government-
funded innovation accelerator that is somewhat agnostic as to the
source of innovations we bring to bear on Intelligence Community
problems, I can best respond regarding linkages between potential
approaches instead of specific research initiatives.
As the Committee has noted, some have suggested that an ARPA-E
should be designed to foster directed basic research, and other
proponents suggest its role should be to get products into the
marketplace. In-Q-Tel was founded to address a specific and unique
challenge that is somewhat related: namely, how to provide the U.S.
Intelligence Community with access to the technology innovations being
brought to the commercial market by small, start-up companies, or other
sources of innovation such as national labs and universities, who may
not target the Government for sales. Like any other venture investor,
In-Q-Tel ``cherry picks'' technologies with high potential for
commercial success. Because In-Q-Tel is a strategic investor for the
Intelligence Community, In-Q-Tel selects from the entire range of
commercially viable technologies those that have relevance to
Intelligence Community mission. Moreover, our portfolio approach to
investment leads us to invest in multiple technologies, from varied
sources, that when linked together may form an end-to-end solution to a
problem that no single technology or source would address as
effectively. Indeed, because In-Q-Tel is not the source of the
technologies themselves, we evaluate multiple technologies from
multiple sources objectively. As an investor, of course, we look for
winners from across stovepipes and sometimes create winners by linking
technologies from difference sources.
On the development timeline from incipient idea to fully
productized, off-the-shelf commodity, In-Q-Tel typically engages
sometime after the demonstration of a working prototype. That is, In-Q-
Tel does not typically invest in early research the way that DARPA or
other government funding agencies do, but rather, takes the output of
early research and supports its development into technology products
and sustainable commercial outlets from which to buy those products. In
some cases, In-Q-Tel provides very directed ``gap funding'' to assist
in bridging the so-called ``valley of death'' between the basic
research funding and the point at which the technology opportunity is
sufficiently mature as to readily attract institutional investors or,
in the case, of DARPA, be ready for delivery under a DOD procurement or
acquisition program. As a separate, commercially informed entity that
can tap on all sources for technology solutions, In-Q-Tel has shown
value for the Intelligence Community. Elements of In-Q-Tel's operations
may contribute to solving energy challenges in a similar way.
Questions submitted by Representative Eddie Bernice Johnson
Q1. How do you feel about Mr. Gordon's legislation, H.R. 4435,
establishing an ARPA-E?
A1. I will defer to others for the evaluation of proposed legislation.
Q2. What is your opinion about how an ARPA-E would be organized? Would
the director report to the head of DOE's Office of Science or directly
to the Secretary of Energy?
A2. I will defer to others for the evaluation of proposed Dept. of
Energy structures.